Sunday, January 06, 2013
What Lessons from Germany and Denmark? [1]
Energy, like defence, is a topic where huge numbers of people seem to have strong views based on very little knowledge. If evidence is required, go to the Guardian’s Comment is Free website where almost any piece on an energy topic receives hundreds of comments exhibiting ignorance aplenty.
A favourite theme from the green/red camp is ‘what about Germany?’ or its close variant ‘if Denmark can do it, we can, too’. The ‘it’ in question is of course very large-scale renewable generation in both countries, which is taken to be triumphantly proving its worth there in quantities that put the UK to shame.
At the headline level, the statistics are striking. In the 1st half of 2012, renewables generated around 25% of Germany’s electricity, of which 9% was wind and 5% solar. (The balance is mostly biofuels, which greens are a bit more ambivalent about, but let that pass.) Denmark has reached 24% of electricity consumption being generated from renewables: and as a percentage of Denmark’s own generation, the figures are even more remarkable: over 40% is renewable, of which 28% is wind.
The difference between Denmark’s ‘24% of consumption’ and ‘40% of own generation’ immediately tips us off to an important additional factor – imports, or, more generally, cross-border electricity trade. Trade between interconnected countries is generally in either direction at different times, as advocates of free trade would hope and expect: wholesale electricity prices in one country will rarely be identical to those in a neighbour’s market, given different supply/demand dynamics, generation fleets, weather etc. Cross-border trade is the highly appropriate result.
In Denmark’s case the detailed pattern is complex: they do indeed export electricity some of the time but, as the figures suggest, they are generally substantial net importers. Wind turbines, of course, produce ‘intermittently’ (and relatively unpredictably): and anyone wishing to hold up Denmark’s renewables as an example for other nations should be aware that their significant amount of wind generation is only feasible because of the ease with which they are able to import the ultra-flexible hydro-power available from Norway. Attempting to balance the grid using their remaining indigenous sources - the largest of which is, yes, coal - would not be remotely economic, and in fact would probably not be feasible at any price (we will comment later on cost aspects.)
Wind plus hydro can be a feasible combination with which to satisfy electricity demand. Denmark, where this is achievable, doesn’t offer a model for countries where there is little or no hydro on tap (or, of course, some equally flexible alternative - of which there are very few indeed).
Germany’s import / export pattern is exceptionally complex, and changing all the time as the unexpected post-Fukushima decision, to shut down a significant portion of its nuclear capacity, is accommodated. But it is not hydro imports that make Germany an unconvincing model for other nations. Rather, it is the distinct possibility that Germany’s power system is not feasible at all.
Read on:
PART TWO
PART THREE
PART FOUR (CONCLUSION)
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
A favourite theme from the green/red camp is ‘what about Germany?’ or its close variant ‘if Denmark can do it, we can, too’. The ‘it’ in question is of course very large-scale renewable generation in both countries, which is taken to be triumphantly proving its worth there in quantities that put the UK to shame.
At the headline level, the statistics are striking. In the 1st half of 2012, renewables generated around 25% of Germany’s electricity, of which 9% was wind and 5% solar. (The balance is mostly biofuels, which greens are a bit more ambivalent about, but let that pass.) Denmark has reached 24% of electricity consumption being generated from renewables: and as a percentage of Denmark’s own generation, the figures are even more remarkable: over 40% is renewable, of which 28% is wind.
The difference between Denmark’s ‘24% of consumption’ and ‘40% of own generation’ immediately tips us off to an important additional factor – imports, or, more generally, cross-border electricity trade. Trade between interconnected countries is generally in either direction at different times, as advocates of free trade would hope and expect: wholesale electricity prices in one country will rarely be identical to those in a neighbour’s market, given different supply/demand dynamics, generation fleets, weather etc. Cross-border trade is the highly appropriate result.
In Denmark’s case the detailed pattern is complex: they do indeed export electricity some of the time but, as the figures suggest, they are generally substantial net importers. Wind turbines, of course, produce ‘intermittently’ (and relatively unpredictably): and anyone wishing to hold up Denmark’s renewables as an example for other nations should be aware that their significant amount of wind generation is only feasible because of the ease with which they are able to import the ultra-flexible hydro-power available from Norway. Attempting to balance the grid using their remaining indigenous sources - the largest of which is, yes, coal - would not be remotely economic, and in fact would probably not be feasible at any price (we will comment later on cost aspects.)
Wind plus hydro can be a feasible combination with which to satisfy electricity demand. Denmark, where this is achievable, doesn’t offer a model for countries where there is little or no hydro on tap (or, of course, some equally flexible alternative - of which there are very few indeed).
