Bill James' Instablog

Oil & GDP 5 Year Trend

Wed, 23 Dec 2009 21:51:05 -0500

Oil is the lifeblood of the economy:

In the 1960's Oil Supply Growth exceeded GDP growth by 2 points.
From 1970's to 2005, OSG trailed GDP by 2 points.
2005, Peak Oil, end of Oil Supply Growth, except for momentum the end of GDP growth based on Oil Supply Growth.
From 2005 the trend has been horrific. Worse if measured in foreclosures and banking system collapse.

Action: Change the lifeblood of the economy from oil to ingenuity. Radically re-tool transportation and power generation infrastructure. Repeat the 1984 success of re-tooling communications infrastructure by shifting from central planning to free markets.

Disclosure: Author is founder of JPods, Inc. a company focused on re-tooling transportation.

Job Recovery Prevented by Peak Oil

Fri, 18 Dec 2009 01:37:59 -0500

Job recovery is prevented by Peak Oil but is possible if:

Transport is re-tooled so efficiencies approaches that of long haul freight rail, 400 ton-miles per gallon.
Power generation is re-tooled so net energy exceeds 25:1 (energy produced to energy required to get the energy)

Disposable income per family can be increased by $5,000 per year if power and transport infrastructures are de-monopolized similar to how communications infrastructure was de-monopolized in 1984. Innovation is needed. Neither politicians nor bureaucrats file patents, yet they are designing and controlling innovation, or more correctly, the lack of it.

Decay of Economic Momentum:
Between 2002 and 2006 working class families in the US lost $2,000 of disposable income as the cost of energy increased:

Without disposable income, consumers cannot consume.
Without disposable income, more and more families fail to maintain their mortgages; housing values and the banking system collapsed.
Without disposable income, there are fewer and fewer customers forcing businesses to ratchet down employment.

If 1929 and 2008 are similar shocks, unemployment will continue to spiral downward:

Peak Oil is the Cause
The economic paradigm of GDP growth based on Oil Production Growth is broken.

GDP Growth and jobs growth will never again come from oil supply growth.

In 2005 oil was $45 a barrel and world production was at 74 million barrels a day. By 2008 oil was at $145 a barrel and production remained at 74 million barrels a day. Oil suppliers did not increase production to take advantage of increased price because they could not, the world reached Peak Oil, the maximum rate that oil can be extracted.

There still plenty of oil but the rate it can be extracted and new fields developed have fallen below the rate existing fields are depleting. Peak Oil is not about the amount of oil but the size of the spigot. The size of the spigot is shrinking.

Re-tooling Power Generation
Net energy is also declining. Jobs depend on a net energy of 25:1. Chris Martensen does a great job explaining net energy, these Energy Cliff graphs are from his presentation:

This quality of output versus input will add to the crisis of oil supply and price. In the following graph the Blue area identifies the total amount of oil available but the Gray area indicates the net oil energy available to power the economy.

Both solar and wind have Net Energies sufficient to create a jobs recovery. If biofuels can be improved to provide even 20:1 return on energy invested, they can be a major aid in transitioning to sustainable infrastructure. But at their current 1.1:1 or even 3:1 ratio, they just add to food prices.

Re-tooling Transportation
Most of us have ridden in an airplane, few of us purchased an airplane. We enjoyed the service without a capital penalty at a low cost to use. The same is true for ground transport in New York City where families have an extra $2,500 of disposable income because transportation is available as a service. It is practical to deploy Personal Rapid Transit (PRT or PodCars) in most cities and towns. It is practical to achieve twice the density of NYC or 70% access, resulting in an extra $5,000 per year per family of disposable income.

PRT is the solution to the 1973 Oil Embargo identified by the Congressional Office of Technology Assessment, study PB-244854. The PRT network built at Morgantown, WV has delivered 110 million injury-free passenger miles. With capital costs of $4-30 million per mile and energy required to operate a 85% less than cars/trains/buses, modern versions of PRT are being deployed around the world:

59 Swedish Cities have commited to deploying PRT networks.
POSCO has committed to building PRT in Korea.
ULTra System is being deployed at Heathrow.
Masdar, Abu Dhabi, is a zero-carbon city that will have PRT.
JPods, Inc. has come to agreements to deploy networks in China, Huntvillle, Cupertino and other US cities.

As these networks deploy, expect steel, copper, gold, silver, aluminum, plastics, wood and other commodities that can be applied to their construction to jump in price. They will create demand for solar and wind collectors that exceeds current world capacity by at least an order of magnitude.

