Human Foibles

I am on a short vacation with my wife.  We are staying in my daughter boyfriend's family summer house in Casadero, 9 miles west from Guerneville, CA.  It is a very nice house in the middle of a majestic redwood forest, separated by a long forest driveway from the road.

In the house, I find five white document boxes that hold an archive of old LA Times newspapers.  I open the first box and pick up at random the business section for LA Times dated May 21, 1992.  In it, my eyes lock immediately on a report bemoaning President Bush's handling of the Savings and Loans debacle, and how the government loan pools favor big S&Ls relative to ordinary people.  Then I see an article stating that people will never again look the same at investing into houses. (In May 1992, we were in the second year of a major housing slump.)   Does this sound familiar, or what?   Why have we forgotten?  I take it back: Why have most people forgotten? I have not forgotten, and this is my curse.

We are on the Blind Beach near Jenner.  The wide, dark coarse sand beach is empty, just us and a young family with a small boy and an even smaller girl.  The mother is maybe 25 years old and round.  She is dressed in a white tight tunic with black vertical stripes and tight black pants that make her large belly bulge like a flabby watermelon. The little girl starts running away from the ocean and into the empty beach.  Suddenly, we hear the young mother barking commands military-style: "Not so far, Emily! Stop!  We are going pee, Emily!  Follow me! Not this way!" And so on.  I am thinking: "Here is the second generation of the controlled, chauffeured everywhere, and vastly over-snacked young people.  The mother is brainwashing her daughter to be scared of walking ten feet on the sand and, perhaps, of any other spontaneous activity, just like her parents beat independence out of her."  How can such people think independently, and love and understand nature?

The Blind Beach photographed by me a day earlier from the north side of the Russian River.

On Public TV, Bill Moyers discusses the hollowing out of the middle class in San Jose, a city at the center of the Silicon Valley.  Without a doubt what happens in the Silicon Valley, changes the world and some people get fabulously rich.  But these people no longer manufacture wafers, chips and devices, and do not need highly qualified, well paid factory workers.  Actually they do not need much of any help, but they have so much cash that suddenly San Jose, Cupertino, etc. are too expensive for most people, and many families become homeless just one lost pay check later.  They interview an old, old homeless woman, who says that she is 54 and that she worked in a chip manufacturing factory when chips were still made in America. She is toothless and looks 80 or so.

Why do people believe that modulated electrons - translated into oodles of cash for the modulators - will bring prosperity to all?  How can Facebook enrich masses?  Facebook can make crowds jerk off in public, like in a never-ending high school reunion, but how can these people become rich through narcissistic gossip? Can they still talk to a living person, while gesticulating and maintaining eye contact?

Why can't I be like Amory Lovins, or Julian Simon , or Jeffrey Sachs, or some other politruk?  (In the Soviet nomenclature, "politruk" was an acronym for "political commander.") Why can't I sooth people and assure them of never-ending prosperity and happiness with never-ending population growth and wealth generation? Why can't I assure all that there will be no oil nor gas nor any other peak of anything, because human ingenuity and optimism will always win with nature?  Why do I have to be such a cold, unloving scientist? 

If I were a Julian Simon, some other very distinguished imbecile would write about me:

...The great human adventure has barely begun. The greenest thing we can do is innovate. The most sustainable thing we can do is change. The only limit is knowledge. Thank you Julian Simon for these insights...

Millions of people would read (no, not actively read, but only passively watch) and nod with warm approval.  But, no, I have to insist on the existence of the Second Law, irreversibility, mass conservation, energy conservation, zero net productivity of the Earth, and so many other idiotic things no one believes in anymore.

Instead of praise, I keep on hearing this song:

La, la, la, la!  I do-on't hear you!  La, la, la,la...

And what I hear serves me right.  

Disruptive Technologies? Really?!

My dear old friends from McKinsey & Company have come up with their view of the world's top technologies.  As a historical note, beginning in the mid 1980's and through the 1990's, McKinsey was instrumental in irreversibly damaging the U.S. oil and gas industry.  McKinsey was hired by the scared oil & gas managers to do a hatchet job on the researchers and operations staffs across the U.S. and - for a lot of money - did a awesomely devastating job.

Suffices it to say that the oil and gas industry in the U.S. will never again have the same breadth and depth, ever.  This statement of fact has some interesting connotations when it comes to operating in the ultra-difficult, super-inhospitable environments, which seem to enter into our future.  In fairness to McKinsey and several other consulting outfits, they acted as expensive external tools used by management to execute (no pun intended) the already agreed upon plans, as in: "What do you want me to conclude, boss?"

But I digressed.  So here is how the research arm of McKinsey, their Global Institute (MGI), sees potential benefits from a variety of technologies:

By 2025, these 12 technologies identified by McKinsey have the potential to deliver economic value of up to $33 trillion a year worldwide.  Source: The New York times.  Image based on Exhibit E3 in McKinsey's 178 page report, "Disruptive Technologies: Advances that will transform life, business, and the global economy."

The sumptuous, 178-page report by MGI is full of colors and smart information that ought to daze you, just as it dazed me until I came across Exibit E2, and in it a boast about "3x increase in efficiency of U.S. gas wells between 2007 and 2011 [due to] advanced oil and gas exploration and recovery":

Among others, Exhibit E2 in the MGI Report claims that the efficiency of U.S. gas wells has increased by a factor of three between 2007 and 2011.

Suddenly, I grew curious just how exactly the three-fold increase of efficiency of U.S. gas wells was calculated.  Would this be a 3-fold increase in the efficiency of gas production per new well compared with old wells?  Which new well?  What old wells?  Over what interval of time?  A month?  A year? How does one define "advanced"?

