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Vinod Dar
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I am the managing director of Dar&Company in Bethesda, MD. We provide business advice and corporate governance coaching to presidents, CEOs, and chairmen of energy and utility companies. Our clients have ranged from the largest utility holding, energy finance and energy technology companies... More
  • Will The Wolfcamp Shale Play Rival The Eagle Ford For Liquids Production?

    Texas independents keep gestating low permeability oil and gas plays, with superior economics, at an impressive rate.  The Eagle Ford and the Granite Wash may no longer be the singular cases   that people outside the Texas oil and gas fraternity have maintained, in trying to diminish the strategic importance of such shale, tight gas and similar low permeability , large resource, plays not just for the  US E&P business but for global oil and gas production.


    The more technologically and operationally challenging an oil and gas resource, the more abundant and geographically dispersed it seems to be based on evidence so far from many countries and basins. In Texas, Louisiana, Arkansas, New Mexico, Oklahoma, Pennsylvania, Michigan at least (and even in parts of Southern California and Europe)) the old is new again; mature provinces are frontier plays.


     As the Eagle Ford is like a sash across the breast of Texas from Louisiana to Mexico, so the emerging Wolfcamp is like a medallion across West Texas (over 30 counties) and Lea and Eddy counties across the state line in New Mexico. The Wolfcamp is an oil and gas zone(a gassy shale with high liquids ) directly below the Spraberry Trend, a very significant oil field with rapidly growing production and drilling activity. Some people call the Wolfcamp the Wolfberry Trend; others say it is the Wolfcamp Oil Shale so they can liken it to the Bakken. To the west of the Wolfcamp (and above it) is the now very popular Bone Spring Shale which is seeing weekly increases in investment, drilling and production from 3 oil producing zones ( includes the Avalon/Leonard which has attracted some of the largest independent E&P companies).


    The Wolfcamp, so far, has been identified at depths of 5,000 to 15, 000 feet, with embedded limestones that can be 2,500 feet thick. Approach Resources, a small independent drilling in the Wolfcamp, calls it a source rock that is “world class” and says it has mineral composition and lithology similar to the Eagle Ford.  Pioneer Natural Resources, the largest acreage holder and producer in the Spraberry plans to drill horizontally in the Wolfcamp, which the company says is widely found across the company’s acreage (Concho and Endeavor are two other significant Spraberry producers).


    El Paso Exploration and Production Company, with 170,000 net acres in the Eagle Ford has acquired 135,000 net acres in the Wolfcamp, to which it will apply the experience and knowledge gained from its  Eagle Ford and Haynesville shale businesses. The company claims 600 Upper Wolfcamp potential drilling locations. In comparing the Wolfcamp with the Eagle Ford El Paso finds well over twice the net thickness and twice the carbon content in the former..  This carbon content is about 60% of the impressive Bakken but the thickness is multiples that of the Bakken.


    LINN Energy, an MLP which focuses on long lived oil and gas assets, has identified 400 low risk locations in the Permian Wolfberry (it is not clear if this means the Wolfcamp  proper or some combination of the Spraberry and Wolfcamp).


    Chesapeake Energy which already has experience in the Eagle Ford, Bone Spring and the Avalon/Leonard is also active in the Wolfcamp and reports a prolific producing well there. Devon Energy is aiming at the Wolfberry together with the Bone Spring and Avalon/Leonard.


    The Wolfcamp is readily accessible to several small, medium and large independents, given its proximity to The Eagle Ford, Granite Wash, Bone Spring and relationship to the Spraberry.  If early 2011 drilling results are as good as the industry expects, it will be well populated by companies that have the resources, relevant knowledge and field service relationships to go from discovery to development very quickly.


    These days the time line from discovering a promising liquids rich shale play to commercial production has become astonishingly compressed. Independents know that first entry to accumulate a low cost position, rapid response to the specific characteristics of the play, and continual technological innovation are their competitive advantages.  Where the pioneering independent goes today, the very large independents will quickly follow and then, with their tremendous talent, engineering, service company and capital resources the mini majors and majors will arrive. Foreign E&P capital will also be eager to participate to capture both experience and returns. From emergent to core in two years is the new model.


    In the past 24 months there has been a tangible acceleration in the discovery and rapid development of shale and tight sands plays in North America, especially plays that have extensive liquids windows. In 2011 this most positive tend shows no signs of abating.

    US liquids production is now very likely to be higher over the next 5 years than it was over the past 5 years, especially when deepwater drilling regains momentum, perhaps in two to three years. The US is again a frontier E&P opportunity and reality.