Germany’s import / export pattern is exceptionally complex, and changing all the time as the unexpected post-Fukushima decision, to shut down a significant portion of its nuclear capacity, is accommodated. But it is not hydro imports that make Germany an unconvincing model for other nations. Rather, it is the distinct possibility that Germany’s power system is not feasible at all.
Read on:
PART TWO
PART THREE
PART FOUR (CONCLUSION)
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Max Keiser and George Galloway: a deafening silence in the media
On 20th November, Max Keiser addressed a large audience in the Grand Committee Room in the Houses of Parliament, as the guest of George Galloway MP.
Galloway pointed out that this was the second largest public room in Parliament (the first had already been booked) and all MPs had been invited in writing, twice - yet none of them had turned up.
In some ways this is understandable: Galloway is "colourful" and, to me, something of an enigma, and his fellow Parliamentarians must have considered the risk of tainting by association.
Or worse, reputational entrapment: for although Keiser had strong criticisms to make of Gordon Brown's gold sale (1999 - 2002), which he said is the moment when Britain's independence was surrendered, he also laid the blame for the present crisis on the monetary expansion that began under Reagan and Thatcher. Additionally, he had harsh words to say about George Osborne and David Cameron, whom he sees as fighting for corrupt City interests. In the circumstances, MPs on both sides must have seen little political advantage in attending.
Yet there wasn't that much else on in Parliament on the evening of 20th November. The House of Commons Order of Business after 7 p.m. was a handful of decisions to be made without debate, plus the presentation of a petition and the Adjournment Debate. Granted, many MPs would be heading home for the weekend - but another hour or so, of worthwhile economic instruction, might have done them some good.
And it's surprising that, try as I may, I can find no mainstream media report of Keiser's speech. Remember that he is possibly the most-watched TV journalist in the world, talking on a subject of the utmost importance in the very heart of London. This, perhaps deliberate neglect plays into the growing public cynicism about our political elite and the Fourth Estate.
Regular Keiser-watchers will have heard much of his material before, many times, though it may be news to some that the reason he's shifted his base of operations to London is that he wants a ringside seat to cover what he sees as the coming, full-blown disaster of historic proportions, and expects our poor country to be the epicentre.
He also says that Germany will use its gold hoard and massive Eurobond issuance to establish its advantage over the City; Frankfurt will become the centre of banking and trading in Europe, he feels. Britain, having allowed its financial sector to swell to over 10% of national GDP, has set itself up for a terrible fall.
According to Keiser, only raising interest rates sharply - as Paul Volcker did in the USA (20% by 1981) - can cleanse the speculation and malpractice from the system; and he doesn't see us doing that.
Also interesting in this film, is the naivety of questions, underlining Keiser's (and George Osborne's) observations about the financial illiteracy of the British public.
Like Nigel Farage (another ex-financial trader), Keiser is loud, brash and fast-talking (he starts more sentences than he finishes); and both are also, in my assessment, completely sincere in their concern and indignation.
The film lasts slightly more than an hour, but you can simply listen to it while doing something else, as I did. I think you'll find it worth your while.
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Galloway pointed out that this was the second largest public room in Parliament (the first had already been booked) and all MPs had been invited in writing, twice - yet none of them had turned up.
In some ways this is understandable: Galloway is "colourful" and, to me, something of an enigma, and his fellow Parliamentarians must have considered the risk of tainting by association.
Or worse, reputational entrapment: for although Keiser had strong criticisms to make of Gordon Brown's gold sale (1999 - 2002), which he said is the moment when Britain's independence was surrendered, he also laid the blame for the present crisis on the monetary expansion that began under Reagan and Thatcher. Additionally, he had harsh words to say about George Osborne and David Cameron, whom he sees as fighting for corrupt City interests. In the circumstances, MPs on both sides must have seen little political advantage in attending.
Yet there wasn't that much else on in Parliament on the evening of 20th November. The House of Commons Order of Business after 7 p.m. was a handful of decisions to be made without debate, plus the presentation of a petition and the Adjournment Debate. Granted, many MPs would be heading home for the weekend - but another hour or so, of worthwhile economic instruction, might have done them some good.
And it's surprising that, try as I may, I can find no mainstream media report of Keiser's speech. Remember that he is possibly the most-watched TV journalist in the world, talking on a subject of the utmost importance in the very heart of London. This, perhaps deliberate neglect plays into the growing public cynicism about our political elite and the Fourth Estate.