Since I do not have the resources of MGI to carefully analyze the entire gas production in the U.S., let me focus on Texas, the largest gas producer in the U.S.  Luckily, the Texas Railroad Commission provides easily accessible well production data which allowed me to construct the following plots:

The total rate of gas production in Texas over the last 80 years in Tscf/year.  Note that today Texas produces 1/3 of U.S. gas consumption. Also note the fundamental Hubbert peak in 1972 or so.  The most recent, separate peak is due to a new resource: The Barnett Shale.  This recent production increase was achieved by drilling some 16,500 mostly horizontal wells, and the average production per Texas gas well continued to decline as shown in the next plot. Data source: Texas Railroad Commission.

Production rate of an average gas well in Texas in millions of standard cubic feet per day versus time.  This figure was obtained by dividing the total gas production rate reported in Texas for a given year by the number of active wells in the same year.  If the current trend of production decline continues, an average gas well in Texas will produce nothing 27 years from today.  Data source: Texas Railroad Commission.

One might argue that this plot is not definitive, because the production decline in tens of thousands of older gas wells more than offsets the new production from the fewer new, more productive wells.  So how about plotting an increment of production in a given year, divided by the number of new wells that were put on production in the same year?  Well, here it is:

Incremental gas production rate in a given year per incremental well that came on line in the same year.  The big spike in the 1970's corresponds to the peak of gas production in Texas. It is followed by an even more rapid decline.  If one disregards the second spike in the early 1990's, the incremental gas production per incremental gas well in Texas has been either constant or slowly declined over the last 30 years.  There was no 3X increase of productivity as stated in the MGI report. The only explanation for the MGI claims I can think of is that the flash, initial production from the new massive horizontal wells is many times more that from the older wells.  But these horizontal wells also decline much faster, at 20-40% per year. Thus, MGI experts may be confusing a few individual trees with a large forest. Note that this plot approximates the derivative, dq/dn, q being the gas production rate and n the number of active gas wells;  hence the spikes.

Now, let's look at the total production of dry natural gas in the U.S. since the beginning of accounting:

Historic production of dry natural gas in the U.S. resolved into several Hubbert cycles.  One EJ/year is about 1 Tscf/year. Nothing short of miracle, the U.S. is the only country on the Earth able to create a secondary Hubbert cycle that was almost as large as the fundamental one that peaked in 1971.   Much of the production rebound came from offshore wells in increasingly deep water. The recent shale and tight gas revolution thus far has added the rightmost spike.  Note that the sum of the current Hubbert cycles declines very rapidly in the near future.  Therefore, without continued incredibly intensive drilling, the U.S. will not be able to maintain its current gas production.

As the plot above shows, petroleum engineers in the United States, created a miracle and maintained essentially the 1970 peak level of gas production for another 40-50 years. This epochal achievement has been largely unnoticed by the public. However, the laws of nature being what they are, will not permit a continuation of the past exponential increase of production rate:

This semilogarithmic plot of gas production rate in the U.S., shows the uninterrupted exponential increase of the rate for 80 years (the red line denotes exponential growth at 6.6 %/year). Note that production rate has stabilized after 1970.  This curve reflects the miracle of U.S. gas technology.  This miracle was not duplicated by any other country on the Earth,  but there is no 3x growth of well efficiency anywhere.

So far, I have shown you that the gas production claims in the McKinsey report seem to be exaggerated. I could repeat the same analysis for oil production, but I will spare you. Why spend so much time chasing nonsense?

But wait, there is more of more insidious nonsense. Let's look at the MGI claims that the mobile internet, automation of knowledge work (as in layoffs of professionals), internet of things (as in shutting down small stores around the world), cloud, advanced robotics (as in layoffs of industrial workers), etc., will  increase the current global GDP of roughly 70 trillion USD by 50%.

What do these technologies have in common? Oh, yes, they all use astronomical quantities of electricity and other forms of mostly fossil fuel power, as well as clean water and rare-earth metals.  Without the cheap, reliable, uninterrupted fossil fuel power, ample clean water, and more rare metals than exist on the Earth, the projected growth of these resource-devouring technologies will remain on the glossy pages of MGI reports. So how does one square their estimate that the fundamental enabling technologies (oil and gas exploration and production) will contribute a measly 0.6 trillion of U.S. dollars, but their high-order derivatives will contribute tens of trillions of dollars?  Isn't it all upside down?  Like an inverted pyramid of the increasingly imaginary activities of our society, such as insurance and financial services?

An inverted pyramid of activities of a modern society.  Those that matter the most, agriculture and forestry, mining, oil & gas recovery , and utilities are at the very bottom in terms of their importance, while finance is at the top. No wonder that this pyramid is unstable and must tip over. Image adpated from  Dr. Kurt Cobb, www.resilience.org/stories/2007-07-29/upside-down-economics

In summary, there is much more to life than staring at your iPhone that is connected to the Cloud and the Internet of Things.  Too many experts from McKinsey and elsewhere seem to think that life is like an iPhone screen.  But here is the bad news: Life does not care about iPhones, iPads, and similar.  Life will go on regardless and the upside-down pyramid will fall as it must, no matter how hard people like me and their children will try to slow down this fall.