JPods version of PRT operate at about 260 mpg and uses the distributed nature of the networks to harvest distributed energy sources. Ten times transport efficiency gains are reinforced by 25:1 power collection (Disclosure, author is the founder of JPods, Inc.).

To understand the nature of this paradigm shift five books are recommended:

The Black Swan, uncertainty and rare events.
Nothing Like It in the World, how the transcontinental railroads were built.
The Tipping Point, how things cascade.
Outliers, who makes things cascade.
The Wisdom of Crowds, why free markets and democracies work.

Disclosure: Author is the founder of JPods, Inc.

Kunming China Adopts JPods Transportation Paradigm Shift

Sat, 03 Oct 2009 04:44:49 -0400

A tipping point was passed the last week in September 2009. The following documents the events and recommendations on how to profit from this paradigm shift.

On Monday, agreements were affirmed to deploy solar-powered transportation networks at the Space and Rocket Center in Huntsville, AL.

On Wednesday an agreement was signed in Kunming, China. This is the first city in the world to commit to deploying solar-powered transportation networks. It is a city of about 6 million people in south-central China.

The technology is referred to as Personal Rapid Transit although it moves people, cargo, trash and other materials approaching the efficiency of long-haul freight. In response to the 1973 Oil Embargo, the Congressional Office of Technology Assessment in study PB-22854, identified this technology as the solution to foreign oil. The network built in Morgantown WV has since delivered 110 million injury-free passenger miles. Morgantown PRT's only failures have been the vehicles were too large and very few people know of its stunning success.

JPods networks are smaller, lighter and much less expensive than Morgantown's. The result is a radical reduction in power required and the ability to convert about 85 cents of every dollar spent on oil to jobs and materials to build networks and profits. Cars operate at about 1,033 watt-hours per passenger mile, trains at 900 and busesat 1,246 . JPods networks operate at about 127 watt-hours per passenger mile. This 85% reducing in energy requirements matched with unstable energy prices is what I believe has finally allowed JPods to gain commitments to build networks.

Similar to long-haul freight's 400 ton-miles per gallon of fuel, JPods vehicles move non-stop from origin to destination carrying 1200 pound payloads in 350 pound vehicles. Remove the parasitic mass, remove the repeated start-stops and energy costs drop by about 10x, 10 times current efficiency. A 10x performance jump or cost reduction seem essential to paradigm shifts such as with the Personal Computer in the early 1980's, the Internet/cell nets in the late 1980's and even railroads in the 1860's.

Size of the market:
The International Energy Agency (US is a treaty signatory) and Congress have estimated the cost to sustain the oil-powered transportation infrastructure through 2020 at $27-57 trillion. The cost to build 1.4 million miles of solar-powered transportation networks that can displace about 70% of oil-powered urban transport in the US is about $11 trillion. The world market is an additional $40-60 trillion.

Investment Opportunities:
Disclosure: The author is the founder of JPods, Inc. I am completely invested in JPods and this industry so please take that into consideration.

Most attempts at innovation fail. Investing in positive Black Swans is risky, the cemetary is full of silent evidence. But Seeking Alpha is an investment site so I will give you my best guess where profits are likely if JPods profitable completes the above agreements:

+ Investment in bonds that finance construction and operation of these networks. Transportation is the circulatory system for an economy. Cutting costs by 85% will create stable returns in an unstable economy just as the railroads did at the 1800's..
+ Investment in JPods' publicly traded allies of Club Car (Ingersoll Rand) and Novelis (Hindalco). Someday, JPods and its competitors may provide direct public investment opportunities. Ultra and Vectus have networks coming on line.
+ Investment in mining companies and manufacturers of steel, aluminum, copper, plastics and wood products that can be used to build the rails and supports. There will be shortages of all these commodities based on the size of networks in the above agreements.
+ Investment in communication and electronic equipment manufacturers as mass and oil are displaced by electronics.
+ Investment in oil, coal and nuke power. It will take a lot of energy to re-tool. We past Peak Oil in 2005, as JPods networks deploy, they will compensate for depleting oil availability not create excess oil capacity.
+ Investment in solar manufacturers. Applying solar collection to transportation changes the payback from 7-15 years to 1-3 years. Demand will far out pace manufacturing capacity for several years.
+ Investment in currencies of countries that embrace this paradigm shift most quickly. The Silicon Valley boomed because it was a first mover creating jobs and wealth from the de-monopolizing AT&T. De-monopolized centrally planned transportation, shifting to managed by performance standards, will repeat the model of the Internet. Economies will be strengthen as transportation costs are slashed and jobs are created to manufacture and build the infrastructure. Materials and talent will be in short supply, so countries acting first will gain more, faster.
- Investment in automobiles for four reasons.
- Current car fleets will out last gasoline costing less than $8 a gallon (Peak Oil).
- JPods provide personal on-demand mobility without personal debt.
- About 70% of cars cannot compete with the better service, convenience, speed and safety of JPods vehicles. JPods will increase disposable income by $2,000 to $5,000 per family per year by slashing costs associated with automobiles:
  - AAA estimates car accidents cost each per $1,051 per year.
  - AAA estimates that car congestion costs each person $434 per year.
  - Gasoline costs increased from $2,000 to $4,000 between 2000 and 2006 for working class families.
- Electric cars move a ton to move a person in start-stop traffic the same as gas cars. There is no carbon, energy, congestion or safety savings.