Regular Keiser-watchers will have heard much of his material before, many times, though it may be news to some that the reason he's shifted his base of operations to London is that he wants a ringside seat to cover what he sees as the coming, full-blown disaster of historic proportions, and expects our poor country to be the epicentre.
He also says that Germany will use its gold hoard and massive Eurobond issuance to establish its advantage over the City; Frankfurt will become the centre of banking and trading in Europe, he feels. Britain, having allowed its financial sector to swell to over 10% of national GDP, has set itself up for a terrible fall.
According to Keiser, only raising interest rates sharply - as Paul Volcker did in the USA (20% by 1981) - can cleanse the speculation and malpractice from the system; and he doesn't see us doing that.
Also interesting in this film, is the naivety of questions, underlining Keiser's (and George Osborne's) observations about the financial illiteracy of the British public.
Like Nigel Farage (another ex-financial trader), Keiser is loud, brash and fast-talking (he starts more sentences than he finishes); and both are also, in my assessment, completely sincere in their concern and indignation.
The film lasts slightly more than an hour, but you can simply listen to it while doing something else, as I did. I think you'll find it worth your while.
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Saturday, January 05, 2013
Looking for a widget!
Help wanted! We thought we'd found a multiple blog widget so you can follow all pages in one simple device, but the one we got can't be installed by readers. Anyone out there know a good one?
Friday, January 04, 2013
Airbrushing out The Queen
My wife asked me what this was, on the back of a pound coin:
... and on further investigation it seems that ever since this little metal thing was introduced into our system of exchange, the Royal Arms have been omitted (except for the 1988 design) in favour of a cycle of images from the regions.
Doubtless we'll be told not to take it too seriously, but it seems to me that the 1.5 billion pound coins are being used as yet another method to condition us to accept the "inevitable" breakup of the Union.
Another subliminal point, maintains the wife of a friend, is that the change from a banknote to a small coin was to help us not to expect so much for our money.
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
It's the Arms of the City of London:
... and on further investigation it seems that ever since this little metal thing was introduced into our system of exchange, the Royal Arms have been omitted (except for the 1988 design) in favour of a cycle of images from the regions.
Doubtless we'll be told not to take it too seriously, but it seems to me that the 1.5 billion pound coins are being used as yet another method to condition us to accept the "inevitable" breakup of the Union.
Another subliminal point, maintains the wife of a friend, is that the change from a banknote to a small coin was to help us not to expect so much for our money.
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Thursday, January 03, 2013
Nick Drew: Solar power the worst option for reducing carbon emissions
See The Energy Page for an industry expert's assessment.
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Nick Drew: Solar fad a waste of money
Energy expert and journalist Nick Drew has written a new piece for The Energy Page on cost-effective ways to reduce carbon dioxide emissions. Turns out that the fashion for roof-mounted solar panels is just about the worst possible option - read the full story here.
Nick is a regular contributor to the Capitalists@Work blog.
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Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Solar Power is Daylight Robbery
The UK government is very fond of claiming that its decarbonisation policy is being delivered at least cost to UK citizens. Irrespective of whether one supports the policy goal, one would at least like to believe them on the cost.
Sadly, their claim is a blatant falsehood; and we can see why this is by utilizing the government's own methodologies.
A very standard way of presenting the cost-effectiveness of measures that can reduce CO2 emissions is the Marginal Abatement Cost Curve (MACC) and we will look at some examples below. The basic concept is simple: for each measure, calculate the cost per unit of CO2 emissions reduced, and rank them from cheapest to most expensive on a bar-chart. If we pick (e.g.) a particular market segment, we can additionally plot the total absolute potential for CO2 abatement each measure can deliver in that sector (e.g. in tonnes), by making the width of each bar correspond to the amount.
Having ranked them thus, for a given target amount of reductions we can directly read off the cost of the most expensive measure required to achieve the target. And why would anyone institute measures that cost more than absolutely necessary ? Surely, they would exhaust the potential of the cheapest measures first, before proceeding to the more expensive.
Before looking at UK examples, it is interesting to note that in every MACC example one ever sees, the cheapest abatement measures are in fact profitable - that is, they pay for themselves - in some cases, handsomely so: their 'cost' is not just cheap, it is negative. (We will consider what this means in policy terms another time.) Our first example shows this aspect clearly: it comes from DECC and is the MACC of the total potential abatement identified in the UK 'non-traded' sector (the part of the economy not subject to the EU Emissions Trading Scheme), for the period 2023–27.
