SMART Letter #84
Show Me the Science!
January 29, 2003
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SMART Letter #84 -- January 29, 2003
Copyright 2003 by David S. Isenberg
isen.com - "slippery stuff"
isen@isen.com -- http://isen.com/ -- 1-888-isen-com
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CONTENTS
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> A Word to the SMART
> Quote of Note: Joab Jackson on Lightbulbs & Candlemakers
> Smart Remarks by SMART People:
+ Andrew Odlyzko on NZ's Distance Problem & Oil
> NZ Still Has a Distance Problem, by David S. Isenberg
> Smart Remarks by SMART People:
+ Porter Stansberry on Hubbert's Peak Again
> Show Me the Science! by David S. Isenberg
+ Porter Stansberry on Running Out of Energy
> Isenberg Gets the Last Word, by David S. Isenberg
> If it's Funny, it Must be True, by Scatt Oddams
> Conferences on my Calendar
> Copyright Notice, Administrivia
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A Word to the SMART
SMART Letter #84 is more about oil than telecom. The
uniting themes here are (1) how advancing technology changes
the patterns of abundance and scarcity, (2) how
infrastructure affects everything else, and (3) what a small
connected planet we call home. No, I am not an oil expert.
Once I wasn't a telecom expert either, but that didn't close
the door on my curiosity or negate my concerns or invalidate
my later contributions. -- David I
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Quote of Note: Joab Jackson
"The light bulb was not invented by the candle industry
looking to improve output."
From "Disruptive Technologies," by Joab Jackson in
Washington Technology, 01/27/03; Vol. 17 No. 20,
http://tinyurl.com/51ic.
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Smart Remarks by SMART People
Andrew Odlyzko [odlyzko@dtc.umn.edu] writes:
"New Zealand's distance problem, as you describe it, is
unlikely to be all that much more severe than that of
other places. Even if Deffeyes is completely right (and
not everybody accepts that), basic economics will come
to the rescue. Jet fuel is a small enough fraction of
total energy consumption that there should be enough oil
for it. It will then be just a natural function of
prices to arrange for the dwindling supply to go to
where it is most needed.
"Suppose that due to exhaustion of natural oil, world oil
output drops 50% and demand stays the same. [The other
50% would] come from synthetic oil at $100 per barrel.
Producers of natural oil [would also] raise their prices
to $100 per barrel. Airlines would still be able to get
all the oil they need by offering $100.01 per barrel.
"Deffeyes's conclusion may be right in that fuel costs
are a bigger fraction of total costs for airlines than
for most industries. However, the main point of the
posting, that non-substitutability of synthetics for
natural oil in production of jet engine fuel (something
that I am skeptical of, too) will cause a crisis for air
travel much worse than for other industries, simply is
not plausible."
New Zealand Still has a Distance Problem
by David S. Isenberg
As best I can remember, neither _Hubbert's Peak_ nor
Professor Deffeyes' talk of September 26, 2002 directly
addressed synthetic jet fuel. He was looking at nearer-term
substitute energy sources. For example, natural gas does
not have enough energy density to support jet travel, as it
exists today. Neither do on-board batteries. Nor are
on-board nuclear reactors practical. Could synthetic
(e.g., bio-) fuels be developed in time to step into the
breach without a catastrophic market discontinuity? Could
synfuels be developed at the hypothetical price of
$100/barrel-equivalent? I do not know. But as Deffeyes
says, "Crude oil is much too valuable to be burned as fuel"
(_Hubbert's Peak_, Chapter 1). Assuming he is right,
synfuels could be even more valuable; $100 might be a
gross underestimate.
But even assuming that $100/barrel-equivalent synfuels had
been brought to market, this would put New Zealand tourism
and agriculture at a disadvantage compared to the rest of
the world. Suppose that today a vacation in Mexico today
costs $300 in airfare and $800 for food and lodging, and a
New Zealand vacation today costs $1000 for airfare and $800
for food and lodging ($1100 vs. $1800, a factor of 1.6).
