$100 Trillion Shift From 'Just-In-Time' To 'Just-In-Case'

Summary

• The $100 trillion shift, 40-year shift in energy and transportation markets from "Just-in-Time" to "Just-in-Case".
• "Just-in-Case" indicators are: Saudis announce $2 trillion "post-oil era" fund; China announces $50 trillion solar effort; JPods and Hyperloop make progress for solar-powered mobility networks.
• Fracking is the subprime of energy - energy neither the industry nor the consumer can afford.
• US Oil peak oil was in 1970. Since US peak fracking in June 2015, oil production is down half a 1973 oil embargo. And will continue to decline until collapse.
• Energy need is to power the 365-day food cycle; the 33.8 Days of Supply is 91% risk, not a "glut".

I do not know if the precise number is $100 trillion, but that it is well above $57 trillion is clearly stated in US need, Saudi and Chinese declarations.

This article provides indicators of a $100 trillion market shift from "Just-in-Time" to "Just-in-Case" in transport/energy investments. Based on the "Extra Energy Tooth" following US peak oil in 1970, this will push all energy prices higher for 10 years:

• Saudi Arabia announced a $2 trillion to their "post-oil era" fund.
• China recently announced a $50 trillion plan to deploy solar and wind energy networks.
• The American Society of Civil Engineers Report Card on Infrastructure grades the US with a D+. They estimate investments of $3.6 trillion are required.
• "Reed Hundt, former chairman of the Federal Communications Commission, compared the switch from fossil fuels to clean energy with the 1990s transition from analog technology to digital technology - ' a feat that took more than a trillion dollars of U.S. investment during a period of eight years. If we invested that much money in clean energy, he argued, we could similarly transform our energy system in the next eight years.'"
• The Physical Internet® will be built to change urban mobility. My guess is this market is about $5 trillion in the US and $25 trillion in the world. See payback in the Physical Internet section.
• In October 2015, 193 nations signed the Sustainable Development Goals.

The current "Just-in-Time" market psychology is focused on improving inventory turns to minimize costs to the oil companies and prices to customers. It pays little attention to the risks of outages.

The "Just-in-Case" market psychology is focused on minimizing risks of supply disruptions.

The sections ahead in this article illustrate Productive Paranoia, Syria's "Just-in-Time" failure, "Just-in-Case" efforts, the hubris (excessive self-confidence) which delayed US action for 46 years, charts providing technical indicators, and triggers for psychological change.

Productive Paranoia

Play Russian Roulette, spin the cylinder, and slowly squeeze the trigger. If you are successful, repeat this 100 times. Trust me on this, you will only get to 100 times if you are extremely lucky - skills do not count.

The same principle applies to having a 365-day food cycle secured by 33.8 Days of Supply (DoS) of oil. This 9% "Just-in-Time" safety margin is worse than spinning the cylinder with 5 of the 6 chambers loaded with bullets. History proves epic famines occur far more frequently than once every 100 years. Productive Paranoia is to be self-disciplined so you do not have to play Russian Roulette at all.

To grasp the psychology that will drive the shift from "Just-in-Time" to "Just-in-Case", consider two paradoxes:

Stockdale Paradox: "Unwavering faith you will prevail while facing the most brutal facts of your current reality." This is from Admiral Stockdale's experience leading the US POWs at the Hanoi Hilton via the book Good to Great. The brutal facts:

• Life requires energy.
• Cheap oil (< $80 per barrel) is finite . There is lots of oil, but oil that provides less than $4 gasoline is all gone. Fracking was the last gasp at finding a new source of cheap oil. Peak fracking was in June 2015, resulted is a financial disaster for the E&P industry, and will result in perpetually higher oil prices.
• Life and economies powered by cheap oil are terminal. What is happening in Syria will spread at current rates of debt, consumption, and depletion. The facts of oil field geology have been understood and ignored for decades. Here are links to a 2005 documentary with interviews, a 17-minute summary of Energy Economics, Admiral Richover's speech in 1957, and Dr. Hubbert in 1956.

