Petroleum Price and Clathrates
Andre Willers
17 Apr 2013
Synopsis:
A fierce price-war between Clathrate and Fracking energy
production will drive the Petroleum price down to the $36-$72 per barrel range
much sooner than previously estimated .
Discussion :
1.Natural gas production by fracking is already a boom
industry . Natural gas prices in the US is about 25% of that in Japan or China
.
2.Japan is totally dependant on imported energy , except
nuclear . And that is being scaled down . But it has large clathrate reserves
.So no wonder it has force-developed the technology to extract methane from
clathrates . See Appendix A .
2.They estimate large-scale production by 2018 , but they
are in a race , both price-wise and strategically with shale-gas produced by
fracking . Humans can actually get a move on in situations like these .
So , expect production within about 1/3 x(2018 – 2013) = 1.6 years
ie 2014.
3.This is reflected in the inexorable fall in the petroleum
price (+- $100 Brent today) . See Appendix B .
4. It might easily fall below $36 per barrel if large scale
gas-to-gasoline plants like Sasol’s Lousiana plant is extended to clathrates .
5.Powershift :
The present civilization is a high-energy society , and relative
power shifts with the energy costs and availability .
See Appendix C .
The availability of gas from shale or clathrates is assured
for at least a 100 years . These deposits are in every country , not just a
fortunate few . The only other real factor is then cost .
6.Expect ferocious competition , especially in respect of
subsidization . Nation states like Japan will subsidise clathrate production .
7.Economic activity : they will be able to afford it because
the cost of energy is the basal input in a high-energy civilization .
The fall in energy prices will trigger an economic boom . A
sort of inverse 1972 oil-shock , only a bigger boom because of higher
technological levels . The fiat-money being created by the various fiscal stimuli
will overhauled by real wealth creation .
8. The quick quadrupling of wealth only happened once before
: See Appendix D . Jethro Tull’s little
invention quadrupled wealth in Europe within 2-3 years . The effects were far
reaching . We are still living through them .
9.Now , we will have something similar . Let’s hope this
will also birth a new age of Reason .
10. An interesting aside :
Note from the general argument (see Appendix B) , that if
the petroleum price falls much below $36 pb , the whole petroleum industry will
probably implode . This is because the heavy cost of the old infrastructure can
no longer be supported . Also , capital will flow to the gas technologies ,
where there is a higher rate of return and government subsidy .
You will not be able to give a barrel of oil away . Would
actually have to pay somebody to remove the pollutant .
What irony ! All those huge stockpiles of petroleum becoming
a liability .
Not to mention the whole Middle East .
11.How long ?
The gas production : fracking is already being done .
Clathrates , 2014-2015 . Infrastructures will take a bit longer . But there are
incredible profits to be made . Positive feedback systems result . Read up
about what happened to inventions after 1700 AD .
12.Stock markets : these discount the future . Expect a huge
stock-market boom .
13. Environment :
13.1 Global warming is happening , regardless of the cause .
This threatens clathrate burps , causing unpredictable , large-scale releases of
methane . This is a real baddie for so many reasons that you will need a hole
in the ozone to illuminate it .Utilizing the clathrates smooths this process .
13.2 The economic boom , combined with large capital flows and
a new intellectual Age of Adventurism should be able to fix most of the planet’s
problems .
14. Best of all : it is happening NOW !
Not after some conference , summit , meeting of talking
heads or similar command performances .
This process is driven from the bottom up by profit
principles . And everybody can share via the Internet and Cellphones .
Many people in the USA went from near-homeless to rich in
fracking states like Dakota , Lousiana ,
etc.
This will be dwarfed by clathrates .
15. Ostrum principles :
It will be interesting to see how Ostrum Principles treat
the communal ownership of shale-gas and especially clathrates .
Both touches other human communal resources like water
tables , fishing grounds , fishing or aquatic farms , etc .
Big companies should not repeat the mistakes of Shell in the
Niger delta .
Note that many clathrate deposits are slap-bang in the
middle of powerful political communities , all connected .
16 .There is still hope for your Grandchildren !
Nil Carborundum .
Andre .
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Appendix A
Japan extracts 'fire ice' energy resource from its
seabed in 'world first'
It looks like Japan
may have a reprieve in its energy plight, after claiming it's the first country to extract methane hydrate "fire ice" from its
seabed. Officials say the plan is to have viable production
technologies in place by 2018/19.
The state-run Japan
Oil, Gas and Metals National Corporation (Jogmec) made the announcement 11
March, revealing that a year-long expedition to the watery depths had finally
paid off.