    Jan 25 7:08 AM | Link | Comment!
  • Will The Bakken Be As Inspirational As The Barnett?

    The Barnett shale play has not only inspired one of the fastest growing energy industries ever created in North America but is on the verge of propelling a multinational industry.

    By the end of this decade a small industry that started in an obscure basin in Texas and was dismissed by Government and Big Oil alike will likely be multicontinental in scope and strategically impressive in scale. Independents saw what Government is incapable of seeing and still cannot comprehend and Big Oil could afford to wait and see.


    The Barnett has inspired not only a dry gas industry but a sub industry based on the unsuspected liquids window in the gassy shales. The production of gas liquids and oil from the liquids windows is spreading across several basins in North America and most likely will lead to US liquids production being higher at the end of this decade than it is now, again contrary to the confident pronouncements of Government and Big Oil.


    The logical question independents and investors who like these companies and plays are asking:

          ” Will the dry gas (relatively low value per Btu at the moment)shale to gas plus liquids( higher value at the moment) shale to oil  shale( highest value at the moment) progression continue as the industry gains more knowledge and experience with shale basins?”


    This translates into speculation whether the Bakken shale play prefigures a much larger set of global oil shale opportunities, just as the Barnett did a decade ago for gas shales but no one, of course, knew at the time.


    Kerogen Shale Is Not Oil Shale


    It is important( and for investment reasons essential) to distinguish between the carelessly and unfortunately misnamed oil shales of Colorado and the oil shale of the Bakken in North Dakota and Western Canada. The former are kerogen shales and their production is a water and energy intensive mining and retorting industry. The latter are true oil shales and their production is a drilling (horizontal, multi stage, fracking) industry. There is almost nothing in common ion terms of process and economics between these two shales. Kerogen shales have been well studied and analyzed for decades; oil shales have not.


    Kerogen shales are found in over 40 countries with the US, Russia, China, Jordan, Israel, Morocco having very large resources. There is commercial kerogen shale production in Estonia( direct combustion of pulverized rock to produce power and steam by the company Eesti Enertgia), China and Brazil( Petrobras) but the aggregate amount is equal to 20,000 barrels per day.

    There are proposals to produce kerogen shale in Israel (although the recent enormous offshore gas finds in Israel will obviate the need for this) and Jordan (concessions have been granted to Royal Dutch Shell and Eesti Energia). Morocco has granted or is negotiating concessions with 3 companies, including Petrobras.


    Kerogen shales, in their most economic use are substitutes for coal, not crude. They are a central power plant fuel, not a transportation fuel.


     It makes more commercial sense to convert natural gas and coal to liquids than kerogen and the former conversions hardly makes business sense anywhere, except as a technology hedge. The crack spread between kerogen or natural gas or coal values and gasoline, diesel and jet fuel values perhaps has to be as much as 1 to 10 on a per btu basis to justify the very expensive conversion black box based on currently knowledge and practice. This spread does not exist and in the absence of massive and sustained disruptions to the global oil supply chain is highly unlikely to exist.  The best substitute for conventional crude is unconventional crude.


    The Next Bakkens?


    The importance of the Bakken, of course, is that it is propelling rapid growth in oil production and hence jobs, income and wealth creation in North Dakota (and across the border). Drilling now is at an all time high. The State of North Dakota projects  that by 2017 North Dakota’s oil production will have risen to around 600, 000 barrels per day(bpd) from about 325,000 bpd at present, compared with only 450,000 bpd in onshore Alaska(according to the US Government) in 2017 and about 525,000 bpd onshore Alaska at present.


    An initial study by the US Geological Survey (notorious for its miserable record in grossly underestimating oil and gas reserves over decades) claimed that the North Dakota Bakken had 4.3 billion barrels of recoverable oil. The latest official estimate is already 11 billion barrels.  Continental Resources, a leading Bakken producer,  says that at current economics and with current technology the North Dakota Bakken has 24 billion barrels of recoverable oil.


    The US Government claims that total  US crude reserves at the end of 2009 were  only 21 billion barrels.


    There are almost 170 billion barrels of oil in place in North Dakota according to industry estimates, so that as new generations of technology appear and business experience accumulates, the ultimate recoverable reserves may be scores of billions of barrels.




    Australian-Canadian Oil Royalties Ltd reports that it may have discovered a formation similar to the Bakken in the Georgina Basin (Northern territory and Queensland). The company will participate in 2 multi stage horizontal frac wells via Baraka Petroleum.