P.S. Unnoticed by MGI, but a truly disruptive technology that has just surfaced is the illegal, genetically modified wheat with the glyphosate  (Roundup)-tolerant genes.  My other old friends from Monsanto introduced this wheat to the West Coast, and totally disrupted U.S. wheat exports to Japan and South Korea.  They also disrupted lives of thousands of farmers and agricultural service workers in Oregon and Washington State. Oops! But these temporary difficulties might be considered as necessary sacrifices needed to arrive at a futuristic supply of truly inedible food in the U.S. In the long run, this new food supply will  make us die faster and thus stimulate the new economy of things.

Energy Exports May Not Be Good

On May 17th, 2013, Joe Nocera of the New York Times wrote an editorial, Energy Exports Are Good!  In it he follows the classic paradigm of neoliberalism: Let the "markets" decide what will happen with natural gas and let us export it if someone so desires.

According to Wikipedia, neoliberalism in economics was originally coined in 1938 by the German scholar Alexander Rüstow at a colloquium that defined the concept of neoliberalism as “the priority of the price mechanism, the free enterprise, the system of competition and a strong and impartial state.” To be "neoliberal" meant that – in the name of liberalism – a modern economic policy was required.

So far so good, especially if everything can be traded over infinitely long times (centuries for us) with a perfectly smooth substitution of one resource for another and one product for another.  But this assumption does not hold for depletable resources, whose production does not adjust easily and instantaneously to demand.

I am always amused to see a plot like the one below, whether it refers to neoliberalism or some other simplistic, unrealistic concoction by economists.

A nice plot of linear demand and linear supply, with no delay and no saturation.  While this simplistic, static approach makes economics courses easier, it does not reflect the long-term reality of depletable resources.   Source: Wikipedia.

Judging from the birthday and birthplace of neoliberalism (Germany and Austria, 1938), would the "strong and impartial state" be expected to go to war to secure resources for the economy?  A year or two after 1938,  members of my family were put into concentration camps, became slave laborers, and were executed by the Nazi Germans and Soviets. In the leading Italian economic model, Fascism (from Latin fascio, a bundle or bouquet) was a synonym of seamless collaboration between corporations and state.

So let's look at Margaret Thatcher's United Kingdom (1979-1990) that pursued the neoliberal economic policy with gusto.  Here is the U.K.'s oil production, consumption and oil imports/exports until 2005:

Margaret Thatcher became the Conservative Party Prime Minister when the red and yellow curves crossed and was ousted by her party when they touched again. By the time U.K.'s North Sea production is over, U.K. will have produced at least 25 billion barrels of oil and exported roughly 6 billion barrels, or 25%.  The production and consumption curves crossed again in 2005.  You must be dying to learn what happened later. Image source: An OilDrum post by Euan Mearns, Oct 3, 2006.

Since you must be curious about what happened with U.K.'s oil exports after 2005, here is a recent update from the DOE's Energy Information Administration (EIA):

U.K's exports/imports through the year 2012.  Since 2005, U.K. has had to import ever more crude oil. Here two populations of reservoirs could be resolved with two Hubbert peaks. Source: EIA, accessed May 18, 2013.

From the data it follows that U.K. embarked on an aggressive field development and exported oil between 1980 and 2005.  The first peak in exports followed oil price of the day, but the second one occurred when oil price was very depressed.

Now imagine this: What would happen, if U.K. slowed down its production and did not export oil between 1990 and 2005?  I understand that this type of thinking is absolutely foreign to most everyone in the U.S. and would be dismissed as "socialistic talk."  Why think about future, when one can make a quick buck today?

Which brings me to Mr. Nocera's hot appeal to export each year one or two months worth of U.S. gas production.  Is this a wise idea?  Is it perhaps more profitable to use this gas to power a thriving steel and petrochemical industry?  Couldn't we export instead the high value added digital tool machines and complex industrial products, such as planes and cars? Shouldn't we be using the extra power from natural gas to mass produce solar photovoltaic panels and solar water heaters on most roofs in the U.S.?  Introduce U.S. to an early twentieth century in mass transit?  In short, shouldn't the U.S. have an industrial and social development policy, like Germany, Norway, or even China?

And as a sobriety check, here is what really happened with U.K.'s natural gas production and exports:

Natural gas production in U.K  The rapid production increase lasted for 12 years, followed by an equally steep decline. What you see here is a yet another classical Hubbert peak of production. Source: EIA, accessed May 18, 2013.

Natural gas exports/imports in U.K Since 2004, U.K. has become dependent on gas imports at an accelerating pace. Source: EIA, accessed May 18, 2013.

The neoliberal idea of exporting natural gas was good while the supply lasted, but today U.K. can barely replenish its stocks of natural gas by paying over US $10 per million BTU.  Of course, today Great Britain is dangerously close to a failed state and it's former glory will never be restored.

Now, do you want to compare the outcomes of the British neoliberal policies with the Norwegian brand of socialism?  Perhaps not, because this comparison is not kind to Margaret Thatcher and Company Limited.  Very limited it turned out, despite a jolly good little war in the Falklands.

P.S. Financial Times, UK gas supply six hours from running out in March, by Gill Plimmer and Guy Chazan, May 23, 2013:

Britain came within six hours of running out of natural gas in March, according to a senior energy official, highlighting the risk of supply shortages amid declining domestic production and a growing reliance on imports. “We really only had six hours’ worth of gas left in storage as a buffer,” said Rob Hastings, director of energy and infrastructure at the Crown Estate, the property portfolio managed on behalf of the Queen. “If it had run any lower it would have meant . . . interruptions to supply.”