"It is the
world's first offshore experiment producing gas from methane hydrate," an
economy, trade and industry ministry officialsaid to AFP, though other tests have
been carried out before. Jogmec began drilling the seabed in January, and has
just begun a so far successful two-week long extraction and production
experiment to prove that the tricky substance's potential can be tapped into.
The methane hydrate has been extracted from depths of about 300 metres below
the seabed, with the team lowering the naturally high pressure present at those
depths to separate the gas from its icy surrounds. The free gas was then piped
to the surface.
The successful
extraction has massive potential for Japan.
It's estimated that 1.1 trillion cubic metres of natural gas are
trapped within the methane hydrate off Shikoku island. To separate methane from
the icy, solid clathrate that forms under the sea is to release an estimated
11-year's worth of gas supply for Japan, which has been struggling under the
pressure of soaring energy prices since the 2011 Fukushima disaster. After the
event, most of the nation's nuclear reactors were forced to shutdown until July
2012. Public support for the nuclear power sector plummeted in the interim, and
the government made the announcement in September 2012 that it would shift to other fuel sources by 2040, closing all 50
functioning nuclear reactors. But what it intended on replacing that energy
source with remained vague.
Until March 2011, a
third of Japan's energy supply came from its nuclear reactors -- only two of
which are now currently in operation -- and it had planned to increase that
ratio to 50 percent. Its reliance on importing gas since the 2011 meltdown has
been a financial strain; it is already the world's largest buyer of liquid
natural gas and the second largest importer of coal. A few weeks ago, Prime
Minister Shinzo Abe appealed to Obama to allow exports of its shale gas to
the fuel-hungry country. So turning methane hydrate extraction into a viable
business could mean independence for Japan -- "Japan could finally have an
energy source to call its own," Takami Kawamoto of Jogmec said. But why
then, hasn't anyone done it before?
Methane hydrate was
first discovered in the 1800s, and by the 30s it was still known only as that
annoying ice that clogs up pipelines in the cold. It was only when the
substance was discovered to occur naturally in Siberia that energy scientsits
realised it was not something to consider an irritant, but an opportunity.
Large deposits have since been found in Alaska, Canada and the Nankai Trough
off Japan. According to William Dillon of the US Geological Survey organic
carbon present in gas hydrates is about twice as much as in all other fossil
fuels, and the methane present is 3,000 times as much as is in the atmosphere (one cubic
metre of methane hydrate equals about 160 to 170 cubic metres of gas).
But conducting
extraction experiments on a substance that resides a kilometre below sea level
was never going to be easy. Once there, deposits are still usually uncovered
hundreds of metres below the seabed and found in areas where the seabed
begins to drop away from the shelf, making it difficult to line pipes up.
Making matters more difficult is the fact that the methane has to be separated
from the clathrate at the point of extraction -- otherwise, the gas is likely
to escape when brought to the surface as the pressure changes.
Jogmec also needs to
confirm it can achieve stable extraction, not just production. Removing large
surface areas from the seabed could cause a shift in sediments where the
substance is trapped. The worse case scenario would be if removal caused anunderwater landslide that triggered a tsunami. In a piece warning about the dangers of
methane hydrate extraction, professor of civil and environmental engineering at
Lehigh University Tae Sup Yun also warned that accidentally releasing methane into the
atmosphere could be a huge danger, considering its aforementioned concentration
in gas hydrates.
Like any new
extraction process, it's likely to take plenty of time before the full go-ahead
is given. Fracking continues to cause controversybut has been embraced, a fact economy, trade and industry minister
Toshimitsu Motegi pointed to at a press conference. "Shale gas was
considered technologically difficult to extract but is now produced on a large
scale," the New York Times reports him as saying. "By tackling
these challenges one by one, we could soon start tapping the resources that
surround Japan."
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Appendix B
Fracking and the Oil price
Andre Willers
4 May 2012
Synopsis :
The Oil price will permanently (100
years) be lower to a new sustainable level . We try to calculate the boundaries
of this price from basic principles .
Discussion :
Fair price : what the price should
be taking into consideration profits , reserves and exploration reserves .
There is an extra value , which represents the present value of future demand
(ie speculation) . This collapses to zero as fracking becomes commonplace .
On recalculation (allowing for 5% pa
inflation over 5 years) , the costs become :
Oil per
barrel at the well-head : $6
Transport
per barrel anywhere on-planet : about $6
Total cost
per barrel at refinery : $12 =(6+6)
Markup
factor about 200% : cost per barrel about $36= (12+2*12) .