    The latter company recently released estimates of shale oil in place in 2 permits in the Southern Georgina basin of 5 to11 billion barrels.


     Another company in the Southern Georgina basin, Central Petroleum, announced significant shale oil in place resources in its permit areas. Like the tremendously productive Williston Basin (home of the Bakken) the Georgina is an intracratonic basin( found in continental interiors, well away from tectonic plate boundaries). Such basins occur worldwide.



    The Arthur Creek shale formation in the Southern Georgina is very similar to the Bakken but with about 5 times the thickness. All 18 exploratory wells drilled so far have shown oil.

    Australian geologists certainly seem to think they have found another Bakken. In another 15 to 18 months we will know if this indeed true.


    Even France?


    It is not Australia, however, but France where the greatest industry anticipation and activity is building in the search for the next Bakken; in the well known Paris basin.


    The Paris basin( current production of less than 15,000 bpd of conventional oil) covers the northern half of France and extends into neighboring countries. It is a vintage oil and gas basin. Over 2 thousand wells have been drilled and 52 fields discovered. It has extensive oil and gas shale deposits. The 3 oil shale formations are the Lower Lias , Amaltheus and Schistes Carton. The current focus of excitement is the Lower Lias with estimated oil in place resource base of a few billion to tens of billions of barrels. The estimates (guesses) for the oil in place in the other 2 formations are much higher.


    Vermillion Energy is one of 10 companies positioning themselves in the Lower Lias. Vermillion reactivated a 25 year old ExxonMobil well using drilling techniques tried and refined in the US shale industry. Vermillion is the largest conventional oil producer (8,500 bpd) in France. Vermillion plans to spend $160 million to develop shale oil reserves in the Paris Basin.


    Realm Energy International (it has a shale oil and gas development partnership with Halliburton) has also applied to be a significant explorer in the Paris Basin. The company has identified 17 potential oil and gas shale plays in Europe. It is already active in Poland. The company has also been awarded shale concessions in Lower Saxony, Germany.


    Torreador Resources, an E&P headquartered in Paris, has perhaps the most ambitious plans for the Paris Basin in partnership with Hess which has invested $120 million (the figure could be $265 million with contingent payments) with Torreador to explore 1.7 millon gross acres in the Paris Basin. Hess has invested $1billion in the Bakken and plans to invest another $1billion there over the next 5 years. In addition to the Paris Basin, Hess thinks it has found a basin analogous to the Bakken in China.


    Torreador asserts that an estimated 100 billion barrels of oil have been generated from source rocks in the Paris basin, of which 30 billion are in the Lower Lias. Its gross acreage position makes it, at present, the largest player there.


    Torreador plans to drill 6 wells in the Paris Basin in 2011. Of these 2 each will be vertical, vertical/horizontal combination and horizontal.  The first 4 wells have been permitted and a drilling contractor secured. The first well will be completed in  February 2011 and the 6th in October 2011. By the end of this year the company expects to complete well evaluation and design phase2 of its program.


    Why it Matters


    We will know in less than 2 years whether other Bakkens exist and in 5 years whether the Bakken model is as  globally scalable as the Barnett. Enough oil and gas independent E&P companies appear to believe that it is for us to pay close attention. If the expectations materialize then hundreds of new independents will be formed to pursue the Bakken analogs all over the world. As the Barnett is the archetype for shale gas across the world, the Bakken may be for shale oil.


    A few American independents with imagination, skill and courage pursued the Barnett and the Bakken while Government sneered and the integrated majors and mini majors either dismissed the potential or decided to wait until the opportunity was proven; knowing that they could buy their way in.


    In shale natural gas the majors and mini majors are already spending many billions to buy their way in; they will do the same for shale oil.


    Given how widely dispersed shale gas( and other forms of tight gas) is across the planet and shale oil( and other forms of tight oil) may also be, there are likely to be may be many  more countries producing oil and gas 20 years from now than there were 20 years ago.


    The true globalization of oil and gas E&P is perhaps just starting.























    Jan 17 3:56 PM | Link | Comment!
  • Demographic Change: The Strategic Ascent of the Global South

    All projections are unreliable . Financial and weather projections are not reliable at all while demographic projections or forecasts are the least unreliable. This is because demographic trends unfold slowly and  fertility and mortality  trends once established take decades or even generations to reverse. All the mothers for the next generation of babies have already been born and their supply cannot be increased but it can be decreased by human and natural calamities. Moreover, once fertility rates start declining(as they have been everywhere on the planet for the past several decades and are now below to well below replacement rates in many  countries) the trend does not readily change direction.


