- 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.
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.
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.
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:
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.
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).
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