This is the
historical markup . Also the optimal markup . See http://andreswhy.blogspot.com
"Optimal Markups"
To pay for
the infrastructure of refineries , garages , etc
The argument
goes that adding provision for reserves and the optimal markup on these
reserves gave a fair price as long as petroleum was the only source .
Logically
speaking , this gives a lower boundary of about $36 .per barrel . The upper
boundary would be the optimal markup (200%) ie $72 per barrel .
Fracking
reserves are well known and accessable .
Removing
them from the cost reserve structure results in a much lower oil price per
barrel .
Exeunt
America from the Middle East .
The
probability (95%+) is that the oil price will fluctuate between $36-$72 per
barrel , with competition driving it to the lower levels ,
Environmental
concerns will take a very back seat .
The USA will
become a net exporter of energy (surprise!) .
Global
warming :
This
technology will exploit the methane clathrates on the seafloor . Preventing the
dreaded cataclysmic methane surges .
Let one
problem solve another one .
Andre
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Appendix I
This model held up fairly well . See
other posts .
Basic
ab-initio Cost Estimate of Petroleum Prices at 30 Nov 2008 .
Oil per
barrel at the well-head : $5
Transport per
barrel anywhere on-planet : about $5
Total cost
per barrel at refinery : $10 =(5+5)
Markup
factor about 200% : cost per barrel about $30= (10+2*10) . This is the
historical markup . Also the optimal markup . See http://andreswhy.blogspot.com
"Optimal Markups"
To pay for
the infrastructure of refineries , garages , etc
The system
needs reserves if it is not to die on us .
There are
two schools of thought :
1. General
Reserves of about 1/3 of this gives cost per barrel about $40 = (30*1/3+30)
2. But we
need reserves for exploration , which is expensive .
We use the
optimal markup factor of 200% on $30 to $40 .
This gives
us price boundaries of $60 to $80
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Appendix C
US Fed : Republican
End-Run
Andre Willers
21 Feb 2013
Synopsis:
US Conservatives have by-passed
Congress and focussed on the Federal Reserve Governors. Dissent here
destabilizes the Quantitive Easing effects on Stock Markets . It shuts the taps
on the bubble . Exactly what they want .
Discussion :
“As stipulated by the Banking Act of 1935,
the President appoints the seven members of the Board of
Governors of the Federal Reserve System; they must then be confirmed by
the Senate and serve for 14 years.[2] Once appointed, Governors may not be removed from office for
their policy opinions. “
“Bernanke's second term ends on January 31,
2014.”
The current members of the Board of Governors are as follows:[8]
At least three are Conservatively inclined .
Look at expiry dates .
Only one swing vote is required . (Note
fluctuation of E.A.Duke .Her absence disturbed the balance of power.)
|
Commissioner
|
Entered office[9]
|
Term expires
|
|
February 1, 2006
|
January 31, 2020
January 31, 2014 (as Chairman) |
|
|
October 4, 2010
|
January 31, 2024
October 4, 2014 (as Vice Chairman) |
|
|
May 30, 2012
|
January 31, 2018
|
|
|
August 5, 2008
|
January 31, 2012
|
|
|
January 28, 2009
|
January 31, 2022
|
|
|
October 4, 2010
|
January 31, 2016
|
|
|
May, 2012
|
January 31, 2014
|
3.What is going on ?
Somebody really smart has done an
Oblique Approach attack .
He yielded on the Congress flank (granting
Credit-Ceiling extension ) , then hammered on the institutional flank (The Fed)
actually doing the printing of money (Quantitive Easing) . Complete surprise
was achieved . The risk-averse panic and flee . The flanks are rolled up and
the pursuit ensues .
Few prisoners are taken .
This is happening now (05h14
2013/02/21 GMT) .
Stock markets are sharply correcting
as that future income stream of $84Bn per month Quantitive Easing becomes much
more uncertain .
This is enough to make the
faint-hearted flee.
4.Some did get uneasy :
The Germans are still hypersensitive
to hyper-inflation .
5. I got suckered , too .
I expected another bruising battle
on the Congress front .
So , the correction is occurring ,
but not in the way I thought .
6. How does it work ?
All they have to is induce an
uncertainty > 28%
Look at the Seven Governor voting
decision table below .
1/7 = 14.3%
2/7= 28.6%
3/7= 42.9%
4/7= 57.7%
5/7= 71.4%
6/7= 85.7%
7/7= 100%
To destabilise the system , all you
need are 2/7 supporters and one maybe . This exceeds reserves .