    The World Population: Still Growing But Very Unevenly and Slowly


    In the mid 1960s the world's population( according to the International Database of the US Census Bureau) grew at over the twice the present rate. Thirty five years from now ,it is forecast,  the world's population will grow at less than half the present rate: a 75% reduction in the rate of growth in 70 years. This means that while it took about 3 decades for the global population to increase by 50%  to the present level of a little under 7 billion it will take 6 to 7  decades for the next 50%  increase and then virtual stagnation for a while followed by absolute decline. Clearly  the global population will age rather quickly and the worker to dependent ratio will decline tangibly over the next few decades in a majority of nations. Many nations will have to adjust to an absolute reduction in workers and to more grandparents than grandchildren.


    World population growth over the next 4 decades will be driven by the Indian Sub-continent, Indonesia and Africa while currently economically, financially and culturally  important parts of the world will witness large absolute population declines, notably the entire European continent( particularly Eastern And Southern Europe) , Russia, Japan and South Korea.  China will have fewer people than at present and  population growth in Latin America will  be modest. The only advanced economy to experience population growth will be the US, because of immigration.

     Small Differences Lead To Big Changes

    Small differences in fertility and death rates, especially infant mortality rates, have profound cumulative consequences.  Twenty five years ago China's population was larger than that of India and the US combined. In another 25 years India's population is expected to exceed that of China and in 40 years, it is projected that India's population will be only a little less than that of China and the US combined.


    Twenty five years ago Russia(not the USSR) had the 5th largest population . Now it is the 9th largest. Twenty five years from now Russia's population will drop to 12 largest and in 40 years from now Vietnams' population will exceed that of Russia . Ethiopia is projected to have more people than Russia, Japan and Germany combined. At present Ethiopia's population is notably smaller than Russia and only slightly larger than Germany.


    Twenty five years ago the US had a population equal to that of Japan, Germany(east and west) and Spain combined. At present the US population is somewhat  larger than that of Japan, Germany, Spain and Italy combined. In twenty five years the US is projected to have a population equal to that of Japan, Germany, Spain, Italy and France combined. In forty years the US population is anticipated to  substantially exceed that of Japan, Germany, Spain, Italy, France and the UK combined. The great majority of the growth in the US will be in the South, Southwest and Mountain states. Texas and Florida will sharply increase their share of the US population , economic activity  and energy use while Illinois and New York will see their shares much reduced and  California may simply stagnate in national shares(or fall if immigration is  less than forecast and the flight of the middle class out of the state continues at present levels).


    The remarkable descent of Europe, Japan and Russia is  matched by the equally remarkable and transforming ascent of Africa. Twenty five years ago the largest African nation, Nigeria, ranked 10th, with a population not much greater than Mexico. At present Nigeria ranks 8th, having surpassed Russia and is about 40% bigger than Mexico. In twenty five years Nigeria will rank 7th with a population approaching that of Brazil, the largest Latin American nation and a population about 55%  bigger than Mexico. In another forty years Nigeria is projected to be larger than Brazil and about 80% larger than Mexico. However,  by then Nigeria will no longer be the largest African nation: Ethiopia will have surpassed it; with a projected population equal to that of Russia, Japan and Germany combined. Twenty five years ago Ethiopia had a population about a third that of Japan and close to that of Spain.


    As property rights generally expand in the Global South and generally erode in the West, technology diffuses with increasing rapidity, risk capital and entrepreneurs follow opportunity in Asia, Africa and parts of Latin America and billions of very poor people seek to escape hunger, disease, illiteracy and immobility in the Global South multiple natural resource, consumer goods, computing and communications, entertainment, healthcare, education, transportation, logistics and military/police industries  will be transformed well  our ability to anticipate.


    Electricity Is The Basis Of Growth

    The demand for manufactured energy, especially electricity, protein, switched bandwidth, formal education,  personal transportation, clean water, sanitation and medical goods and services must increase by multiples in the Global South to enable billions to reach even a lower middle class level of comfort, convenience and material consumption.


    The foundational resources upon which all else will depend are electricity, water, transportation fuels, iron ore, copper, vegetable and animal protein, cooking oils and switched spectrum. The most vital of these resources is electricity on which depend other foundational industries. The ascent from peasant and indentured menial labor to lower middle class and from lower middle to middle class; from rural to urban; from isolated to connected is powered by electricity given the nature of global technology and material preferences. The energy, particularly, electricity intensity of the global economy is about to increase hugely.