As can be seen, at the left-hand side there is around 90 MtCO2e abatement potential that pays for itself. We should only need to start paying for abatement if the target was in excess of that amount. The weighted average of the cost (by a complex calculation) is £43 per tonne, which coincides with an abatement potential of around 130 Mt - well over half the total. Even the most expensive measures plotted come in at under £250 per tonne.
This, then, is a baseline of sorts, and certainly gives some background perspective for considering the next chart, which is the detailed MACC for abatement potential in the UK residential sector through to 2020.
Note that solar power (PV generation) is well to the right of the curve, with a cost that towers over most of the measures available. (Solar water-heating is even worse.) Secondly, at £265 per tonne it is more expensive than any of the measures from the previous MACC.
A very obvious conclusion must surely be that solar power should not be receiving public money (via whatever mechanism) until the vastly greater potential that is available at very much less cost has been comprehensively exploited. Needless to say, the opposite is the case: residential solar power installations are heavily subsidized via our electricity bills, while huge amounts of cheaper - much cheaper - abatement potential lies dormant.
No end of sophistry is offered to defend this state of affairs. Costs of PV are falling all the time; many jobs have been created (mostly in China, of course); we need to create a level playing-field for all technologies (whatever that means). And there are all manner of nuances relating to the interpretation of MACCs - as DECC is keen to tell us (Box B5 here).
No amount of ratiocination, however, can deflect the accusation that subsidizing solar PV in the UK is indefensible from a cost perspective. And in straightened times, costs matter.
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Sadly, their claim is a blatant falsehood; and we can see why this is by utilizing the government's own methodologies.
A very standard way of presenting the cost-effectiveness of measures that can reduce CO2 emissions is the Marginal Abatement Cost Curve (MACC) and we will look at some examples below. The basic concept is simple: for each measure, calculate the cost per unit of CO2 emissions reduced, and rank them from cheapest to most expensive on a bar-chart. If we pick (e.g.) a particular market segment, we can additionally plot the total absolute potential for CO2 abatement each measure can deliver in that sector (e.g. in tonnes), by making the width of each bar correspond to the amount.
Having ranked them thus, for a given target amount of reductions we can directly read off the cost of the most expensive measure required to achieve the target. And why would anyone institute measures that cost more than absolutely necessary ? Surely, they would exhaust the potential of the cheapest measures first, before proceeding to the more expensive.
Before looking at UK examples, it is interesting to note that in every MACC example one ever sees, the cheapest abatement measures are in fact profitable - that is, they pay for themselves - in some cases, handsomely so: their 'cost' is not just cheap, it is negative. (We will consider what this means in policy terms another time.) Our first example shows this aspect clearly: it comes from DECC and is the MACC of the total potential abatement identified in the UK 'non-traded' sector (the part of the economy not subject to the EU Emissions Trading Scheme), for the period 2023–27.
 |
| Source: DECC |
This, then, is a baseline of sorts, and certainly gives some background perspective for considering the next chart, which is the detailed MACC for abatement potential in the UK residential sector through to 2020.
 |
| Source: Committee on Climate Change |
A very obvious conclusion must surely be that solar power should not be receiving public money (via whatever mechanism) until the vastly greater potential that is available at very much less cost has been comprehensively exploited. Needless to say, the opposite is the case: residential solar power installations are heavily subsidized via our electricity bills, while huge amounts of cheaper - much cheaper - abatement potential lies dormant.
No end of sophistry is offered to defend this state of affairs. Costs of PV are falling all the time; many jobs have been created (mostly in China, of course); we need to create a level playing-field for all technologies (whatever that means). And there are all manner of nuances relating to the interpretation of MACCs - as DECC is keen to tell us (Box B5 here).
No amount of ratiocination, however, can deflect the accusation that subsidizing solar PV in the UK is indefensible from a cost perspective. And in straightened times, costs matter.
* * * * *
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Wednesday, January 02, 2013
Does the stockmarket correlate with energy usage?
I've suggested recently that not only does modern money fail to act as a store of value, it is failing as a unit of account because of central bank/government interference in its quantity and distribution. It's an elastic ruler and its unreliable measurements are a factor in unsatisfactory decisions (misallocation of resources, as the monetarists say). So we look for alternative ways to assess relative advantage.
One more scientific-seeming (but complex) measure is energy. Professor Charles Hall adapted the notion of energy return on (energy) investment (EROI, or EROEI) from the biological sphere (where he began his studies) to human social-economic systems. This appears to be a promising method for analysing different forms of commercial energy production.
