Bill James

Deep value, special situations, solar-powered mobility
Bill James
Deep value, special situations, Solar-powered mobility
Contributor since: 2008
Company: JPods, Inc.
I like the analysis, but you have the wrong network. As the analog telephone network was displaced by the digital, urban highways will be displaced by JPods (and other) PRT networks. I will use JPods because I know the numbers.
It takes a 10x advantage to drive a paradigm shift. In highly repetitive urban traffic, JPods has 3 different 10x advantages:
1. No congestion and no accidents (Ref: http://bit.ly/1Kp6eOO).
2. Energy costs per vehicle mile cars are about 56 cents per vehicle-mile according to the IRS, JPods are 4 cents. (32.6 passenger-miles per gallon for cars, 264 passenger-miles per gallon for JPods). Ref: http://bit.ly/1Kp6g9v
3. Energy stability. It normally requires 40 to 200 years to retool a major infrastructure. US Peak Oil was in 1970. Prices increased on average 7.3% since 1970. Oil-wars have been required since 1990. Life requires energy. Oil is finite. Life powered by oil is terminal. http://bit.ly/1Kp6eOQ
By contrast, solar-collectors over JPods rails gather 5 mega-watt hours per mile per day, or about 40,000 vehicle-miles of power. 40,000 vehicle-miles of power. We will have the normal thermodynamic losses in use and storage, but the energy supply will not be subject to depletion any time in the next several millennia. http://bit.ly/1Kp6eOR
The barrier to building the Physical Internet® is identical to the barrier to building the Internet (created in 1969) and cell networks (1946), unconstitutional Federal monopoly. (Ref: http://bit.ly/1Kp6g9x)
My guess is JPods will break that monopoly and start building in 2016 (Ref: http://bit.ly/1Kp6g9z).
Salmo trutta, there are two poles so long as oil is cheap and only if you think there will be world peace, debt will continue grow without collapse, and money printed without consequences.
$4 gas by May is a guess, but fragility is very great. I hope I am wrong.
Ref: "the world is awash in crude oil"
There is one huge condition on this being true, that we have world peace. The oil companies are likely the best run companies in human history at "just-in-time" delivery. The current 30.7 days supply (EIA) is well above the 5-year average of about 24 days. What is extremely fragile is that is takes about 21 days of supply to fill pipelines, trucks, refineries, etc....
We have a 365-day food cycle being energy supplied with only 10-days spare operational inventory. Any war or debt crisis, such as Sept 2008, can crack the long and fragile oil supply chain.
Great article. The Fundamentals section is excellent and I like the "factory" analogy towards fracking.
I have a wild guess I would like your opinion on. If frackers see the price of oil rising reliably, will they slow their output to get a better price so long as they cover the financial obligations?
There would be no need to tax foreign oil if the cost to defend access to it were capitalized into the price of foreign oil. Capitalism would cause use to end our dependence on foreign oil. But the cost of oil-wars have been socialized into national debt instead of capitalized into gasoline prices.
Taxes will make less of something. Foreign oil is going to end. It is better that American end that dependence by intent than by a debt collapse.
Hi Mark_A, if the the 474,000 barrel per day drop in US oil production since July 2015 continues for 200 days the "glut" inventory will be depleted and the price of oil will rise rapidly.
Here is a summary:
http://seekingalpha.co...
My guess is that as oil prices start to steadily rise, pumping rates may decrease based on the expectation of depleting a resource slower and selling more of the product at higher prices.
I like your understanding of this issue.
Good comments. The Saudi's will keep pumping. Iran will make a difference. Slower growth as indicated by the Job Report and China may impact inventory reductions. But my guess is the 474,000 barrel per day reduction in production will continue for several months. If this holds true, US prices will increase as inventories approach the 5-year average.
If people can afford to shutter them, I think they will delay pumping until oil is stable in the $90+ range; but this is just a guess based on how I would act. Once the price reaches $90 a barrel, the momentum of inventory depletions could carry inventories below the 5-year average price.
The typical 23 days of supply of the 5-year average is an accounting number. About 19 days of supply are needed to fill pipelines, trucks, ships, refineries, etc.... So there is only about 4 days of operational spare capacity on a normal basis (current inventories are at 28.3 days supply). On a normal basis people drive with their gas tanks about half full. When they start to see gas lines, they tend to fill their tanks, sucking 1.5 days supply out of the inventories. This occurred in the fall of 2008, here is an article from July 2008, http://seekingalpha.co...
I am sorry Carl but Peak Oil was in 1970. Here is the US Government Crude Oil Production Chart. You can see Peak Oil was in 1970.
http://1.usa.gov/13aGneY
Very high oil prices and near zero interest rates (economic issues) caused some people to be attracted to seeking returns from fracking oil. The current spike is that combination of economics and geology. It is still questionable if the bond holders will be hurt.
http://for.tn/1ArKMDF
Thanks Ben. I agree that the world production capacity adds upward pressure on oil prices. The Net Energy is also adding great upward price pressure.