    This ascent must entail per capita increases in the consumption of:  foundational resources, infrastructure, personal communications and mobility machines  and devices, formal education and organized healthcare that notably exceed the rate of population growth, especially in the poorest and most demographically expansive parts of the world : China's impact on global resource and engineered projects and goods markets is but a prelude to what may come next since many more Global South men, women and children have yet to rise from poverty into the lower middle class than have already escaped chronic and quotidian material deprivation.


    There are only three widely accessible, planetary scale resources that can provide the vast majority of the additional electricity needed by the Global South over the next 4 decades.  These are coal, natural gas and nuclear power. Several other resources, of course, will be used but their combined share of new power generation will be quite small.


    Big Oil will be matched and then surpassed by Big Gas over the next quarter century as a worldwide industry. Big Coal and Big Nuclear will expand dramatically, the latter more than the former, but neither will  match the growth in Big Gas over the next 2 and, cumulatively,  possibly the next 4 decades.


    Technological innovation, risk and sovereign capital, greater understanding of the abundance and economic value added of natural gas and  the  entrepreneurial imagination are converging to immensely expand and transform the global natural gas industry.

    The potential for conventional onshore natural gas alone in Africa, Asia and Latin America is still great. Siberia and Iraq are also little explored and natural gas resources in just those two parts of the world are believed to be most impressive.  There have been more onshore exploration wells drilled in the US than in all Asia, Africa and Latin America combined. It is a truism in the business that the more and better we seek, the more and in more abundance we find.


    The deepwater natural gas resource , globally, is also very little explored and now believed to be huge as the recent discoveries in the Gulf of Mexico, offshore West Africa,  Western Australia, Brazil and Israel indicate.


    The vastly greater potential is in tight sands, shale and coal bed methane formations: all of which ,it now appears, are widely found in the world. Over the next 5 years scores of billions of dollars will be invested in delineating, developing, producing, treating and transporting these new natural gas sources.


    Then, of course, there is what might be termed the ultimate terrestrial hydrocarbon resource: methane hydrates, once a curiosity and still a nuisance but now within sight of becoming a useful energy source.  These hydrates are cages of ice within which methane is trapped. They are found all over the world in the sediment at the bottom of lakes, seas, coastal waters of oceans and in permafrost. Russian investigators discovered them first a few decades ago in Lake Baikal. The US currently has the most extensive research program followed by Canada and Russia  but it is India, China, South Korea and Japan that are most determined to begin commercial development of this staggeringly large and globally distributed energy source. The already identified methane hydrate resource is so tremendous that researchers estimate it has more than twice the energy content of all coal, oil and other natural gas resources combined, globally.


    If the governments of South Korea, Japan, China and India are to be believed commercial scale methane hydrate projects could be reality in Asia before the decade is out.  Europe , Canada and the US may prevent commercial development within their borders and Russia is not currently interested but Asian nations have both the motive and will to proceed.


    Global natural gas use(and supply) can readily increase by 50% in the next 10 years and double in the next 20  and then grow at 8 to 10% annually for another 2 decades.  Already the Global South and Russia produce and consume more natural gas than the West. Their market share will continue to grow apace and within 20 years the share of the West is likely to fall below a third and below a quarter within 25 years. Big Gas will be decidedly non-Western in terms of production, processing, transmission, distribution and use within a generation. Clearly this will provide the avenue for large oil and gas companies based in Brazil, China, India and maybe Australia and Russia to join the fraternity of the current integrated majors.


    Coal is the dominant source of power generation in the Global South and in next 25 years coal fired generation outside the West will  probably  more than double.  However, the increase in nuclear power  and natural gas fired generation   capacity will be even greater as abundant natural gas makes rapid deployment of rather low initial cost capacity feasible and attractive( once the needed infrastructure is built) and as many nations, especially Asian countries deploy scores of new nuclear plants. The advanced gas turbine is efficient; is easy to locate even in dense metropolitan areas; has a low capital cost; can be constructed within months, requires very few skilled workers to operate and most of its lifecycle cost is the cost of fuel.


     Russia plans to deploy an additional 40 reactors over the next 25 years( 10 under construction), while China already has 26 nuclear plants under construction and plans to build scores more. India has 6 plants under construction and also plans to build dozens more. In addition Vietnam, Indonesia and Pakistan are expected to have new nuclear plants within 10 years. Brazil plans to build 8 plants over the next 25 years.