Lifeboat Paradox: "If you are self-disciplined enough to have a lifeboat, and be skilled in its use, you are less likely to need it." Business cases for this "productive paranoia" are provided in How the Mighty Fall and Great by Choice. The self-discipline to be self-reliant for essential needs is the "Just-in-Case" behavior of the kind indicated by the trillion-dollar Saudi and Chinese announcements.

Syria, A "Just-in-Time" Failure

Using "Just-in-Time" food and oil, the population of Syria increased from 4.6 in 1960 to 22.8 million in 2012. Peak oil occurred in Syria in 1995. The "Just-in-Time" energy system stretched, until it cascaded into social collapse in 2012. History is repetitive. Like the mass migration in the 1840s from the potato famines, the current Syrian migration is from the oil famine. The book Collapse provides additional cases of "Just-in-Time" energy failures.

"Just-in-Case" Efforts

Saudi Arabia understands that cheap oil is finite and has dedicated $2 trillion to their "post-oil era" fund to retool their economy off oil. China is also moving to "Just-in-Case" with a $50 trillion plan for solar and wind energy networks.

US oil expert T. Boone Pickens has worked for years to get the US government to shift to "Just-in-Case" with the Pickens' Plan.

I believe transportation is the catalyst for changing energy systems. Nothing Like It in the World, a book about financing and building the Transcontinental Railroads, provides a business case for private capital to quickly retool infrastructure. When the Massachusetts Senate Bill #1837 passes, it will create a legal framework for building the Physical Internet® based on combining:

• The efficiency of freight railroads, average 476 ton-miles per gallon;
• The safety and "Just-in-Case" Personal Rapid Transit (PRT) network in Morgantown, WV. This network was built as a solution to the 1973 Oil Embargo; and
• The on-demand service of the Internet on digital rail networks.

Hyperloop networks are high-speed solar-powered mobility networks between urban areas. These networks are gaining Rights of Way access to build in Europe and in Nevada.

My investments are in JPods. JPods networks are focused on the market niche of highly repetitive urban mobility of people and cargo in payloads less than 1200 pounds. These networks will pay for themselves about every 5 years, based on the Independent Audit of the Morgantown PRT network. Another metric of payback is it costs 59.2 cents per car mile versus 4 cents per JPods vehicle mile. Converting current costs to profits is based on converting 90% of energy costs into value. There is a world market for solving urban traffic problems with about 5-year paybacks.

As a metric of the market size in the US for this shift to "Just-in-Case":

• There are about 2 million lane miles of urban road that the oil to power will become unaffordable.
• There are 140,000 miles of freight railroads. These will be the logistical arteries (476 ton-mpg) as oil costs increase.
• Logistical capillaries of about 500,000 miles of solar-powered mobility networks will be required; 4 times freight rail miles; 1/4th the lane miles of urban roads.
• At $10 million per mile, costs will be about $5 trillion in the US. These networks will start in niches, such as airport economic communities.
• As a thought experiment in payback, if $5 trillion in networks could be built overnight, they would have less than a 5-year payback:
  • Cut accidents in half, saving $400 billion per year.
  • Cut congestion 90%, saving $100 billion per year.
  • End oil imports, saving $300 billion per year.
  • De-fund terrorism of oil dollars, cutting defense spending $300 billion per year.

Achieving these returns on investments requires vast energy resources to build the network (see Extra Energy Tooth below). Demand will force oil prices much higher.

As these solar-powered mobility networks deploy, they will achieve what Thomas Edison noted as practical in 1910:

"Sunshine is spread out thin and so is electricity. Perhaps they are the same, Sunshine is a form of energy, and the winds and the tides are manifestations of energy."

"Do we use them? Oh, no! We burn up wood and coal, as renters burn up the front fence for fuel. We live like squatters, not as if we owned the property.

"There must surely come a time when heat and power will be stored in unlimited quantities in every community, all gathered by natural forces. Electricity ought to be as cheap as oxygen...."

Hubris: Delay Adds Upward Price Pressure

The following graph illustrates how the US Federal government used debt and oil wars to sustain its "Just-in-Time" model since US peak oil in 1970. There is a high correlation between national debt (red) and oil imports (black). Oil wars have been required since 1991 to secure access to foreign oil. Limits to Power provides a good summary of this expensive defect.