However, the entry linked above goes on to claim a correlation between the stockmarket and energy usage:
... a century's market and energy data shows that whenever the Dow Jones Industrial Average spikes faster than US energy consumption, it crashes: 1929, 1970s, the dot.com bubble, and now with the mortgage collapse.
I'm not so sure, and I've had a look for the evidence. So far, I've come across a study by the US Energy Information Administration of oil futures vs stock and other indices, and over the admittedly fairly short period covered, the correlation with the Dow is not uniformly high, though it has increased since the Credit Crunch:
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
One more scientific-seeming (but complex) measure is energy. Professor Charles Hall adapted the notion of energy return on (energy) investment (EROI, or EROEI) from the biological sphere (where he began his studies) to human social-economic systems. This appears to be a promising method for analysing different forms of commercial energy production.
However, the entry linked above goes on to claim a correlation between the stockmarket and energy usage:
... a century's market and energy data shows that whenever the Dow Jones Industrial Average spikes faster than US energy consumption, it crashes: 1929, 1970s, the dot.com bubble, and now with the mortgage collapse.
I'm not so sure, and I've had a look for the evidence. So far, I've come across a study by the US Energy Information Administration of oil futures vs stock and other indices, and over the admittedly fairly short period covered, the correlation with the Dow is not uniformly high, though it has increased since the Credit Crunch:
Granted, energy usage and energy prices are not necessarily tightly bound together, but does the above tend to disprove or prove the assertion that the Dow cannot long outrun energy use?
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Monday, December 31, 2012
Proud to be a bear
The Yorkshire vet "James Herriot" wrote of a rich farmer whose principle was, "When all the world goes one way, I go t'other."
Barry Ritholtz publishes a report by James Bianco saying that the Investor's Intelligence survey of investment newsletters shows bearishness at its lowest since 1963.
When nearly everyone agrees, nearly everyone's wrong. The system hasn't been fixed yet and we haven't yet had to face up to the full cost of the consequences. I'm not an active trader - how can you beat the City gunslingers? - so instead of trying to predict the waves I look for the tide.
Until the British Government withdrew Index-Linked Savings Certificates, I'd have settled for them, since I'm more interested in not losing than in making a killing. Now, and until money velocity levels out and QE leads to serious inflation, it's cash for me, plus, reluctantly at these prices, gold.
I agree with Mish:
_____________________
_____________________
Proud to be a 5%-er, then.
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Barry Ritholtz publishes a report by James Bianco saying that the Investor's Intelligence survey of investment newsletters shows bearishness at its lowest since 1963.
When nearly everyone agrees, nearly everyone's wrong. The system hasn't been fixed yet and we haven't yet had to face up to the full cost of the consequences. I'm not an active trader - how can you beat the City gunslingers? - so instead of trying to predict the waves I look for the tide.
Until the British Government withdrew Index-Linked Savings Certificates, I'd have settled for them, since I'm more interested in not losing than in making a killing. Now, and until money velocity levels out and QE leads to serious inflation, it's cash for me, plus, reluctantly at these prices, gold.
I agree with Mish:
_____________________
- Gold has been sinking, as it should, if Congress is fiscally prudent.
- Government Should be Prudent
- Government Won't Be Prudent
_____________________
Proud to be a 5%-er, then.
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Sunday, December 30, 2012
Why fracking - and other energy alternatives - won't save us completely
The discovery of large reserves of shale oil and gas has raised hopes that our economies may be rescued by a new energy bonanza. But this is not a rerun of the 1970s North Sea Oil boom that gave the UK economic relief for decades afterwards.
Attention is focused on the quantities of reserves, but the missing factor in the analysis is what it costs to exploit the energy source. What we should be looking at is "net energy profit", also known as the "energy profit ratio" or "energy return on investment (EROI)". The "profit" is accounted for not in dollars but in energy - what is put in, versus what is made available to the end user.
The table below is taken from an August 2010 article by Roger Blanchard of Lake Superior State University. It shows that the energy profit from shale oil is a mere 10% of what was obtainable from 1970s conventional oilfield production.
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Attention is focused on the quantities of reserves, but the missing factor in the analysis is what it costs to exploit the energy source. What we should be looking at is "net energy profit", also known as the "energy profit ratio" or "energy return on investment (EROI)". The "profit" is accounted for not in dollars but in energy - what is put in, versus what is made available to the end user.
The table below is taken from an August 2010 article by Roger Blanchard of Lake Superior State University. It shows that the energy profit from shale oil is a mere 10% of what was obtainable from 1970s conventional oilfield production.