My personal opinion is that EIA's forecasting based on geological risks is the least risky aspect. Political and economic risk factors far exceed the slow pace of geological risk. This is what makes the July Peak Fracking so critical. EIA forecast that this would not occur for another few years. If it has occurred, my guess is political instabilities will be amplified.
I have no foundation for these guesses. One, fracking will collapse very fast as diesel prices rise and add costs to transporting the oil. The Net Energy is so poor. Two, capital will not continue to invest if we have passed Peak Fracking.
Carl: Relative to "Production will go up again, as soon as the price does, and continue to break records for many more years or decades."
Logistics takes time and effort. It is not easy to align all the needed resources.
Peak Oil is an economic/geological event. Vast oil fields will remain untapped if there is no return from drilling them. The best parts of the tight oil formations have been tapped. Some remaining very good wells might be found, but in general, the most profitable locations are tapped first.
My best guess is something will break in the economy as gasoline goes over $4 a gallon. Last time it was foreclosures. We will like see with 36 months what is at risk this time.
You are correct Carl. I had intended for it to be well, not field. I have submitted an edit change. The shale fields are vast and deplete only as wells are drilled.
Do you have better sources that show a traditional rate of decline for fracked wells? There are several sources that confirm the approximate 68% rate of depletion in the first year.
An action I think all American can agree on is a $30 a barrel tax on foreign oil increased every Memorial Day. American soldiers sacrificed to give the nation time to get off foreign oil for the last 25 years. The nation needs to honor that sacrifice by actually getting off foreign oil, a 45% cut in oil use. Here is a paper on this: http://tinyurl.com/q59...
Recommend reading http://tinyurl.com/po7...
You can also look up comments by the CEO of Chevron.
It is a guess at what the national average will be. The future is hard to know, but the momentum is obvious. If that momentum continues, and there is world peace, the 45 year history of ratcheting higher gasoline prices seems likely to continue. War or political instability in several places in the world can send oil prices radically higher at any moment.
I am sure frackers will try. But logistics have mass, momentum, and a tail. It takes time, effort, and capital to drill more wells. Fracked wells deplete at 68% the first year, so the current wells seem unlikely compensate as fast as inventories drop.
Natural gas transportation is important. More important is to restore transportation infrastructure to free markets. The Federal highway monopoly, like the Federal communications infrastructure monopoly from 1918 to 1982 is hostile to efficiency. The Federal monopoly removed efficiency as a market force:
- thousands of miles for freight rails were lost, average 480 ton-miles per gallon.
- we know move a ton (or 3) to move a person. Ultra-light cars could easily exceed 70 mpg.
The Constitution limits Federal involvement in highways and infrastructure to "post Roads" specifically to preempt the current transportation monopoly. Sept 14, 1787 Ben Franklin proposed at the Convention the Federal government fund highways and canals. Madison recommended a power over infrastructure. George Mason reminded delegates of the crown transportation monopoly. Franklin's proposal was defeated 8 states to 3. Subsequently, Madison vetoed a transportation funding bill on Mar 3, 1817 noting:
"Having considered the bill this day presented to me entitled 'An act to set apart and pledge certain funds for internal improvements,' and which sets apart and pledges funds 'for constructing roads and canals, and improving the navigation of water courses' . . . I am constrained by the insuperable difficulty I feel in reconciling the bill with the Constitution of the United States to return it with that objection to the House of Representatives. The legislative powers vested in Congress are specified and enumerated in the eighth section of the first article of the Constitution, and it does not appear that the power proposed to be exercised by the bill is among the enumerated powers."
America current depends on oil imports for 50% of the lifeblood of our economy. Oil-wars have been required since 1990. Petro-dollars fund Al Qaeda. More oil wars are coming.
Investments in domestic energy sources of all types will be valuable. The risk is they will be nationalized.
I believe the rare earth demand is about to jump radically higher. JPods is close to agreements in India, China and the US. Hyperloop was recently announced by Elon Musk. ET3 continues to make progress.
These are all versions of Personal Rapid Transit (PRT or PodCars). These technologies essentially bring freight rail efficiencies (480 ton-miles per gallon) to moving people and cargo in and between cities. PodCar networks are a physical version of the Internet, a cross between roller coaster technology and computer networks that create tiny railroads or horizontal-elevators.
There are about 140,000 miles of freight railroads in the US that will be the logistical arteries as oil costs ratchet higher. There are about 2 million lane miles of urban roads that the oil to power has increased 494% since 1998. There is a need for about 500,000 miles of PodCar networks. The demand of electric motors is going to jump.
The oversupply of solar panel problem is about to be reversed. My guess the first solar-powered transportation networks will start being deployed by Oct 2013. Here are severa' videos summarizing the business case and illustrating what solar-powered transportation networks will look like:
High Speed ET3 and JPods, 50 seconds:
http://bit.ly/18scZk1
ET3 summary:
http://bit.ly/18scZk5
JPods, business case:
http://bit.ly/18scZk6
Solar-powered transport deployment:
http://bit.ly/18scZka
Great article. A short term trigger to the "black swan" event may be an Israel-Iran war. War will disrupt oil markets and might result in collateral damage to oil infrastructures across the Middle East and sabotage in the US. War might force foreign oil purchases to be made in gold rather than of printed money; a 50% loss of oil energy to the US.