P.S.P.S. 06/19/2013, from Rune Likvern, based upon BP SR 2013:

The growing gap between consumption and production, UK imported fossil energy for an estimated US $ 35 - 40 Billion in 2012. I do not know of any other country that has experienced such a steep decline in energy production. From being a net energy exporter in 2003 to basing around 43% of its energy consumption on imports in 2012. UK’s energy production is now back to levels of late 60’s early 70’s.

Therefore, in nine years, UK has transitioned from a free market poster child that exports here and now whatever it has to offer, to a heavily indebted importer of crude oil, natural gas, and coal.  Let this be a  yet another warning for our darling manipulators of the media and public, and the incoherent, uneducated, and rushed reporters.

What If There Is Peak Oil?

The Spring 2013 Semester has just ended and I am beginning to see light in the tunnel. So I can restart writing my long-neglected blog.  Many things have happened in the four months since my last entry:  Thousands upon thousands of innocent people have died in wars and ethnic/religious strife. Most of these wars have as background access to oil, gas, and drinking or irrigation water. More narrowly, Shell decided not to go back to the Arctic in 2013, and Statoil and ConocoPhillips are waiting on Shell to go to the Arctic. According to mass media, the world is awash in liquid hydrocarbons everywhere. Or is it? The question I have been asking myself repeatedly is: How do I explain things to people who in general are not interested in learning and understanding the things I am trying to explain?

I just checked Google to find out about "peak oil." Google reported that 58 million people posted something with this phrase. Then I googled the "peak oil myth."  Among the mere one million entries, the most popular one was "Energy Independence and the Myth of Peak Oil," published on Nov 12th, 2012, by Louis Basenese, Chief Investment Strategist for The Wall Street Daily, and a Wall Street consultant and analyst. His blog was published under this auspicious heading: "In the world of liars the truth starts here."

If you can see through tears of despair, please try to read this gem of ignorance and nonchalant arrogance, summarized so well by Professor Harry Frankfurt in his brilliant book, On Bullshit.  When you read the latter concise and funny philosophical treatise, you will learn how a bullshitter has a casual relationship with truth; sometimes what he says is true and often it is not, but no one knows which one is which and when.

Here is a typical example:

We have a career theorist (i.e. – a research geologist) to blame for Peak Oil. So we shouldn’t be surprised if reality doesn’t match his theory. His name is Marion King Hubbert. In the mid 1950s, he developed a quantitative technique that could be used to predict the remaining supplies of any finite resource – and the time of ultimate depletion. And Hubbert used it to predict that oil production would peak by the early 1970s. Nice try, Nostradamus.

Thus, according to Mr. Basenese, Dr. M. King Hubbert, one of the top American scientists of all times, is a "career theorist" (note the populist anti-science tone of this phrase).  Since no one needs to pay attention to what a career theorist says or writes, it apparently escaped Mr. Basenese that Dr. Hubbert correctly predicted in 1956 that the U.S. production would peak in the early 1970s.  It did.  And later, oil production peaked in the North Sea in Norway.

In addition, Dr. Hubbert predicted that the world production of petroleum would peak in the early 2000s. And it did too. (Petroleum is also called crude oil. It is the black, brown, yellow or greenish, gooey stuff  that is not the thin, transparent condensate, nor ethanol, nor solid black tar) .

Condensate is not crude oil. Draining condensate from a tank shows how clear and fluid it is. The darker color is only a trick of reflecting light through the wet concrete.  For more go here.

This is a sample of a thick dark crude oil, not transparent thin condensate.

Contrary to the first figure in Mr. Basenese's blog, showing the global rate of production of total liquids in percent (sic!), and calling it "global oil production," the real rate of petroleum production has stalled since 2004.  And for good reason: we are at the peak of global rate of crude oil production. For the distracted, here are the two important phrases: "global rate" and "crude oil."

At a risk of repeating myself, let me go again through how it works.  So please listen up!

We will never run out of oil. In 1866 or so, William Stanley Jevons described the phenomenon of resource degradation and dilution as follows: "The expression "exhaustion of our coal mines," states the subject in the briefest form, but is sure to convey erroneous notions to those who do not reflect upon the long series of changes in our industrial condition which must result from the gradual deepening of our coal mines and the increased price of fuel. Many persons perhaps entertain a vague notion that some day our coal seams will be found emptied to the bottom, and swept clean like a coal-cellar. Our fires and furnaces, they think, will then be suddenly extinguished, and cold and darkness will be left to reign over a depopulated country. It is almost needless to say, however, that our mines are literally inexhaustible. We cannot get to the bottom of them; and though we may some day have to pay dear for fuel, it will never be positively wanting (The Coal Question: An Inquiry Concerning the Progress of the Nation and the Probable Exhaustion of Our Coal Mines, Macmillan & Co., London, 1866, Preface, pp. vi-vii). "

Now substitute the words "crude oil"  for "coal" and "deposits" for "mines,"  and you will have a similarly true statement.  The crude oil deposits are huge and we will never run out of them. Period.  But then it gets more confusing.  In an Atlantic Monthly piece, What If We Never Run Out  of Oil? the author eloquently restates this Javons' thesis, while commingling gas hydrates and natural gas with crude oil.

Energy supplies are infinite. In the same Atlantic Monthly article we find this quote: “When will the world’s supply of oil be exhausted?” asked the MIT economist Morris Adelman, perhaps the most important exponent of this view [of inexhaustible resources, TWP] “The best one-word answer: never.” Effectively, energy supplies are infinite."

Was Hubbert wrong?  So how does someone like me defend M. King Hubbert, when faced with such overwhelming evidence of the infinite nature of the Earth and her resources?  First, let's try to understand Jevons, who was not an MIT or Harvard economist.  Jevons simply stated that there is always some coal seam somewhere in the world that could be mined in principle.  He did not say anything about the rate and cost.  Confusion that ensued is now self-evident truth in the minds of Mr. Adelman and many others.