Other energy sources are even worse. For example, corn ethanol barely covers its energy costs and is controversial because it harms the poor: a May 2012 study concludes that the price of corn has tripled in Mexico because of this additional demand and associated financial speculation.
Wikipedia offers this EROI comparison of energy sources:
Corn ethanol is even worse than solar, and that's saying something.
Of the renewables, wind turbines look promising, though they are also stigmatised by some as noisy, unsightly bird-chopping machines. And the estimated EROI on them varies startlingly, according to this graph from a 2007 article in "Encyclopedia of the Earth" (updated 2011):
Accounting for every scrap of energy in the process - from the production of equipment to its ultimate decommissioning - must be hideously complex, leaving the debate open to skewing by a variety of competing commercial interests and pressure groups (including, no doubt, the publishers of the above).
But accounting in financial terms is also biased by subsidies and permissions granted at the whim of governments swayed by industry lobbyists or trying to earn political credit with environmentally-minded voters. Money has already lost one of its three functions - as a store of value - and thanks to official interference in its quantity and distribution, is now rapidly losing another - its value as a unit of account, to inform decisions. Otherwise we would be unlikely to see so many British homes festooned with solar panels - an enthusiasm that has waned dramatically since the subsidy was cut this year.
Renewables will only go a small way towards replacing fossil and nuclear fuels, and shale fuels cannot promise "business as usual" in the meantime. Energy is not going to run out soon, but it will become more expensive, and our focus in the next few decades should be on restructuring the way we live. We didn't do that when North Sea oil was gushing. Shale is pricey and will be attended by inconvenience and controversy, but it may be our last chance to adapt without even more catastrophic disruption to normal life.
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Saturday, December 29, 2012
Why moneylenders MUST be busted
The equivalent of one US dollar invested on the night of Christ's birth at less than 4 per cent per annum, would today be worth more than the Earth's weight in gold.
Here's the math:
a. The Earth's mass is estimated at (5.9722 times 10 to the power 24) kilograms
b. According to goldprice.org, a kilo of gold today costs $53,235.21
c. a*b = $(3.17931 times 10 to the power 29)
d. $1.03434 to the power 2012 = $(3.18127 times 10 to the power 29)
e. d>c.
Yes, you say, but what about tax?
Let's assume that interest over the last two-millenia-and-a-bit was taxed every year at the outrageous rate of 50%. All that does, by reducing the effective interest rate to 1.7% p.a., is defer the date at which the goal is reached; in this case, the year 4030.
The same argument applies to inflation, as long as it's significantly less than the interest rate.
So in the long run, the lender must end up owning everything - provided he can always find borrowers and especially, always have his capital safe.
Our governments, by bailing out the banks, have ensured that capital security.
Better still, under the present arrangement banks hardly need their own capital at all. If the Federal Reserve conjures up a billion dollars and lends it to a bank at zero interest, and the bank uses the money to buy safe government securities (albeit at a low yield), then the bank is being drip-fed free cash. Inflation doesn't matter - there's no bank capital to erode, so all inflation does is reduce the value of the guaranteed profit.
Give the lender complete security of capital, and real interest after expenses, taxes and inflation, and you will in time give him the Earth.
Which is why there must be a reset, or Jubilee.
There is no such thing as a perpetual motion machine, or a safe paper-based solution to a broken economy in which a minority increasingly takes ownership of their fellows. Sooner or later, the gathering of wealth by materially unproductive means must end.
Here's the math:
a. The Earth's mass is estimated at (5.9722 times 10 to the power 24) kilograms
b. According to goldprice.org, a kilo of gold today costs $53,235.21
c. a*b = $(3.17931 times 10 to the power 29)
d. $1.03434 to the power 2012 = $(3.18127 times 10 to the power 29)
e. d>c.
Yes, you say, but what about tax?
Let's assume that interest over the last two-millenia-and-a-bit was taxed every year at the outrageous rate of 50%. All that does, by reducing the effective interest rate to 1.7% p.a., is defer the date at which the goal is reached; in this case, the year 4030.
The same argument applies to inflation, as long as it's significantly less than the interest rate.
So in the long run, the lender must end up owning everything - provided he can always find borrowers and especially, always have his capital safe.
Our governments, by bailing out the banks, have ensured that capital security.
Better still, under the present arrangement banks hardly need their own capital at all. If the Federal Reserve conjures up a billion dollars and lends it to a bank at zero interest, and the bank uses the money to buy safe government securities (albeit at a low yield), then the bank is being drip-fed free cash. Inflation doesn't matter - there's no bank capital to erode, so all inflation does is reduce the value of the guaranteed profit.
