Flashman Letters

Book Review: Carbon Shift

Homer Dixon has put together an excellent brief set of essays about the dual problems of energy depletion and global warming. It is worth reading and takes about four hours. My albeit  idiosyncratic takeaways are:

• There is abundant carbon. It is just nastier than most of the stuff we currently use. Let us say that there is a continuum of cost and nastiness. At the left is conventional oil, as you go right you get tar sands, then GTL and coal to liquids. (David Keith Essay)
• We are moving outwards on that continuum. The cheap accessible oil we have grown accustomed to and which our society is based on is running out. We are moving to fuels with lower EROI and “the worse a fuel's EROI, the larger its carbon footprint,” (David Hughes)
• According to Mark Jaccard we are nowhere near peak production and that technology combined with the abundance of unconventional oil will prevent oil from becoming too expensive for any long period of time.
• In Canada at least, people do not seem to be willing to pay higher prices to preserve the environment. It is not simply the energy exporting provinces, but almost across the board people will not vote for politicians who seek to increase the cost polluting. (Jeffrey Simpson)
• Because of extremely low prices oil consumption is rising dramatically in Venezuela, Russia, Iran and Saudi Arabia. Not only do they use oil to run their cars ( at very low prices), they use it to fuel power plants, build indoor ski mountains and desalinate water. Those autocratic regimes are not going to let the market determine who gets first crack at the nations scarce resources.

While the book is largely about Canada, I think a chapter about the NOCs might have been useful. 90% of the oil in the ground is controlled by NOCs. These NOCs are by and large controlled by autocratic regimes ( think Gazprom vs. Statoil). They are not making the size investments to increase production even if they have the technological capability.

We are in a 90mm bpd limit world. It is difficult to see it go much further. Mark Jaccard, has noted that technological fixes can get us far beyond that, but with the oil we have, in the places it lies, and the infrastructure we currently possess, it is difficult to seecapacity increase as quickly as unfettered demand.

Takeway: The will be shortages and there will be warming.

Reviews:

http://www.theglobeandmail.com/books/article1131720.ece

http://fivemoreminutes.thelamppost.ca/2009/05/book-review-carbon-shift/

Making Sense of the Dollar: Marc Chandler

There is no particular reason to read the book although it does read quickly. Better to listen to the podcast.

ww.netcastdaily.com/broadcast/fsn2009-0912-2.mp3

The author does make some interesting points:

• TINA: There is no alternative to the dollar. No other country/currency has the depth of capital markets. The Euro is no alternative because the largest currency the d mark's bond market is only 1/4 as large. Rather than being analogous to the US bond market it is more similar to the muni market with a number of different issuers issuing non homogenous paper.
• Much of the Us trade deficit is intra company trade with many of the value added steps going inside the US
• Many US "exports" are handled by US foreign subs. That is Coca Cola Germany only sends some of its profits back to the US. Arguably the whole thing is an export, but the strategy adopted by US companies is: locate in the target market to be closer to the customer, and reduce exposure to foreign exchange etc.
• US leadership in technology and education. The IBM issued more patents than all of China. Also 7 of the ten best universities in the world are in the US. Some huger percentage of graduate students are in the US and many of them stay
• ... and most intriguingly the Triffin Dilemma. In order to be a global reserve currency you need to run a currant account surplus (the foreigners need to have lots of dollars in their hands), but in order for that reserve currency to have value, the deficits cannot be large or that will make the currency undesirable as a reserve currency
• • The US has a huge head start - there are already huge numbers of dollars in circulation
  • The currencies one might want to have Yen, Yuan and D mark have large trade surpluses
  • ... as well as populations, governments, and central banks that would find the sorts of deficits required untenable

And some howlers:

• US is an equity investor and foreigners are debt investors that is why the US earns a higher return on its money that the foreigners. Kirstin Forbes show that higher rates of returns are earned outside the US on debt, equity and FDI. Therefore, if foreigners are investing in the US in preference to their own markets, it must be for non commercial reasons.
• • Currency manipulation? (China and Japan)
  • Influence ( GCC)
  • Liquidity