Healthcare by Taxable Hours Worked

Sun, 23 Aug 2009 02:53:22 -0400

Scarce resources cannot be equally distributed. So what is fair?

Methods of distributing scarce resources:

Triage, the medical term for assigning resources to needs based on who can most likely be saved.
Cash is how scarce resources are allowcated based on money.
Influence trumps everything and explains why Congressmen and the President have medical access unequalled by any citizen of America.

Health at every level of society is important and needed. So how do we fairly allocate scarce medical resources?

My best guess is to separate discussions about health choices, health and medical.

Health choices are personal. What we eat, what we smoke, how we exercise, are choices. My sense is we should allocate some resources based on these choices. I am not willing to contribute to those who intentionally make bad choices.

Health is the hand we are dealt. I am willing to contribute to general insurance plans that mitigate the hardships to those dealt a bad hand.

Influence. Everyone should have some influence. Everyone needs to be valued and listened to. This is the whole "death panels." There was never proposed a panel that say, "Sorry, you must die." Far worse, there will be bureaucrats telling you "You are next on our list" as that list expands between next and you. This why seniors are so angry at town hall meetings, they recognize this slight of hand.

Health is not the same a health insurance. Here are some thoughts if I could design an national insurance program:

Access to health insurance based on passing a PT test.
Access to health insurance based on meeting a combination of cash and lifestyle choices. So if someone cannot pass a PT test, yet exercises appropriately and makes other lifestyle choices can still qualify.
Access based on taxable hours worked. Stay-at-home spouses should get credit for thier working spouse's hours. Society needs future workers and workers regardless of pay. Everyone's labor should provide equal access to medical services.
Access based of paying cash. Someone has to pay for the system.
Universal military service for 5 months that grants everyone with an honorable discharge a $60,000 on-demand account that can be used in any way the user demands.
Limitation on legal judgments for two reasons:
- To improve, we needs to talk about and deal with our mistakes. Current legal practices in the US requires medical institutions bury instead of learning from their mistakes.
- To loved ones, no one’s life is worth more than another’s. If you are rich, you should not be able to punish someone more. If a medical person intentionally harms someone, then they should be in jail not just pay a fine.

Decrease Debt, Oil and Borrowing

Fri, 14 Aug 2009 07:11:33 -0400

The cause of Global Warming and Peak Oil is our current infrastructure that mandates about 1,000 watt-hours per passenger mile (cars = 1033, buses = 1246, trains =900). More of what is failing will fail.

Infrastructure that mandates oil as the lifeblood of our economy is forcing economic failure via debt. The cost of economic work performed is greater than the value. We covered this for a time by borrowing from nature, domestic oil reserves. Since the mid-1970's foreign borrow of oil and debt have resulted in what T. Boone Pickens describes as the "greatest transfer of wealth in human history."

JPods and other PRT networks we can accomplish the same economic work of moving goods and people in cities using 7-15% of the energy, a 10x paradigm shift. JPods are efficient enough that solar collectors 6-foot wide mounted over the tops of the rails gathers 5,000 to 12,000 vehicle-miles of power per mile of rail per typical day. Instead of building large solar arrays in remote deserts, we can collect enough energy were we use it to power transportation. The distributed nature of the transportation network is ideal for collecting natural energy sources to drive it. (Disclouse note, the author is the founder of JPods LLC).

It looks likely that the funding for the first 4 networks will be available within 6 weeks and within 16 weeks you will see a simplified transportation energy supply chain.