Give the lender complete security of capital, and real interest after expenses, taxes and inflation, and you will in time give him the Earth.
Which is why there must be a reset, or Jubilee.
There is no such thing as a perpetual motion machine, or a safe paper-based solution to a broken economy in which a minority increasingly takes ownership of their fellows. Sooner or later, the gathering of wealth by materially unproductive means must end.
Cause for outrage: what bankers and traders have done to "the people"
"When floodwaters cover our homes, we expect that FEMA workers with emergency checks and blankets will find us. There is no moral or substantive difference between a hundred-year flood and the near-destruction of the global financial system by speculators immune from consequence. But if you and your spouse both lose your jobs and assets because of an unprecedented economic cataclysm having nothing to do with you, you quickly discover that your society expects you and your children to live malnourished on the streets indefinitely. "
- From "The Sharp, Sudden Decline of America's Middle Class" by Jeff Tietz, Rolling Stone magazine. The article details the harrowing experience of recession victims, many of whom have done "all the right things" and never been unemployed before.
Inequality is starkly worse in the USA than in other "developed" countries, as shown in the graph below (source):
"The Gini Index for the United States in the 2011 ACS (0.475) was significantly higher than in the 2010 ACS (0.469). This increase suggests more income inequality across the country."
_________________________________
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
- From "The Sharp, Sudden Decline of America's Middle Class" by Jeff Tietz, Rolling Stone magazine. The article details the harrowing experience of recession victims, many of whom have done "all the right things" and never been unemployed before.
Inequality is starkly worse in the USA than in other "developed" countries, as shown in the graph below (source):
That uses data from 2010, but according to the official Census it's getting worse:
_________________________________
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Cause for outrage: what bankers and traders have done to "the people"
"When floodwaters cover our homes, we expect that FEMA workers with emergency
checks and blankets will find us. There is no moral or substantive difference
between a hundred-year flood and the near-destruction of the global financial
system by speculators immune from consequence. But if you and your spouse both
lose your jobs and assets because of an unprecedented economic cataclysm having
nothing to do with you, you quickly discover that your society expects you and
your children to live malnourished on the streets indefinitely. "
- From "The Sharp, Sudden Decline of America's Middle Class" by Jeff Tietz, Rolling Stone magazine. The article details the harrowing experience of recession victims, many of whom have done "all the right things" and never been unemployed before.
Inequality is starkly worse in the USA than in other "developed" countries, as shown in the graph below (source):
"The Gini Index for the United States in the 2011 ACS (0.475) was significantly higher than in the 2010 ACS (0.469). This increase suggests more income inequality across the country."
- From "The Sharp, Sudden Decline of America's Middle Class" by Jeff Tietz, Rolling Stone magazine. The article details the harrowing experience of recession victims, many of whom have done "all the right things" and never been unemployed before.
Inequality is starkly worse in the USA than in other "developed" countries, as shown in the graph below (source):
That uses data from 2010, but according to the official Census it's getting worse:
Sunday, December 02, 2012
Why buy gold?
Gold is a condensed way to hold your wealth.
Currently the most popular US gold coin, the American Gold Eagle, retails for around $1,800. A recent Federal Reserve survey says that the median US family had a net worth of $126,400 in 2007. Today, that would buy 70 gold eagles and some change. Everything you have, in two handfuls: two 4-inch-long rolls, weighing 43 ounces each.
Actually, less: the same Fed survey shows the average family net worth was down to $77,300 in 2010. That's 41 gold eagles and change; or, a handful of coins 4.63 inches long and weighing less than 50 ounces. It doesn't rust or rot, and although the value will vary, it'll never be worthless.
But there you are, gold in hand, standing in the street. You can't eat or wear the stuff, it won't cover your heads or cook your food. It doesn't earn interest, and unlike farm animals, it doesn't breed. And it doesn't protect you and your loved ones. Your 50-ounce stash against a 40-ounce, fully-loaded 1911 Colt 45? You'd be lucky to walk away empty-handed.
It preserves wealth, but not necessarily for you. Three years ago in central Britain, a man with a metal detector discovered a hoard of well over a thousand intricately-worked gold items. Together they weigh some 6.3 kilos - worth a third of a million dollars in scrap value (but over $5 million because of their history and artistry). The magnificent Anglo-Saxon treasure dates from the 7th or 8th century.
The key point is, whoever buried it didn't come back.