So here is the dirty little secret of our civilization:  It runs on power, or energy per unit time, not on energy.  The scientifically illiterate English majors, economists and politicians, simply cannot comprehend the fundamental difference between a quantity (here energy) and its time derivative (here power).  This is how skipping algebra and Calculus I terminally confused leaders of an otherwise advanced nation.

In other words, having one billion dollars in your checking account does not help you with purchasing a Rolls Royce with cash  if your daily withdrawal limit is 100 dollars.  The huge checking account is a metaphor for the oil deposits or global resource, and the ATM card you use to tap into this account is the oil wells and installations that produce this resource.  I have explained this apparently difficult subject elsewhere and do not want to repeat myself yet again.

It is the rate, stupid. In summary, for the U.S. and the world, it doesn't matter how huge a resource is, if it is used over one thousand years, drop-by-drop.  We are interested in energy gushing at us at an incredibly high rate of 75 million barrels of crude oil per day. (One cubic mile of petroleum per year.)

This gigantic global rate of producing petroleum will not increase substantially from now on and - if anything - this rate has started declining.  Hubbert was right because he was a genius scientist, who understood nature.  The lay interpreters of Hubbert occasionally get his thinking wrong.

P.S. A MOOC on derivatives anyone?

To be clear, when I say "derivative," I mean that if y(t) is some nice, smooth function of time, t, its derivative, y'(t), is the limit as a time increment, delta t, goes to zero of the following expression:

[y(t+delta t)-y(t)]/delta t.  

I did not mean the trillions of dollars in imaginary bets on everything that are also called "derivatives."

P.S.P.S.  More good news from Bloomberg about U.S. oil exports:

U.S. oil exports are poised to reach the highest level in 28 years as deliveries to Canada more than triple, helping bring down the price of the global benchmark Brent crude relative to U.S. grades. The shipments will rise to at least 200,000 barrels a day by the end of the year, according to Ed Morse, head of global commodities research at Citigroup Global Markets Inc. Exports were 59,600 in 2012 and haven’t averaged more than 200,000 since 1985.

Brent Pressured by U.S. Tripling Crude to Canada: Energy Markets, by Dan Murtaugh - May 10, 2013 11:03 AM CT

Not a word there about the almost 3 million barrels per day of oil imports from Canada.   That's 15 times more!

Here is what a factor of 15 means.  Suppose that you run a comfortable mile in 10 minutes.  Then in one hour you will cover 6 miles.  That's U.S. oil exports to Canada.  Now suppose that I barrel down an empty highway at 90 miles per hour.  That's 15 times more, like U.S. oil imports from Canada. Would you want to run into me head-to-head on that highway?

Arctic Oil and Sanity

As Nicholas Taleb stated in "Antifragility":

Now as a skeptical empiricist, I do not consider that resisting new technology is necessarily irrational: Waiting for time to operate its testing might be a valid approach if one holds that we have an incomplete picture of things. This is what naturalistic risk management is about. [ I.e., management of risk by nature, TWP.] However, it is downright irrational if one holds on to an old technology that is not naturalistic at all yet visibly harmful, or when the switch to a new technology ... is obviously free of possible side effects that did not exist with the previous one.  (Page 191)

So what does this statement have to do with the current developments in the Chukchi and Beaufort seas?  It turns out that a lot.

First, both sides in the Arctic disputes have taken fragile, absolutist positions. Environmentalists claim that there is no technology that could ever be applied in the Arctic from here to eternity, because all technologies can have only dire negative consequences.  The same environmentalists travel, I presume, to Alaska by jet, then continue by car, or small plane or helicopter, or by ship or motor boat.  I have not heard about many opting for horses, or husky dogs with sleds, or kayaks.

In tune with the customary attitude of the industry, Shell has taken a mirroring absolutist position and claims that nothing they do could possibly cause harm, or discomfort, or cause an accident - big or small.  This childish game that supports lots of lawyers on both sides creates bad blood everywhere and leads nowhere, because we all need oil and we all do not want environmental disasters to happen - big or small.

The lesson here is that if one sues environmental organizations on the premise that one cannot possibly make a mistake, one should put an A-team on the job, and try not make multiple, avoidable mistakes. A word of caution, however: If for a strategy to be successful everything has to align perfectly and as planned,  this strategy is fragile and likely leads nowhere.  Does this remark sound familiar to those who follow the "fracking" (I hate the word) debacle?

Second, and more importantly, instead of focusing so totally on the here and now, the Kulluk grounding most recently, a better question to ask is how long will it take at a minimum to develop a significant offshore oil prospect in the Arctic?  My educated guess is 10 - 15 years.  Let me translate for the impatient i-phone users demanding instantaneous gratification:  If you are 20 today, you might be 35 by the time significant oil will flow from the Arctic offshore.  This oil will be produced using technologies that either do not exist today, or are on drawing boards.  By that time, Saudi Arabia might not be a net exporter of crude oil.  Think of the implications for the world.

Third, and most importantly, by making this bold move now (really starting in the 1980's, and then picking up pace in 2008) Shell is essentially buying an option to produce a potentially huge amount of oil in the Arctic at a relatively small cost (what is 5-10 billion dollars in the big scheme of things?), taking a measured go-slow approach, and taking relatively small environmental and social risks. So the downside for Shell - and us - is likely to be quite small, but Shell gets to be a sole operator of a potential treasure-trove at a time when everybody will be begging for oil. Now this may be called visionary thinking.  Shell has made and will continue to make mistakes, and mishaps and accidents will happen.  Let's assume that all will be small, but such is the price for blazing new difficult trails. If such an assumption cannot be made, all bets are off.