Now, suppose the cost of air travel tripled, the New
Zealand vacation would cost 2.2 times the Mexican one
($3800 vs $1700 -- check my arithmetic). New Zealand is
hurt worse because jet travel is a proportionally bigger
cost of Kiwi vacations.
Since vacations are discretionary, I'd bet that they're
more price-sensitive than more mandatory goods. (Note that
I'm assuming we'll be able to afford a vacation once we get
done paying for the increased costs of auto fuel, heat and
electricity at home.) The situation is even worse for
agricultural goods. When two imported heads of lettuce sit
on a supermarket shelf, the one that traveled the fewest
air miles will be less expensive; the greater the transport
costs, the larger the difference.
If Deffeyes is right, that is. So far, the biggest
objection to Deffeyes' projections -- according to Deffeyes
own reasonably exhaustive examination of objections --
comes from the USGS, which uses notoriously inaccurate
expert guesstimation techniques to come up with projections
that are significantly more optimistic than Deffeyes'.
---
Porter Stansberry [porter@pirateinvestor.com] writes:
"It pains me to see you citing Hubbert's Peak, and
worse, to endorse its horrible conclusions yourself.
"Please read the well-thought out opinions
in _The Color of Oil_ by Michael Economides and Ronald
Oligney. These guys aren't academics trying to get
attention from the media (which loves a disaster story).
They refute Deffeyes with empirical results in actual
oil producing regions. As you'll see, if you'd care to
read it, Hubbert makes several big mistakes, namely that
oil production ceases in oil regions and second, that
the best oil fields have already been found."
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Show Me the Science!
by David S. Isenberg
I often find Porter Stansberry insightful, even though we
often disagree. So I followed his recommendation and took
_The Color of Oil_ by Michael Economides and Ronald Oligney
(Round Oak Publishing, Katy TX, 2000) out of my local
library and thumbed it hard for several hours.
Indeed, _The Color of Oil_ shows that Hubbert's assumption
about the shape of a single oil field's production
distribution is not correct. A longer-tailed fractal
distribution fits "second wind" production data better than
a normal distribution. ("Second wind" production occurs
when new, more expensive technology is brought on line
after cheaper methods, ahem, run out of gas.)
But this is a minor tweak. It doesn't invalidate the
larger work. The U.S. production peak **was** in 1973 --
nobody can argue that. Amazingly, M. King Hubbert
predicted it in 1956. I did not see reference to either
fact, nor to Deffeyes' work, in _The Color of Oil_.
Hubbert's misfit distribution did not escape Deffeyes'
sharp eye. _Hubbert's Peak_ covers secondary (and even
tertiary) recovery techniques; Deffeyes explores several
better-shaped distributions. In addition, he tunes up
other minor Hubbert errors. His workmanlike scientific
approach is described, hypothesis and test, in _Hubbert's
Peak_ (by Kenneth S. Deffeyes, Princeton University Press,
2001, also see http://princeton.edu/hubbert).
But, Deffeyes points out, no correction or revised
calculation will create more oil reserves on the planet.
That would take organic matter, temperature and pressure
characteristic of the Oil Window (7500 to 15,000 feet
down), and a few dozen million years. Sure there are
uncertainties. In aggregate these are enough for Deffeyes
to allow a 5-year window during which, he asserts, global
oil production will peak.
There's a lot of useful detail on oil production and oil
politics in _The Color of Oil_. But towards the end of the
book, the authors discredit themselves mightily. They
sling the epithet "pseudo-science" at the environmental
movement. Then they cite sparse, carefully selected data
and other non-evidence to dismiss the entire global warming
hypothesis without honestly considering the large, corpus
of seriously non-pseudo-scientific work that real
scientists have developed.