How the Mighty Fall provides business case studies of failures. The Five Stages of Decline identified in this book are applied to the current "Just-in-Time" energy policy of the Federal government.

STAGE 1: HUBRIS BORN OF SUCCESS

• The Constitution's Divided Sovereignty and "post roads" restriction, limiting Federal sovereignty over infrastructure to delivering letters in defense of free speech, were viewed as out of date.
• In 1918, the Federal government monopolized communications, power, and transportation infrastructure as "natural monopolies."
• Under Federal monopoly, innovation was frozen in the century of rotary telephones and the gas mileage of the Model-T. After the Federal communications was declared unconstitutional in 1982, radical innovations created millions of jobs, producing vast profits, and delivered better services at lower costs.
• Power and Transport infrastructure remain frozen by unconstitutional Federal monopolies.

STAGE 2: UNDISCIPLINED PURSUIT OF MORE

• In 1935, FDR's Rural Electrification Administration removed self-reliance, resource depletion, and pollution as energy market forces and wiped out the entire distributed energy industry. That industry was making as many as 90,000 windmills per month. They were well on their way to achieving Thomas Edison's 1910 understanding of distributed energy.
• With The Federal-Aid Highway Act of 1956, Eisenhower removed efficiency, resource depletion, and pollution as transportation market forces. Despite 400+ ton miles per gallon efficiency, nearly half the freight rails in the US were wiped out.
• The average American uses 88 megawatt hours of energy each year, nearly twice the energy of the average German.

STAGE 3: DENIAL OF RISK AND PERIL (American exceptionalism)

• "No action is required" (NAR) on the warnings of Peak Oil by Dr. Hubbert in 1956 and Admiral Rickover in 1957.
• NAR on US peak oil in 1970, Federal government charts of oil production.
• NAR on US Federal debt rising to $18 trillion, in tandem with oil imports to $18 trillion.
• As soon as the economic hardships of the 1973 oil embargo ended, Federal infrastructure mandating dependence on foreign oil expanded from 20% to 65% of needs.
• NAR is required to end oil wars since 1991.
• NAR on pollution that is tilting the balance of nature into climate change.
• NAR on funding terrorists with oil dollars. Eight presidents called for an end to dependence on foreign oil, then claimed progress, while doing little.

STAGE 4: GRASPING FOR SALVATION

• Fracking will make America an oil exporter.
• Drones, the NSA, and the police state can stop oil-funded terrorists.
• Quantitative easing and debt can fund consumption.
• More highway infrastructure will solve traffic problems.

STAGE 5: CAPITULATION TO IRRELEVANCE OR DEATH

• Syria's collapse.
• The economic collapse of September 2008 was a near-miss for the US. Borrowing an additional $10 trillion amplified the risks.

History Repeats

The following graph illustrates the trends that are likely to shift psychology from "Just-in-Time" to "Just-in-Case":

• "Extra Energy Tooth" (green shaded area) is a 10-year-long, 4-million barrel per day spike in demand from the psychological shift to "Just-in-Case" after US peak oil in 1970 (dotted green line). The Saudi plan to spend $2 trillion, the Chinese plan to spend $50 trillion, and the JPods plan to spend $5 trillion will cause a similar "tooth".
• After peak oil in 1970 and peak Prudhoe Bay (dotted green line), the rate of demand for oil imports (dark blue dotted arrows) exceeds the depletion rates (light blue dotted arrows). This indicates a shift to "Just-in-Case" behavior.
• The rate of depletion since peak fracking is more severe than in past peaks. Currently, the shift to "Just-in-Case" seems delayed by consuming part of the 33.8 Days of Supply instead of becoming more self-disciplined. I believe this will cause prices to rise faster once the rapid rate of depletions are better appreciated by markets.
• Unlike previous peaks, there is no spare world capacity in 2016. An increase in demand will force an increase in prices to stifle demand.