The economy is an artifact of energy applied by labor. Life requires energy.
Energy and energy efficiency investments will seem most likely to endure. Warren Buffett gave this as his reason for buying BNI railroad, "the 470 ton-mile per gallon efficiency."
Life requires energy. Less affordable energy, less life.
The economy economic momentum, an artifact of how labor applies energy to generate economic work. QE causes commodity prices to rise, energy becomes more expensive, less available to produce economic work.
http://bit.ly/ZkxD2c
Eric, please consider adding that it QE will force unemployment much higher. Unemployment is highly correlated to gasoline prices 2 years earlier. Less affordable energy, less life. QE increases the prices of commodities, of energy.
Life requires energy, the economy is an artifact, the economic momentum, of applying energy in generating economic work. Spending printed money adds to GDP but decreases Disposable Energy, peoples' disposable incomes' ability to buy energy, the amount of economic work being applied to generate momentum.
http://bit.ly/ZkxD2c
Thanks for the detailed article Richard. Is there any source of information on the Net Energy from these sources? My guess is Israel and Iran will go to war within the year. When that happens, the cost of fuel will likely jump significantly. If diesel costs double, what would the price per barrel have to go to?
If you are watching the TWIP reports, you can see that inventories started to build faster than inventories were depleting. My guess is Sandy will suppress demand and inventories will build further.
My guess is temporarily, gas prices will continue to decline. The margin of safety for gasoline and oil inventories is only about 2-4 days supply, or about 1%.
The solar industry is failing because solar companies and investors fail to understand who their "Crossing the Chasm" customers is.
JPods (http://bit.ly/H3jjf2) will be deploying a megawatt per mile of solar over our transportation networks. The Net Energy of solar is 20:1 as compared to Net Energy from new oil fields of 3:1. There is a 6x advantage of using solar to power transportation.
Freight railroads average 480 ton-miles per gallon. JPods are ultra-light, computer networked, robotic railroads (PRT or PodCars) that cut the costs by 10x in cities. Cost are cut from 56 cents a mile for cars to 6 cents a mile.
PRT networks are the Crossing the Chasm customers for the solar industry. The PRT Network built in Morgantown, WV has delivered 110 million oil-free, injury-free passenger-miles since being deployed as a solution to the 1973 Oil Embargo. (http://tinyurl.com/97c...).
Excellent information and insights on financing solar.
John. The reason CPI and unemployment became "unhinged" was that food and energy was removed from core CPI in about 2000.
John this is great. Look up the Metric Disposable Energy, disposable incomes ability to buy energy. Life requires energy, less affordable energy, less life.
Disposable Energy should replace GDP. It measures the amount of economic work being applied to the Economic Flywheel. The more work being applied, the more momentum the flywheel has. The less affordable energy is, the less work being applied, economic momentum decays.
GDP increases at the moment government spending adds to funds to buy energy. As those debts must be serviced, the drag of economic momentum occurs in a later GDP snapshot.
This is a great piece. Thanks
GDP
Ryan
You are correct about "More money that goes into the gasoline tank implies less money for all other purchases ... including mortgages."
Life requires energy. Net Energy is equivalent to "take home pay."
As you note, there is lots of oil. The Net Energy of that oil sucks, sorry it is a technical term for "really bad experience."
Americans are accustomed to a free market where we pay vendors a profit to provide us resources so we can focus our talents to receive a profit by servicing our customers. Profit for care, implies a responsibility to care.
Customers deserve to be warned in 1998 that the $1.03 they were paying for gasoline would not be available in the future.
Customers deserved to be warned that gasoline might not be available even at $4.00 a gallon. There is lots of oil, the Net Energy of unconventional oil sucks (a technical term).
Hi Ryan
Storage and refining on both coasts is extraordinarily limited. The fragility in both markets is incredible.
Thanks for the storage link.
I am pretty sure PRT networks will rival the railroads of 1860-1910 and the Internet/cell nets of 1984-2010 in changing infrastructure. There are 140,000 miles of freight rail that averages 480 ton-miles per gallon. PRT networks can approach and some exceed that efficiency. About 500,000 miles of PRT are needed, or about $5 trillion. The 90% cost reduction per vehicle-mile pays for the infrastructure.
Hi Ross
I believe you are correct. Life requires energy, less affordable energy, less life. But energy is the last thing people stop paying for. So as gas prices increase, eventually something else in the economy breaks.
As gas prices increased from $1.03 in 1998 to $3.30 in 2008, families lost about $2,000 of disposable income. As more and more families chose between paying for their commutes (keep their jobs) and paying their mortgages, foreclosures collapsed the banking systems.
My guess is gas prices will climb until something breaks. But the value of energy assets will break less than other aspects of the economy. Life requires energy.
Until the "Run with the Red Queen" proves itself incorrect, we should not bet the survival of the US economy of sustainable oil for fracking.