Show me the science! If you can't, don't accuse others of
pseudo-science. Deffeyes, in distinct contrast, stays
close to geology and honest, rigorous statistics. Even
when I don't like his conclusions (e.g., that nuclear power
is the only near-term viable alternative to fossil fuels) I
have to take them seriously. I suspect that the authors of
_The Color of Oil_ never heard the one about glass
greenhouses and throwing stones.
In summary, _The Color of Oil_ neither discredits nor
credibly contradicts Deffeyes' claim that global oil
production will peak between 2003 and 2007. If Deffeyes is
wrong, show me the science, readers. If he's right,
humanity's in deep shift.
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Porter Stansberry [porter@pirateinvestor.com] replies:
"There is no looming shortage of energy because, as with
the production of any commodity, the powers of human
ingenuity far outstrip the costs of human consumption.
Thus, the more power we consume, the larger our future
energy reserves will become. Although I can't have a
large enough technical knowledge of the individual
factors in the world's future energy production, I can
be guided by this principle, which has throughout all of
recorded history been true: people produce new abundance
when guided by the free market.
"Consider prices, which I believe to be the best source
of information on relative supply and demand
characteristics in any free market. Prices for things --
commodities of all types, including energy -- continue
to fall in real terms have done so for as long as
reliable economic records have been kept. This, I
believe, is the strongest evidence that over time man is
highly productive.
"If energy is truly limited, we should carefully ration
its use. If we do not, we are condemning future
generations to a world where the standard of living must
decline. On the other hand, if there is a positive
relationship between energy use and energy reserves, we
should pursue exactly the opposite course -- we should
encourage all profitable uses of energy with the
knowledge that this will actually increase the total
level of wealth and benefit future generations.
"The steam engine launched the first crisis of fuel:
England was rapidly deforested and, much like today,
smart and far thinking people hypothesized that without
strict controls on the use of fuel, soon there would be
no more trees. Fortunately, someone soon discovered that
there was a certain kind of rock that could also be used
to power a steam engine.
"The discovery of coal increased energy use even faster.
Leading thinkers tried to calculate when this inherently
limited resource would run out - Stanley Jevons, for
example, wrote the famously alarmist 1866 tract, "The
Coal Question."
"Will we run out of oil? Will global production decline,
setting the stage for rapidly escalating price? I don't
know, of course. But I can't believe anyone who has
looked at the track record of people who have forecasted
a day of energy reckoning, would not come to the
conclusion that something strange is amiss.
"The people who have done the scarcity math through the
years have all reached the same conclusions -- we're
soon to run out of a vital resource from which we can
derive cheap power. These people were all very smart,
had accurate data and were empirically right on the
mark, yet all of them turned out to be fantastically
wrong. In each case new technology arrived to extend
the resource in question or to provide a much richer
source of energy.
"As Sheik Yamani, once head of Saudi Arabia's oil empire,
says: "The Stone Age came to an end not for a lack
of stones, and the oil age will end, but not for a lack
of oil." David, I urge you to please consider this
human factor and need we have for free markets to spur
innovation, keeping this trend alive. Do not make the
same mistake as so many very smart thinkers before you,
don't sell mankind short."
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Isenberg Gets the Last Word, by David S. Isenberg
Porter Stansberry makes the case that humanity is not going
to run out of energy and will develop post-fossil-fuel
sources of energy, but these were *NOT*EVER* the issues
addressed by Hubbert or Deffeyes. The claim on the table
is that U.S. oil production *did* peak irreversibly in
1973, that world oil production will peak between 2003 and
2007, and that demand for oil shows no sign of decline at
this time; in fact, demand is growing.
Will humanity learn new, more sophisticated techniques to
produce the oil left in the ground? Undoubtedly. Will we
develop new non-fossil-fuel energy sources? Certainly.
Will we "run out" of energy? No. Stansberry, Isenberg,
and (I am confident) even Deffeyes, are in violent
agreement here.