There is still a lot of talk of an oil "glut" confusing awareness of the importance of peak fracking and the shift to "Just-in-Case." Since peak fracking, US production is down 672,000 barrels per day, per the EIA report (half a 1973 oil embargo "Unit of Harm"). Watch for price signals as the 33.8 Days of Supply deplete towards 25 Days (TWIP: oil and gasoline), and watch for some market fragility to be harmed to end "Just-in-Time" hubris. Here are possible triggers that will create awareness and the shift to "Just-in-Case" buying of futures:

• Iran Threatens To Shut Down Strait Of Hormuz To U.S.
• San Andreas fault 'locked, loaded and ready to roll' with big earthquake, expert says.
• US accuses Russia of nuclear sabre-rattling, amid Nato tensions.
• What China Has Been Building in the South China Sea; How bad is it in Venezuela? Soldiers are stealing goats

This could impact investments in oil and gasoline ETFs, such as the United States Gasoline ETF (NYSEARCA:UGA), the United States Oil ETF (USO), the iPath Pure Beta Seasonal Natural Gas ETN (DCNG), the iPath Pure Beta Energy ETN (ONG), the iPath DJ-UBS Energy Total Return Sub-Index ETN (JJE), ELEMENTS Linked to the MLCX Biofuels Index (Exchange Series) Total Return ETN (FUE), the UBS E-TRACS CMCI Energy Total Return ETN (UBN), the United States Diesel-Heating Oil ETF (UHN), the iPath DJ-UBS Natural Gas Total Return Sub-Index ETN (GAZ), the DB Crude Oil Long ETN (OLO), the United States 12-Month Natural Gas ETF (UNL), ELEMENTS Linked to the Rogers International Commodity Index - Energy Total Return ETN (RJN), the iPath Pure Beta Crude Oil ETN (OLEM), the ETRACS S&P GSCI Crude Oil Total Return Index ETN (OILX), the Credit Suisse X-Links WTI Crude Oil ETN (OIIL), the PowerShares DB Energy ETF (DBE), the United States 12 Month Oil ETF (USL), the United States Brent Oil ETF (BNO), the PowerShares DB Oil ETF (DBO), the United States Natural Gas ETF (UNG), and the iPath S&P Crude Oil Total Return Index ETN (OIL).

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Comments

[MegaSolar]

As one who feels I have some handle on the big picture, I find it refreshing to see an article that attempts to look at things as an holistic system. It is disheartening to see all the comments tearing it down. While the author may not be right on all that is presented here, he has thought beyond the next move ahead and one thing I am sure of is that we are about to see a leap just as stated in one of the comments above. When and how it will occur, and how much pain we need to go through to force it, I don't know but it will happen in the next one to three decades. As one that has lost a boatload on anticipating this revolution, I've been humbled into realizing that just because you can see a clear path doesn't mean you should invest the farm because the timing of the jump is ill-defined and will occur when the pressures of doing it wrong become so high that the dam bursts.

[Bill James]

Hi MegaSolar

I do not trade for exactly the reason of timing. The direction is fixed by the mass of logistics, the way tectonic plates move. That an event will trigger is certain, when it will trigger is uncertain.

[MegaSolar]

I wish I'd taken a leave out of your book 11 months ago before the train wreck started.

[ghiblinewt]

The limit on the adoption of electrical power to replace fossil fuels in transport is simple: its the energy storage density, right now each gallon of fuel is simply a higher energy storage medium than any equivalent electrical battery. There is a great quote about how the only obstacle to the widespread adoption of the electric motor vehicle was the lack of a sufficiently capable battery, that quote was from 1910 if memory serves me. So electrical storage was and remains the limit some 100 years later. This is changing with new battery technologies (carbon nanotubes et al) and truly massive R&D globally but we are still some years away from batteries which can compete in every sense with a humble gallon of hydrocarbons. To use a computing analogy today's battery technology is somewhere like where personal computing was in 1975.

[Bill James]

Hi ghiblinewt

Energy storage is an issue that can be substantially side-stepped. Reduce the parasitic mass of the vehicle, and it requires a lot less energy. Hence less storage.

[ghiblinewt]

Bill, unfortunately, the energy density issue can't be sidestepped as its the limit on EV range, and indirectly its charge time and lifespan. Vehicle masses are already very low with modern high tensile alloys and Fibre Reinforced composites (FRCs) and polymers there may be a weight reduction possible on the order of 20-40%. Here is an article discussing the energy density issue which is a consequence of fundamental electrochemistry:

"A gallon of gasoline (roughly 4.5 liters) weighs approximately 6 pounds (less than 3 kilos), occupies a mere 230 cubic inches but contains the equivalent of 36 kWhs of electrical energy. For better or worse, this is the energy density standard to which the driving public has gotten accustomed over the years. Anything heavier, bulkier or with less energy density would be considered inferior, hence the main obstacle to popularity of PEVs.