We know well that nowadays no deed seems excessive in the middling efforts to squash daring and courage. Again, as Taleb teaches us, there is no middle in real life. It only exists in a bureaucratic Mediocristan the U.S. may be in danger of becoming.

P.S. When I criticize or praise anyone, including my old dear employer, Shell (1983-1990), I do it independently and with little regard for consequences.  An old infatuation, called Solidarity, taught me a thing or two, and 10 years of fighting for the Earth's environment and its people invaded by the giant, mega-polluting plantations of agrofuel crops have only hardened me.

For calibration, this is what I told the EU Ministers of Transport and Environment, and the U.S. delegation to OECD. They did not like me over there, but still changed their agrofuel policies much in line with my arguments.  Six years later, after the Big Recession, my OECD speech sounds eerily prescient.  Perhaps because of this, my 2007 OECD paper was recently delinked by Hekate's little sprites prowling the OECD archives.

Incidentally, the main thesis of my 2007 OECD paper is that the Earth's gross and net primary productivities are constant and industrial agriculture damages both.  A recent paper in Nature essentially repeats this thesis.

Oil in the Arctic

 
Picture a vast gray ocean that dissolves into gray sky pregnant with heavy dark clouds, and a gray flat sandy shore that slowly oozes up from the Chukchi Sea.  This is what our Ocean Energy Advisory Committee saw from the Coast Guard C130 plane, chartered by BSEE's Director, Admiral James Watson.

Click on this image to see it in full resolution and hit Esc to go back. This gray vastness is surrounding our C-130 plane, flying the BSEE Advisory Committee to the Burger Prospect in the Chukchi Sea and to Point Barrow in Alaska.

In summer, the Arctic ocean is dotted with white ice floes. In winter all is frozen.

Our incredibly young and competent Coast Guard pilots are gradually descending to 500 ft above water.

On August 30, 2012, we flew close to the Burger Prospect at 500 ft above the sea level.  This is the area where one day Shell will drill their first wells.  The sea was dotted with ice floes, some very large.  Similar floes stopped all arctic drilling by Shell in late October 2012.

A Shell support barge that was to be used by Shell to drill the first well.

This vast empty space is the neighborhood of Point Barrow, the settlement closest to the Burger Prospect in the Chukchi Sea. Here, Shell will attempt again to drill their first wells in 2013.  Despite Shell's valiant efforts in 2012, and hundreds of millions of dollars spent on preparations, not a single well was drilled and completed.

Point Barrow emerges from the sea.  This is the entire onshore infrastructure in the radius of over 100 miles.  There are no roads and only a tiny airport links this settlement with the outside world.

We have landed in Point Barrow.  Our plane also brought extra gasoline supplies to be used by the Coast Guard crew stationed at Point Barrow. Gasoline is very expensive in Point Barrow.

This Coast Guard crew stayed at Point Barrow for three weeks.  They fly search-and-rescue helicopters, help with teaching Inupiat children, and are a part of the command-and-control network established by the Coast Guard to oversee the vast offshore areas.  We are standing on permafrost.  The back-wall of this hangar is not properly insulated and is buckling into the slowly melting soil.

An impromptu gathering with the local officials.  Admiral James Watson is standing on the right, and Don Jacobsen, who will be running Shell's drilling operations in Alaska in 2013,  on the left. The North Slope Borough Mayor, Charlotte Brower, is standing next to Admiral Watson.  It was refreshing for me to hear the local people praising the Coast Guard and Federal Government for providing help and protection.

Alaska with some of the offshore oil and gas prospects.  Point Barrow is the most northward settlement in the United States.  The Shell Burger prospect is in the Chukchi Sea, 140 miles NW from Point Barrow.  No roads leave Point Barrow because  it is in the middle of a vast nowhere.  To link the Burger Prospect with the Trans-Alaska pipeline, would take roughly 150 miles of sub-seafloor pipeline to shore, and another 200-250 miles of a new pipeline east to Prudhoe Bay.

Here are some of the difficulties with drilling and operating offshore oil and gas wells in the Arctic, west and north of Alaska: 