Stansberry cites undeniable long-term trends towards
falling commodity prices and the dismal record of many who
attempt to predict the future. But he cannot deny that
history is full of dramatic discontinuities in supply and
demand, even (maybe especially) when "efficient" free
markets exist.
If we take Deffeyes findings at face value (which starts by
reading his book) we must anticipate a major discontinuity
in the supply of oil vis a vis its demand. I believe that
we must act now to accelerate research into alternative
energy to dampen the coming discontinuity -- now, even
before new market dynamics are established that would
motivate such research.
Deffeyes says, "Doing nothing is essentially betting
against [a peak in world oil production]. Ignoring the
problem is equivalent to wagering that world oil production
will increase forever."
My friend Darryl Buckingham, a genuine (successful)
independent oil driller, says, "I don't know if Deffeyes is
right or not. Most of the oilmen I know don't have much
good to say about him. I figure that if I take him
seriously, I'll also be prepared if he's wrong, but if I
ignore him I could get into big trouble. So if he's right,
and the other guys aren't taking him seriously, I'll come
out ahead."
Is the oil economy a free market? Big oil will no more let
go of their power than telephone companies will theirs,
even when advancing technology establishes new patterns of
abundance and scarcity.
How severe might a coming oil discontinuity be? How many
people could die and suffer in the resulting power
struggle? A war with Iraq would cost the United States
some US$200 Billion according to the most conservative,
optimistic estimates; in contrast, the alternative energy
budget of the U.S. Department of Energy is US$0.4 Billion.
The former would attempt to establish control over a share
of a shrinking pie; the latter would grow a bigger pie for
all humanity.
We could use Deffeyes' work to keep priorities straight,
even if he's off the mark. This is quite the opposite of
"selling mankind short." We sell ourselves short when we
ignore empirically established wisdom and in so doing, risk
drifting into the maw of a potentially catastrophic market
shift.
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If its Funny, it Must be True,
by Scatt Oddams
The post-September 11 world is a threatening place; and the
Moon is evil -- see http://tinyurl.com/4yco! Not only
that, the Moon has not cooperated enthusiastically with our
inspection teams, but we got the goods on it, see
http://tinyurl.com/4ycq.
Exx-off,
Scatt
[Scatt Oddams is The SMART Letter's cartoon-critic-in-
(sporadic)-residence. If you think there's an association
between Scatt Oddams and Dilbert creator Scott Adams you've
probably got dylsexia. -- David I]
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CONFERENCES ON MY CALENDAR
February 4, 2003, Santa Barbara CA. Center for
Entrepreneurship and Engineering Management (CEEM) at UC
Santa Barbara. I'll deliver the good ol' Stupid Network
stump speech and explain why it is time for the telephone
companies to take a walk in the snow.
http://ceem.engr.ucsb.edu/events.html
March 31 through April 3, 2003, San Jose CA. VON. I am
organizing a panel on April 1 (5:00 to 6:15 PM) with Tim
Horan of CIBC, Roxane "smarter-than-your-average-bear"
Googin, and Anders Comstedt, the fellow who built the
profitable, profitable, profitable, profitable, profitable,
dark fiber network in Stockholm. April 1 is one of my
favorite holidays. You will believe EVERYTHING my panel
presents -- http://www.von.com/
April 22-25, 2003, Santa Clara CA. O'Reilly Emerging
Technology Conference. My presentation will be called
Operating Models for Stupid Networks, Friday, April 25 at
2:00 PM -- http://tinyurl.com/4yhe.
June 11-14, 2002, Philadelphia PA. TedMed3. Come if you
possibly can. http://tedmed.com.
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COPYRIGHT NOTICE: Redistribution of this document, or any
part of it, is permitted for non-commercial purposes,
provided that the two lines below are reproduced with it:
Copyright 2003 by David S. Isenberg
isen@isen.com -- http://isen.com/ -- 1-888-isen-com
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