Public trading in the PRT industry is likely to be available within 6 months. Currently PRT companies are privately financed. The only public investments are indirect with Vectus funded by POSCO, ATS funded by British Airport Authority.

GM's 230 mpg, Another Green Washing

Thu, 13 Aug 2009 10:29:00 -0400

Critical path to problem solving requires facing the facts. We face three civilization killers, two (Peak Oil and Global Warming) can be solve by engineering.

Civilization killers are just that, a 80-90% die-off. Serious enough to really pay attention:

Population overshoot: god and human nature will have to solve this one.
Peak Oil: Can be solved with a 10x improvement in efficiency, creating about 5 million jobs paid for by oil savings. This requires changing the lifeblood of our economy from oil to ingenuity:
- Per capital energy peaked in 1979. Since life requires energy, this is significant.
- Oil extraction quality dropped from extracting 100 barrels for every one consumed in 1930 to new oil fields consuming one barrel for every three extracted.
- Economic growth depends on energy growth or efficiency growth. Oil extraction stopped growing in 2005. Efficiency has improved slightly as consumers slash spending/activity and the economy shrinks.
- Economic survival depends on energy stability or efficiency growth, oil extraction began its relentless decline in 2008. Efficiency is what the rest of this blog is about.
Global Warming: Can be solved by re-tooling power generation and transportation infrastructure to approach railroad efficiency (CSX achieves 423 ton-miles per gallon). There is a century of pent-up innovation that labor can apply if the government monopoly of infrastructure design changes to management by performance standards:
- If you have a really big well, you can pee in it with relatively little consequence. If 6 billion people pee in the well and the water starts tasting bad, it might be wise to be conservative.
- If not 100% confident of the consequences, we can and should engineer waste treatment to secure life's fundamental requirements of clean air, clean water, sustainable energy and balance. Currently, I believe, we are failing in the all of these Big 4.

Labor
Labor is the ultimate currency; the economic work laborers produce is the ultimate value that measures an economy. Perhaps this is a simplistic view, but as a bee keeper, farmer, infrantryman and entrepreneur, I learned that simplicity is the path I can manage towards achievement. Labor is tied to available energy, the ability to apply time to accomplish economic work.

Debt
Is a claim on labor. Borrowing money we that cannot, with confidence, pay back in 30 years, enslaves our children or is preditorial on our creditors. Since we have not paid back debt accumulated in the last 30 years and are accumulating $1.8 billion in additional debt in 2009, it looks like we are unkind on both accounts.

Which brings us to the title of this blog, deceit and energy fundamentals. National debt is tied directly to available energy or the ability to apply labor to create economic work and value.

Deceit
Government transit authorities often advertise "take the buse because it is green." Yet, according to DOE's data buses use 25% more energy per passenger mile than cars; 1,242 watt-hours per passenger-miles (whppm) versus cars at 1,033 whppm. Buses accomplish the economic work at a fraction of the quality or cars traveling at 8-12 mph versus cars at 24 mph.

GM, now owned by the government, is expanding this deceit by claiming it can achieve 230 miles per gallon while not counting the electricity it will use. Batteries are not charged by fairy dust but by coal and natural gas power plants. BTW, studies indicate that electric cars have twice the carbon foot-print of modern deisel cars.

Electric cars do not improve the energy use, do not solve congestion, do not solve accidents, do not create American jobs. Electric cars do require consumers to increase their debt if they buy one.

Conclusion
Power generation and transportation infrastructure can be re-tooled just as communications infrastructure was re-tooled by de-monopolizing that sector. Mobilizing to fight World War I infrastructure management was monopolized under government bureaucracies that locked in the great innovations at their founding of Ford, Edison, Bell and the Wright Brothers. For a century innovation has been siffled.

De-monopolizing AT&T in 1984 exposed Bell's analog networks to competion. Much of the economic boom of the past 25 years is attributable to labor being applied to re-tool from analog to digital to wireless communications infrastructure.

T. Boone Pickens is calling for the de-monopolization of the power distributiion grid. I briefed Senator Obama's staff in July 2008 that shifting from government management of infrastructure design to management by performance standards (communication infrastructure practice since 1984) will result in the creation of millions of jobs paid for in oil savings as a century of pent-up innovation is applied to re-tool transportation and power infrastructure.

Disclosure: Author is the founder of JPods LLC, a Personal Rapid Transit company attempting to displace the highway networks in cities with solar-powered ultra-light rail networks.