1. Gas vs. oil. Natural gas is not oil.  Gas price and remoteness of the Arctic make offshore gas production and transport unprofitable. Let's hope that most of the hydrocarbons discovered in the Arctic are oil, not natural gas.
2. Long distances and no infrastructure.  Literally everything one needs to drill, complete and produce a well must be brought from Portland, Seattle, or Vancouver.  This means that dozens of extra supply and support ships and barges must be deployed in the Arctic.  Because of the long distances, weather, and lack of airport and storage infrastructure, little or nothing can be flown to drill ships on helicopters.
3. Fragility of supply chains. Long and complicated supply chains are costly to maintain and vulnerable to extreme weather and physical failure. When a few elements in a long chain fail, they cannot be repaired quickly and easily.  Germans discovered this fact by 1942, when their invasion of the Soviet Union started to falter not because of lack of military superiority, but because of difficulties with supplies during the long and cold Russian winters. Americans have discovered similar problems with military supplies in Afghanistan.
4. Ice at water surface and on seafloor. The Arctic wells will be drilled in relatively shallow water, 150 ft or so.  Sea water can freeze all the way to the bottom through the sinking of very salty, cold brine that forms the downward racing "brinicles." This BBC documentary shows sea water freezing rather nicely.  Therefore, wellheads, BOPs, pipes and other seafloor infrastructure must all be dug into the seafloor and hidden from ice scraping it from above. They still may be enveloped in ice generated by the cold brine raining down from the surface ice cover. Wellheads and BOPs in pits may make it difficult or impossible to access them with ROVs and capping stacks if something goes wrong.
5. Oil transport. When the offshore wells are successfully completed and produce oil through the sufficiently sturdy production platforms that can withstand waves, wind and ice floes year around, how will the produced oil be exported year-around?  (Actually, in 180 ft of water, all production facilities would have to be sub-seafloor, or in heavy bunkers on seafloor. Only very shallow water will allow for gravel islands.) Transport by tanker will be difficult, and probably impossible through winter, late fall, and early spring.  Laying 150 miles of pipeline beneath the sea bottom, followed by another 200 plus miles of pipeline onshore to attach to the trans-Alaska pipeline will be exceedingly costly and difficult.
6. Cost and time. Since 2008, Shell has spent nearly US $3.5 billion dollars on plans to explore for oil in the Beaufort and Chukchi Seas on three proposed drill sites: three blocks in the Burger prospect, and one block each in the Crackerjack and the Shoebill prospects. In the four years that ensued, no wells were drilled (only two topholes were spudded) and no permanent infrastructure was built.  Shell probably pays 1/4 of a billion dollars per year to maintain its ability to operate in the Arctic. Some 30 offshore wells were drilled in the U.S. part of the Beaufort Sea in the 1980s and early '90s, and five in the Chukchi.  None of the wells previously drilled far from the coast produced oil or gas, because there was no cheap way to maintain and export their production. 
7. Environmental risks. The Arctic Ocean is no Gulf of Mexico with its strong loop current dispersing spills and lots of active bacteria eating hydrocarbons year-around.  The delicate Arctic Ocean is home to about 240 fish species. There are 12 species of marine mammals that inhabit the Arctic: 4 species of whales, the polar bear, the walrus, and 6 species of ice-associated seals. Several additional species (e.g. Sperm Whales, Blue Whales, Fin Whales, Humpback Whales, Killer Whales, and Harbor Porpoise) are spotted either occasionally or regularly within marginal waters of the Arctic. There are 64 species of seabirds that breed in the Arctic. About 50 million seabirds nest on Alaska's coast each summer, nesting in more than 1600 seabird colonies along the coast. 
8. Accidents. If a serious well-control accident occurs in September, oil may continue spilling into the ocean for another 8 months, endangering most of sea life within the spill domain. In bad weather and rough sea, ships can break down, collide, sink, or run ashore.  The more support ships are involved, the higher the risk.  Probability of a serious ship mishap is much higher than that of a drilling accident. Please remember that historically most of the largest marine spills have been caused by ship accidents, not by drilling.
9. Repairs and spare parts. The Arctic supply chains will have to make provisions for all key spare parts to be stored on support barges next to drill sites. Otherwise, these parts would be unavailable for prolonged periods of time, stopping all work. One could introduce multiple redundancies of all important systems.  For example, one could have "two of each," thus doubling or tripling operational costs and increasing risks of ship breakdowns and collisions. "Two of each" would require 2 times more people for 24/7 operations in 12-hour shifts. If, because of exposure, shifts are shorter, the number of personnel will increase correspondingly.  Locals do not work shifts longer than 8 hours.
10. Lack of appropriate people.  There are about 4700 native inhabitants of the North Slope Borough, including women, children, and elders. They cannot all work on offshore drilling and production. Many lack sufficient technical skills. New workers, imported from the south, are likely to be unprepared for the severe conditions in the Arctic. Also, most older experienced people of all ranks have retired by now from the oil industry. Their replacements of sufficient quality simply do not exist in necessary quantity. For example, at Shell, who will replace Charlie Williams or Ken Arnold or Richard Sears? Or so many experienced technicians and deck hands?

The Noble Discoverer operating in the Chukchi Sea in the summer of 2012.  Image source: Shell.

In summary, drilling for oil, and producing and transporting oil in the Arctic require a complex system with the compounding fragilities of many elements of the system. Such compounded fragility makes this system unstable to disturbances. Some of the disturbances can be relatively small, but still can cause large disruptions. For example, an electrical system failure on just one support barge can cause all drilling work to stop.

We, engineers, have dealt with complex, fragile systems for decades, but - I submit - the Arctic drilling/production/transportation system presents qualitatively new challenges, because of its finely interlocked elements. At best, most small failures of parts of this complex system will grind the whole operation to a halt. At worst, corners will be cut and accidents will happen.

As Mr. Taleb has taught us, a small disturbance in a fragile, complex system may result in a catastrophic loss of integrity of that system.  Such catastrophic events will have frequencies that are much higher than those predicted with standard risk management tools.  We used to call these events "Black Swans," but today we know better.  The highly disruptive catastrophic events are one of the basic features of every fragile complex system.

Are we ready to proceed in the Arctic with this knowledge? 

P.S.  Here are the cumulative reports on offshore projects.

P.S.P.S.  Here is a 12/27/2012, LA Times article about safety issues with the Noble Discoverer drilling ship.

On 12/30/2012, as if to illustrate my Points 8 and 9, this report appeared:

A Coast Guard HC-130 Hercules aircraft from Air Station Kodiak overflies the tugs Aiviq and Nanuq tandem towing the mobile drilling unit Kulluk 116 miles southwest of Kodiak City, Alaska, Sunday, Dec. 30, 2012. The tug Alert from Prince William Sound and the Coast Guard Cutter Alex Haley from Kodiak are en route to assist.