Most current EVs use lithium-ion batteries that store no more than the equivalent of 16-24 kWh of energy in a single charge, short of the amount of energy in a gallon of gasoline. The Tesla, currently among the most powerful PEVs on the market, can store the equivalent of 53 kWh when fully charged. A subcompact car with a 10-gallon gas tank can store the energy equivalent of 7 Teslas, 15 Nissan Leafs or 23 Chevy Volts, according to industry sources."

So a gallon of gas is currently 7 times higher energy density than the state of commercial art Tesla, while probable mass savings maybe 20-40%. Remember the mass of the passengers can't be reduced.Energy density remains the limit on EV development.
http://bit.ly/1ZLB1xu

[Bill James]

Hi ghiblinewt

The way to apply solar to mobility is to replace the networks. Here is a presentation to NJDOT.

http://bit.ly/1ZS0QM9

[User 45595266]

As more people chose PHEV and mpg increase on all new cars, do more ride share services and use more public transportation services, the use of gasoline will decline. Once the price per gallon reaches $5 to $7 in the U.S. many will have no other choice but conserve. Once the EV charging network is in place many will chose the EV over ICE as it becomes more convenient and cost effective. The U.S. has plenty of natural gas and I know the ICE can be converted to burn it, it can be made into a liquid fuel. The people in the energy business will always provide us with the energy we need, we just may not like the price.

[Sleeperz]

Lots of spare capacity. But it is based on the price of oil. Fuel or oil can be made from junk at the right price.

[siliconhillbilly]

Today, converting solar energy to a liquid fuel is the only way to "store" solar energy. That combined with a cost effective, portable fuel cell might just solve the problem. Oops, we don't have a good technology for the conversion process OR the fuel cell.

Electrical storage via electrochemical "batteries" is still far too expensive on a dollar/[total kWh] basis. High front end costs and unacceptable cycle life are the current state of commercially available systems. Notice that all larger systems announced are funded by guvmint money to some extent. That includes rebates and hidden taxes. I know of NO purely commercial EC storage systems.

But not to worry, the fedguv will set up yet another boondoggle and throw money at it to "fix the problem". The fedguv cronies will again do very well.

A true solution might be high temperature fission reactors producing H2 or some other product that can be efficiently converted to a liquid fuel. But fission reactors are BAD! Ask any greenie.

[45Cal]

True.
LMT is working on that future technology as we speak.
Oppseee...there is another BAD company greenies don't want to hear.
lol

[Windwood Trader]

Re: Free solar-

Don't worry- Congress will find a way to tax it.

WT

[45Cal]

They sure will, it'll be solar and carbon tax! LMAO

[change is the only constant]

Author-

Like your investment idea about JPODS. Not sure about the rest. I think highly improbable and paradox are mixed up with your analysis. The former is unlikely to happen but possible, the latter is cannot be done at all. There is a subtle but important difference between knowing improbable and impossible. 100 trillion is a big number. Most people, most of the time can't tell impossible from improbable; and probabilistic from deterministic. That's why some things are called miracles; like $100 trillion of them. It could happen.

Taleb's work is the best example of this in finance. Its not a bad idea to plan for black swans, just don't invest with a calendar and have to pay a mortgage with the proceeds. The highly improbable is highly uncertain for many reasons. And all of them (reasons) become apparent only after its too late to change direction.

[Bill James]

I agree with Taleb that, "history does not crawl, it leaps". We are about to see one.

[DigDeep]

Free Lucas?

[doubleguns]

In less than 20 years, solar will be available to 100% of the global population for free!

Nothing is free. Who pays for the panels, installation, maintenance, transportation and manufacture. They do not fall from heaven like manna.

A thinking article but still lots of hopium included.

[45Cal]

doubleguns,

TY for providing some down to earth common facts to our inexperienced child, Lucas.

[Lucas_Wyrsch]

Solar is free and available to everybody!