Gold doesn't ensure your survival if society breaks down altogether, but it can help protect you from the wipeout that happens when paper money becomes worthless. However, remember how the hungry Esau sold his inheritance to his brother Jacob in exchange for a bowl of stew: it's not enough to have gold, you need someone to sell it to, and at a fair price.
So ignore the apocalyptic prophets; gold is for troubled times, not for utter disaster, and it's not the only thing you should have. As Eric Sprott said recently, "most ... experts say that you should have 5% or 10% of your money in gold".
The question is, how to hold it.
Via a broker? MF Global held gold in a client account (effectively, as trustee) for investor Gerald Celente, yet the holding was seized by the firm's creditors when it collapsed in 2011.
Via a depository? Congressman Ron Paul has tried to get the Federal Reserve to open its vaults to auditors to find out how much is actually there; we're still waiting, and Germany is getting worried about its holding in the US. It is even rumoured that China has "lost" 80 tons from its own national treasury. Attractive stuff, is gold.
How else? An August 2012 article in Investors Chronicle looks at other ways: gold funds, gold bars, coins. Even then, you need to be confident that the fund holds 100% of its stock, 24/7 - you'll recall that fractional reserve banking began among gold dealers who took advantage of the fact that their customers usually didn't all want access to their metal at the same time. And it's worth noting that some outright physical fraud is now going on: tungsten has the same density and is far cheaper, so selling a gold-wrapped bar of tungsten represents a fat profit for criminals.
In these times of weakened trust, perhaps you could accumulate some gold coins from a reputable dealer, and keep them safe somehow - and don't tell those who don't need to know.
________________________________________
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Actually, less: the same Fed survey shows the average family net worth was down to $77,300 in 2010. That's 41 gold eagles and change; or, a handful of coins 4.63 inches long and weighing less than 50 ounces. It doesn't rust or rot, and although the value will vary, it'll never be worthless.
It preserves wealth, but not necessarily for you. Three years ago in central Britain, a man with a metal detector discovered a hoard of well over a thousand intricately-worked gold items. Together they weigh some 6.3 kilos - worth a third of a million dollars in scrap value (but over $5 million because of their history and artistry). The magnificent Anglo-Saxon treasure dates from the 7th or 8th century.
The key point is, whoever buried it didn't come back.
Gold doesn't ensure your survival if society breaks down altogether, but it can help protect you from the wipeout that happens when paper money becomes worthless. However, remember how the hungry Esau sold his inheritance to his brother Jacob in exchange for a bowl of stew: it's not enough to have gold, you need someone to sell it to, and at a fair price.
So ignore the apocalyptic prophets; gold is for troubled times, not for utter disaster, and it's not the only thing you should have. As Eric Sprott said recently, "most ... experts say that you should have 5% or 10% of your money in gold".
The question is, how to hold it.
Via a broker? MF Global held gold in a client account (effectively, as trustee) for investor Gerald Celente, yet the holding was seized by the firm's creditors when it collapsed in 2011.
Via a depository? Congressman Ron Paul has tried to get the Federal Reserve to open its vaults to auditors to find out how much is actually there; we're still waiting, and Germany is getting worried about its holding in the US. It is even rumoured that China has "lost" 80 tons from its own national treasury. Attractive stuff, is gold.
How else? An August 2012 article in Investors Chronicle looks at other ways: gold funds, gold bars, coins. Even then, you need to be confident that the fund holds 100% of its stock, 24/7 - you'll recall that fractional reserve banking began among gold dealers who took advantage of the fact that their customers usually didn't all want access to their metal at the same time. And it's worth noting that some outright physical fraud is now going on: tungsten has the same density and is far cheaper, so selling a gold-wrapped bar of tungsten represents a fat profit for criminals.
In these times of weakened trust, perhaps you could accumulate some gold coins from a reputable dealer, and keep them safe somehow - and don't tell those who don't need to know.
________________________________________
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Where are the rich investing?
Last week I visited a successful Midlands brokerage. The boss was looking where to invest tens of millions of pounds for a client.
Stocks, bonds, real estate, commodities?
No: cash.
He'd found somewhere that offered 3.6%. Security of capital, and protection against our current moderate inflation.
How many individuals and corporations around the world are doing much the same? Are they waiting for the optimistic losers to slug it out, before stepping in and buying up when everything gets cheaper?
_________________________________
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
Stocks, bonds, real estate, commodities?
No: cash.
He'd found somewhere that offered 3.6%. Security of capital, and protection against our current moderate inflation.
How many individuals and corporations around the world are doing much the same? Are they waiting for the optimistic losers to slug it out, before stepping in and buying up when everything gets cheaper?
_________________________________
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.
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