Since this system determines the
Quantitive Easing , ($84Bn/per month) , any uncertainty here gets magnified as
all those little computer programs in the futures markets get busy discounting
.
But notice , this uncertainty is not
Beth(0) (ie like flipping a coin) .
What is happening is that a lot of
traders went out on a limb using computer systems they do not understand .
The uncertainty shift is from 28.6%
to 42.9% . Black-Scholes systems cannot handle this abrupt discontinuity .
They might not lose their shirts ,
but the male bra might make an abrupt reappearance .
7.Strategic Surprise .
This was a major strategic surprise
.
DARPA mission statement : “To create
or prevent strategic surprise”
DARPA seems to have decided that the
USA does not need to subsidise all the planet’s fat cats .
See “Fracking” , “Reshoring” , etc .
Expect more strategic surprises .
(Fracking was a DARPA project . )
Why should DARPA suddenly play a
more active role ?
Because they have come into
competition with those sincerest of admirers , competitors .
To maintain their mission statement
, they have to start intervening in internal USA affairs .
The clunky and gridlocked US state
needs a swift kick on the behind if they do not want to end up speaking Chinese
.
And stopping funding your main
competitors is high on this list .
8. What does all this yakkity-yak
mean ?
The USA intends to restore it’s
energy , manufacturing and financial bases .
8.1 Energy : Fracking .
8.2 Manufacturing : Reshoring
8.3 Financial : Happening as we
speak . Stop funding losers .
DARPA is only one of it’s agencies .
It is a large , smart system going
into the singularity .
I cannot compete . Apart from the
large databases , there are ripple-effects of workable mind-computer interfaces
.
And persons who are as smart or
smarter than I am .
9. So what is a poor small investor
to do ?
Cash , or US Treasuries . Shares and
properties are about to go into a prolonged period of instability . You can’t
win , but at least you will lose the least possible .
10 .Societies :
There are only degrees of winners .
But there are definite losers . The societies being propped up by the USA will
lose heavily .
This is most of Europe , China ,
India , Korea . All the US clients will find their markets drying up and
capital being withdrawn .
Big mark-ups will disappear to about
2%-3% . Actually , below the wealth-growth rate . Competition . This is
happening now.
11.Growth rates slow to match
reduced population growth rates .
12.Corollary : There is more
resources for Blue-Sky research . The system gets richer much faster than
population decreases .
Cf Chinese One-child system .
Interesting times .
Andre
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Appendix D
Jethro Tull
– Super Hero
In 1701 an
Englishman called Jethro Tull invented the seed drill . By quickly and reliably
planting seeds at the optimal spacing and depth , this invention enabled about
a fourfold increase in yield within one season .
This invention
created the largest pulse of wealth in history . Bigger than the invention of
fire . Bigger than the invention of agriculture . Bigger than the invention of
the internal combustion engine or transistor .
It
kick-started the Industrial Revolution .
The
reasons:
Most wealth
was agricultural.
The
increase in wealth was within one season . Malthusian population growth would
take about 2 to 3 generations to catch up . Imagine getting a 400% raise in
your salary in one year without inflation . This was the effect . This pulse of
wealth propagated onwards , giving leisure and incentive to inventors . (ref
Baby Boomer Pulse)
The result
was a pulse of wealth stimulating other individuals to make similar inventions
. The Age of Reason was born . The problem was the massive increase in
population made possible by the efficient mechanized systems .
The large
number of surplus males and the means to support large armies led to the First
Large War (Napoleontic) . This gave the Age of Reason a knock (Nationalism),
but you could still state unpopular beliefs without being killed for it . The
Second Large War (WWI) destroyed the Age of Reason and ushered in the
ideologies (Communism , Marxism , Fascism , Capitalism ). If you stated an
unpopular belief , you stood a good chance of being heavily penalized for it .
The demise of ideologies collapsed the system back to Religious Fundamentalism
, where you can be killed for stating an unpopular belief . The Age of Reason
is finally dead . This is the state at circa 2006 AD .
The Age of
Reason only lasted a century , but gave rise to our present wealth .
When
evaluating ideas like that of Huebner ( see “Waiting for the lights to go
out” in Sunday Times of Oct 16 2005 ) ,
it is important to remember that changes come in pulses . Things might seem to be going to hell in a
hand-basket (cf horse-poop in New York circa 1890’s) , but discontinuities
generate pulses of change and wealth . You might as well try to explain a
transistor using Newtonian mechanics . In other words , analyzing pulses of
change as simple statistics of numbers of people over time is garbage .
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