In less than 20 years, solar will be available to 100% of the global population for free!

No smogs, no health issues due to fossil or nuclear sources of energy

[45Cal]

Gezzz Lucas!

"Solar is free and available to everybody!"

No you have resorted to outright lying, please stop it while your behind.

[Monsieur Greenbubbles]

Free skin cancer! No charge, come back for seconds if you like.

[bently]

Good news, bad news ... Brokers are loving the resulting windfall in trading commissons as shorts and longs are pressured to go in and out. Meanwhile, the long-termers are still hesitant about the oppportunity cost of locking into the energy sector if things will be retreating. Exciting times for all. In aso far the opening looks good for UWTI. Anyone have a straegy for this one?

[Bill James]

I do not trade, but I do watch the TWIP inventory reports. My guess is as the 33.8 Day of Supply depletes (543 mb), at some point, fear will trigger. The "Extra Energy Tooth" demand (4 mb/d) following US Peak Oil in 1970 will be repeated as the Chinese and Saudis implement their plans. It takes a lot of energy to build $52 trillion in infrastructure.

http://1.usa.gov/1yUv896

[DigDeep]

Bill why will the 33 day supply deplete? or what time frame do you think?
Spot prices for any commodity is volatile as we've found out.

[Bill James]

It takes a lot more energy to maintain current infrastructure while applying energy to build new infrastructure. The Extra Energy Tooth is 4 mb/d for 10-years. To reduce 33.8 to 24 Days of Supply is about 150 million barrels. That is only 40 days. But it will take time to ramp to 4 mb/d, so it will take longer.

[cruise27]

Nothing is too expensive if you need it.

[45Cal]

Yeah cruise27...
Like a tesla and an apple cell phone?
Want & need are two different things with two different price tags in
today's world.
lol

[45Cal]

Very opinionated and speculative indeed.
Oil is a sure play for the next 30 years.
Think I'll buy more stock in my "finite oil" holdings.

BTW, how are your "solar" stocks doing lately?
Since you like to mention energy ETFs, how is your buddy TAN doing?
What?
Opppseee... down -22.26% ytd!
Well that isn't putting food on the table, or buying your Tesla.
Good luck.

[Lucas_Wyrsch]

Doubt that oil is a sure play for the next 30 years dear 45Cal!

Solar will have won the entire energy game in less than 20 years is the opinion of some experts!

Not only solar at night but far more wide reaching solar technologies will make that all our energy needs will be costless!

Oil could go down to 5¢ per barril, it still would be more expensive than free solar!

Think and grow richt!

[45Cal]

Lucas,

Your comment is purely speculative, and mine is based on over 100 years of the crude oil industry. I don't doubt that there will be alternative energy sources in the future to replace hydrocarbons. The world is set up and depends on the best & most affordable source for now, which is hydrocarbon based fuel. Solar may or may not have it's day, but it can't be forced on society and industry before it's time.
Hello failed Solydra? What a HUGE waste of tax payer's money!
http://bit.ly/1ZQV8yu

To put all your chips on the table and expose yourself saying that "solar will have won the entire energy game in less than 20 years", boarders on stupidity imo.

As it stands today, solar has ~25% efficiency rate. This is due to the fact of night, storms, and other factors that limit solar's ability to be 100% efficient, like hydrocarbons are. Sorry, but the "experts" you are quoting are 100% wrong, solar will NEVER be 100% efficient, this fact is due to the simple laws of nature.

Your own buddies on the green side are already raising concerns about solar panel farms. They're claiming they are harmful & unnatural the eco system as well as looking just plain ugly.
Don't blame me, I'm just the messenger to that fact.

So tell me, when are we going to have solar powered passenger & cargo jetliners that can haul several tons and go thousands of miles in a relative short period of time? LOL

When will we see your solar powered sea bearing super freighters? LOL

When will we see your all solar military? LOL

When will we see your all solar rockets and spacecraft enter and exit our atmosphere? LOL

When will we see your 'all solar environment' replace all the
beneficial byproducts and chemicals provided only from petroleum? LOL

We have to answer these questions logically, answer... NEVER!!!

Petroleum will be replaced one day dear Lucas, but NOT in our lifetime.