    There are 441 nuclear reactors operating today, worldwide with the US, Japan and France accounting for over half the total. There are about 65 nuclear plants under construction globally, another 143 are planned over the next 8 to 10 years( of which  55 are in China and India versus 9 in the US) and over 330 have been proposed  over the next 15 or so years( 120 in China alone and 40 in India with Russia hoping to build 30 more  versus 22 proposed for the US , about the same number as proposed for the Ukraine). If mini reactors become popular, the number of proposed reactors will increase by scores.


    Currently 1.5 billion people in the Global South have no access to electricity which means they are decoupled from opportunity and global transformation. This is why rapid and massive  electrification is such a priority for China and many  countries in Africa and Asia, especially India, Indonesia, Pakistan, Bangladesh, Nigeria, Uganda , and Ethiopia  where very large population increases will occur. Vietnam shows that where there is a will electricity can be brought to poor people rather quickly. About 15 years ago, half the people in Vietnam had access to electricity; now almost the entire population has this access. This trajectory will be replicated in many poor nations over the next 15 to 25 years.


    Speculating On The Consequences Of Demographic Change

     The point of speculation is to help construct  strategic and  investment scenarios, knowing that speculation is an aid to thinking about uncertainty, risk and complexity.


    1. English will become even more dominant as the global language.

     This is because there will be substantial population  and literacy growth in the Indian Subcontinent, the Philippines, and in English speaking African nations such as Nigeria, Kenya and Uganda. English is already the language of commerce, higher education and of the governing elites in these countries. Moreover when Ethiopians want to talk to Vietnamese in the years head or Russians to Brazilians or Indians to Indonesians and the Chinese to Nigerians about business, trade, geo politics and policy coordination they will use English not Mandarin or Espanol.


    It will be more important than ever  to know and communicate well in English in the next four decades . Already India is(after a fashion) the largest "English" (  "Indlish" being a dialect of English) speaking country in the world and Nigeria reportedly has more English speakers than the UK.


    2. The Global South has already politely, obliquely and implicitly rejected Carbon Controls. In the next 5 years, it will do so impatiently, directly and explicitly. Russia will align itself with the Global South.  Increasingly global energy and environmental policy will be set by China, India, Brazil, Indonesia, South Africa and Nigeria with Russia supporting.


    Europe and Japan have already been marginalized as factors in global policy making in energy and the environment. The US is on the verge of being ignored if it continues to limit domestic energy development to well below its potential;  demonize oil, gas and coal companies; be irresolute about nuclear power and hostile to deep water drilling.


    It is through much increased electricity and carbon consumption that billions of people in Asia, Africa and Latin America will rise from wretchedness and fear  to attain a lower middle and middle- middle class level of material satisfaction, security and comfort. They will not be denied.


    The global economy is about to become tangibly more electric and carbon intensive.

     The West has neither the will nor the money( for bribes to deploy uncompetitive and sometimes fraudulent renewable energy projects, the basis for many renewable programs in Asia, Africa and Latin America) nor the political power to prevent this.

    What the Western upper classes  have forgotten or choose to ignore is that the more economically secure a society, the cleaner it is; the lower its infant mortality and  fertility rate;  the better care it can take of children, old and feeble people and the more its women are freed from drudgery and domination.


    3. Leadership in coal and nuclear power plant and related systems design, engineering, procurement and  construction  as well as ultra high voltage long line transmission will shift to Asia within a decade. In the nuclear industry, Japan, South Korea, China and later India will take over leadership from the US, Canada and Europe although Russia will be continue to be important and successful. It takes a large and vibrant domestic market for companies to develop and refine the competences to be globally competitive. As the market shifts, so the industry value chain, talent and management skills shift, drawing resources and ambitious people from stagnant or low growth to high to very high growth markets.


    Russian companies envision a market in the scores for floating and mini reactors(in which Russia leads) with initial niches being remote oil and gas field development in Siberia, several parts of Asia and Africa and water treatment and desalinization projects in several nations. Floating  reactors have already been designed and built  and are being deployed  by Russian companies. Mini, low maintenance,  reactors will appeal to dozens of small poor countries because they can be located close to or even in metropolitan areas.


    In the coal industry,   power plant development and  international  trade is likely to be increasingly dominated by Chinese and Indian entities over the next 2 decades and Chinese and Indian ownership of coal mining companies and ventures will grow worldwide. Many coal companies or projects in Canada, the US, Australia, Colombia , Indonesia and parts of Africa will have Indian and Chinese  companies and investors  as majority or important minority owners.