On 12/31/2012:

Anchorage, Alaska – The Unified Command reports that Kulluk grounded at approximately 9 p.m., Alaska time on the southeast side of Sitkalidak Island. The crew of the tug Alert was ordered to separate from the Kulluk at 8:15 p.m. to maintain the safety of the nine crew members aboard the vessel. “The extreme weather conditions and high seas continue to be a challenge. We have more than 250 people actively involved in the response efforts,” said Susan Childs, Incident Commander, Shell. “Our priority right now is maintaining the safety of our response personnel and evaluating next steps.”

There were no personnel aboard the Kulluk at the time of grounding, and no injuries have been reported. There is reportedly up to 150,000 gallons of ultra-low sulpher diesel on board the Kulluk and roughly 12,000 gallons of combined lube oil and hydraulic fluid. The condition of the vessel has not yet been confirmed and overflights are scheduled pending weather conditions. Unified Command, using a U.S. Coast Guard aircraft, plans to conduct a survey to assess the situation at first light. A response team will be deployed when it is safe to do so.

Now, please reread this blog written over Christmas, and published on 12/29/2012.

When Denial of Reality Fails

To my relief, Dr. Paul Krugman has published yet another sermon, When Prophecy Fails.  For months, I have been fascinated by Dr. Krugman's blithe, unwavering insistence on the superiority of his arguments over those of differently clueless economists.  Today, I decided to compose my reply.

Back in the old days, in Poland, I often listened to a lovely satirical radio program on an FM station with a short range and not much attention from censors.  Among others, each week brought an installment of a philosophical discourse, entitled "On the Superiority of Easter over Christmas." The author, Jan Tadeusz Stanisławski, a self-proclaimed Professor of Applied Presumptology, would explain in short, exquisitely absurd monologs the utter stupidity of the various pseudo-scientific arguments about economics and society. This episode, "Greed for Gold," is as good as any.  It ends with the following summary:

Why are we talking about gold, someone might ask? They also ask about things hundred times simpler, showing an astounding lack of understanding of almost anything. So why are we talking about it?  Applied presumptology gives the only correct, universal answer. I quote: "The question, 'Why?' should always be answered because in general a smart person will understand and stupid people might reflect at least once in their lifetimes."

Jan Tadeusz Stanisławski, born January 26, 1936, in

Włodzimierz Wołyński, died in Warsaw, on April 21, 2007.

Since Dr. Krugman is a very smart person, I presume he is capable of a reflection at least once in his lifetime. Supposing that my presumptive assumption is correct, Dr. Krugman should perhaps think more about the root causes of the unceasing global recession that - according to him - would be over if all central banks printed enough paper money.  Professor Jan Tadeusz Stanisławski would no doubt advise Dr. Krugman to think about those reasons for the recession Dr. Krugman could not possibly comprehend as an economist, just as they are misunderstood by the economists Dr. Krugman criticizes so fervently.

As Nassim Nicholas Taleb writes in his monumental book, "Antifragile: Things that gain from disorder," the governing Soviet-Harvard model of global economy presumes that smart people can always tell the present and future behavior of complex systems. Of course they never do, but this fact does not discourage them from making incessant prophecies they call "scientific predictions."  Now wait a second, wasn't Dr. Krugman objecting to the lesser prophecies by other, alternatively clueless economists?

Very briefly, so that Professor Jan Tadeusz Stanisławski would approve of my argument, here it is:  

The current global economic crisis is not over and will not go away until the fragile global economic system that created this crisis falls apart and gives birth to a simpler, noisier, and antifragile system of small and local economies. These messy smaller economies will not be centrally managed by the super smart puppeteers, ventriloquists and magicians from Harvard, IMF, the World Bank, the EU, UN, and the Council on Foreign Relations. Why?  Because smart as they are, they have already failed.

There are many, many reasons why the current centrally-planned system must fail. Some of the reasons are that this system is inherently unstable, unreformable, and will keep on propping itself up until it implodes.  Even more importantly, the physics and finite resources of the finite, spherical planet Earth are seriously interfering with the Soviet-Harvard model of the flat infinite Earth under the New World Order. That's it. And the Soviet part of the Soviet-Harvard model has already imploded. That's a fact.

P.S. Perhaps you are wondering why do I bother to write about so many unpopular issues? I have to. The spirits of my parents, Professor Jan Tadeusz Stanisławski, and Bokonon are consistently framing my yet unformed thoughts. The rest is simple.

P.S.P.S. The last link in this post is a short simple song, which immortalized Professor Jan Tadeusz Stanisławski.  He sang this song alone on a huge stage at the last Festival of Solidarity before the martial law in Poland in December 1981. Imagine a diminutive man with an acoustic guitar, singing this against the tanks and armored personnel carriers that for a while enforced in Poland the Soviet part of the still governing model:

"Do not fear assholes, taught me Mommy Dear.  An asshole is an asshole, and he lives in fear.  My Mother educated me to be a history's witness..."

Given this advice, the first Minister of Finance of the newly independent Poland, Leszek Balcerowicz, stopped listening to the expeditionary economic brigade led by Professor Jeffrey Sachs and the Harvard Schools of Public Policy and Business, and saved the budding Polish economy from collapsing.  Similar brigades were sent to all eastern European countries and Russia, in a blatant attempt to reshape them according to the Harvard-Soviet model, with the Soviet part deemphasized. The year was 1990, but repeated attempts at subjugating the East European countries were made through the years 2000-2004. Those other countries were not as lucky as Poland.