     Ultra high voltage long line transmission systems may be an emerging industry heavily shaped by Chinese companies who will be world leaders in deploying such systems this decade, first domestically and then in parts of Africa and Asia. Very few such systems, which are extremely efficient and can transport  electricity over large distances from generation to market with negligible losses, will be built in the West because of almost impossible regulatory, permitting and siting obstacles.  Very large nuclear and coal generating complexes  with multiple reactors or mega coal plants( up to 5 Gigawatts of capacity per complex) are very well suited for such transmission systems. India and China are proceeding with such complexes.


    4. As the scale, technological complexity, variety and sheer number of energy production, supply, transportation and distribution projects proliferates there will be increasing financial connectivity amongst entrepreneurial energy companies , private and state owned integrated oil and gas companies, private equity funds and sovereign wealth funds. Each participant will take the appropriate capital tranche in a mega-project or in a specially designed venture.


    Capital flows out of the Global South into North American oil, gas and coal ventures( and to a much lesser extent Eastern European and Australian), projects and   medium to large  independent  companies will also become more common and substantial.  The Canadian and US oil and gas E&P industries are likely to see several billion dollars per year of  risk and expansion capital from China, India, Brazil and perhaps sovereign wealth funds or state owned companies in other Asian and Latin American  countries  this decade.


    In addition, thousands of new  energy, energy technology and specialized energy services companies will be started or spun off in dozens of countries to participate in the unfolding energy boom in Asia, Latin America and now Africa. While hundreds will be started in the West as technology, talent, risk capital  niche operating experience or highly specialized knowledge bridges between the West  and the Global South, many times that number will be indigenous to the Global South. 


    As property rights spread and are codified and institutionalized in scores of Asian, Latin American and African countries a boom in energy(and other foundational resources) boom will propel a boom in native energy entrepreneurship. In turn this entrepreneurial boom ( a happy dividend at the intersection of demographics, resources and property rights) will attract great amounts of private equity from all over the world and in turn lead to the gestation of dozens of new or  reoriented private equity funds.  


    5. The non-hydro renewable energy industry will have to change its technology focus and business model if it is to be more than a minor niche in the Global South. The current model in the West is based on the monetization of subsidies and mandates. Low efficiency and/or  low capacity factors  as well as extensive use of land are common flaws. The food to fuel renewable industry makes little sense in the West and (outside the sugarcane to alcohol industry of Brazil)  no strategic or moral  sense in the rest of the world.   While the current Western model can be forced to persist  in stagnant electricity markets where renewable energy can be substitution or replacement energy it is not tenable in the Global South where large amounts of  net new electricity have to be brought online quickly, affordably  and repeatedly. over the next 3 to 4 decades.


     Relevant and advanced    solar  and ocean energy  technologies  that can provide reliable energy at prices competitive with non-nuclear  and non-hydro   generation will either be proven, developed and deployed  or renewable energy will be dismissed by scores of poor nations with urgent unmet needs as a Western hobby or self indulgence.


    Examples of these new  technologies are solar towers that can produce power for hours when there is little or no sunlight; spray- on solar for the roofs and walls of buildings; embedded solar in consumer products; and self healing solar panels for use in remote, off grid ,locations where very high value added applications(refrigeration of medicine,  milk   fish and  meat) , communications and remote sensing justify the high capital and installation cost.


     Other examples are ocean thermal gradient heat to electricity conversion(particularly relevant to scores of Pacific islands) ; ocean wind (ocean winds are much stronger and more reliable than land winds leading to greater power production per unit of capital : joint ventures between off shore oil and gas drilling  companies and power generation companies are a possible business structure) and ocean tidal or current( The coastlines of many African, Asian and Latin American regions are extensive and their coastal waters attractive oil and gas prospects).


     This is, of course, the domain of entrepreneurial start ups and should these technologies become commercial hundreds of such start ups ,based mostly in Asia but also the Southern Cone of Latin America and South and Central Africa , will germinate. Of course, most of these frontier ventures will be formed  and seeded  by citizens or permanent residents of  the West ( especially the US ,  UK, Canada and Australia) who have no vested interest in legacy technologies and  business models.


    Hybrid offshore oil and gas production and wind power generation projects will provide yet another growth and leadership opportunity for Chinese companies or foreign entrepreneurs  and energy companies seeking business in China. China is already the fourth largest offshore oil producer and has ambitious plans for deepwater and ultradeepwater hydrocarbon development. It also has world class capabilities in manufacturing and deploying wind turbines and, of course, a very big coastline. If the hybrid offshore energy production  model is proven, companies from India and Brazil(already very competent in offshore deepwater drilling) will be active.


    The Big Unknowns


    Projections, scenarios and informed guesses are not predictions; they are not even high confidence forecasts. They cannot be because we do not and cannot know even the near term future much less one encompassing decades, continents, trillions of dollars and billions of people. The 3 perennial big unknowns that plague all forecasts and shape human history are still as potent as ever: Famine, pestilence and war.


    Why famine? because according to those who study these things two powerful natural cycles are converging. sunspot activity and the earth's magnetic field  variation.  Sunspot activity is now very low and the sun seems to entering a periodic multi year or multi decade "quiet" period. This means less solar wind sweeping over the earth, allowing more cosmic rays to reach the atmosphere leading to much greater cloud cover, which means more rain and snow and less sunlight on the surface of the earth.


    The earth's magnetic field is declining and is now about 40% of its average ( the earth's magnetic field makes an "excursion" roughly  every 11,500 years--it declines to 20 to 25%  of average  strength and  then returns to average strength.  If the  field declines to about 15% of average  strength the magnetic poles switch. This is called a reversal. Excursions are much more frequent than reversals, which are truly catastrophic events )  These "excursions"  are accompanied by multiple, large scale, changes on the planet). The decline is accelerating . At present the magnetic north pole is drifting from North America to Siberia with increasing rapidity. The   last "excursion" was the Gothenburg event when field strength declined to 20% of its average, magnetic inclination changed by 180 degrees and field intensity fluctuated widely.


    As the geomagnetic field declines both plate tectonic activity and atmospheric electrical violence increase. This means big increases in below ground and underwater vulcanism, earthquakes and tsunamis and C-14 formation in the atmosphere(Nitrogen is converted to Carbon by electron capture as a result of atmospheric electrical activity); the production of other elements such as Iridium and Strontium in the atmosphere also increases. It literally rains carbon and other radioactive elements  under these conditions.


    The  relevant consequences of the convergence of these natural cycles is more violent weather  and  more extreme weather conditions as well as more flooding and shorter crop growing seasons. In turn this means lower yields and more crop damage leading to rapid food inflation and actual deprivation for the poorest people. The combination of many more people in the poorest parts of the world and reduced food supply, of course, results in famine and the multiple evils that ensue.


    Any positive adaptive response by the world will entail energy, bio engineered product, and capital requirements by  global agriculture well beyond those currently anticipated.


    Famine,  floods, volcanoes, tsunamis and earthquakes  surely make a mockery of our forecasts and pretensions.


    It is the peculiar conceit of billionaires in New York and California that we control and influence nature and shape planetary destiny. On the contrary it is nature that dominates us and controls our destiny. The natural order determines the human material  and physical  condition, not the other way around


    Why pestilence? As billions more people become more mobile and physically connected, infectious diseases can spread rapidly and savagely around the world. We all know what happens when traditionally separated peoples come into contact: they exchange unfamiliar germs. The lethal influenza epidemic of 1918 that spread with ferocity and speed around the world was supposedly the consequence of  infected  soldiers moving around the world. The panic and hysteria( and associated conspiracy fantasies and fabricated plots) engendered by  even a low fatality global epidemic, much less pandemic, would cripple some industries and impair several economies. In a connected world thousands of deaths from an epidemic can create worldwide fear and disruption: millions of deaths can lead to economic , political and  social catastrophes.


    Why war? Famine and pestilence can lead to war; as can deprivation, envy and fear. Wars based on hatred of the "other" during times of great change and disruption are frequent enough as are wars of opportunism and conflicts over foundational resources. When people or polities feel threatened enough by the "other" they often go to war. When ambitious nations covet the wealth and resources of other, weaker, nations or seek to exploit the lack of will and purpose in competitors they often use war to further their dreams of power and avarice. As  one world order fades and another struggles to be born, we are entering an interregnum, one where geostrategic conflicts and violence become more not less likely.


    It has been observed frequently that demographics is destiny. This is why it is both useful and important to try to comprehend global demographic change, its intersection with property rights and technology and wonder   what this means for both our investment and  personal lives.


    It may also be worth pondering that ,compared, with any conceivable human need for energy in the 21st century, nuclear, methane hydrate, solar and ocean energy resources are limitless. When the energy supply constraint ceases to be binding all other resource constraints are also relaxed and healthy, educated, free and entrepreneurial people become a nation's most valuable resource.
























    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: No specfic companies are mentioned in this article but I own stock in various oil and gas companies
    Jan 06 9:48 AM | Link | Comment!
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