Archive for April, 2012

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Leading environmentalist predicts “a farewell to fossil fuels”

April 27, 2012

Amory Lovins is chair of the Rocky Mountain Institute and has been serially – and incorrectly – predicting the end of fossil fuels for the better part of four decades.  He has been reliably wrong on the big picture issue of energy for nearly his entire career, but that does not prevent major organizations like Time Magazine from naming him one of the 100 most influential people in the world (to be fair, nobody says you have to be correct to be influential).  This month, the journal Foreign Affairs offers him a platform for his essay A Farewell to Fossil Fuels.  I could not possibly disagree more with Lovins – I have repeatedly called the 21st Century the “Shale Age” or the “Second Age of Oil” – but readers interested in balance should read Lovins’ opposing view.  Our view is simple:  Fossil fuels are simply too cheap, too abundant and too powerful to be moved from their place at the top of the energy hierarchy any time soon.  They have the advantage of being ready for the built infrastructure and the ability to be easily transported.  The Three Ps – Price, Portability, and Potency – are all heavily in favor of fossil fuels over any other current alternative.  Other energy sources such as solar and wind will incrementally increase their share where suitable (and EGP remains a strong proponent of micropower -local, distributed and unsubsidized), but the heavy lifting will be done by King Carbon for the rest of my life and probably all of my son’s life as well.

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Implications of Chinese Anti-Access/Area-Denial strategy

April 26, 2012

Busy day today, not much to post, but on Andrew Erickson’s site I found a link to this recent Master’s Thesis from USMC Captain Gary Sampson.  I have read the first few pages and it is very interesting and I believe some of my readers will find it valuable or interesting or both.

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The Russo-American military competition in the Far East

April 25, 2012

Morad Ouasti from GlobeAnalytics.com has published a GIS (Geographic Information Systems) based analysis on arms transfers to Asian nations from weapon producing nations.  Overall, the report shows that, despite occasional spikes, there has been a steady decline in arms transfers to both Middle East and Far East nations over the 20 year period from 1989 to 2009.  What is most interesting about the report, in my opinion, is the way that it graphically represents the rivalry between the US and Russia for influence in East Asia over the last decade.  Beginning about 1999, Russia surpassed the US in arms transfers to Far Eastern nations, but both are near parity today.  The charts below clearly show the “battle lines” that are being drawn – Russia has been funneling large amounts of material to China and India, while the US has been sending smaller amounts to a larger number of clients – Taiwan, Japan and South Korea chief among them.  The US has also been ramping up its deliveries to other nations on the Asian Pacific rim, and has also made a concerted effort to enter into arms packages with India.  While many analysts see China as the primary challenger to US influence in the coming decades, this analysis shows how big a role Russia continues to play on the geopolitical chessboard.

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Speculation NOT the primary cause of the decade-long oil price increase

April 24, 2012

Despite the claims of various politicians, speculation and the financialization of the oil markets are likely not the greatest causes of the steep rise in oil prices since 2003.  In a recent op ed, former Congressman Joseph Kennedy III made the claim that up to 40% of the price of oil is the cause of speculation in the commodity markets by oil traders.  Kennedy’s argument is little more than a base appeal to populist resentment and is neither well reasoned nor well researched.  Indeed, Kennedy points to a working paper from the St. Louis Federal Reserve to buttress his argument.  However, the paper by Luciana Juvenal and Ivan Petrella (link will open a pdf file) actually arrives at the opposite conclusion:

On balance, the evidence does not support the claim that a sudden explosion in commodity trading tectonically shifted historical precedent: Global demand remained the primary driver of oil prices from 2000 to 2009. That said, one cannot completely dismiss a role for speculation in the run-up of oil prices of the past decade. Speculative demand can and did exacerbate the boom-bust cycle in commodity prices. Ultimately, however, fundamentals continue to account for the long-run trend in oil prices.

Indeed, the data analysis in this paper concludes that no more than 15% of the overall price rise since 2003 can be attributed to speculation.   Fifteen percent, if correct, is a significant contributor, but other researchers cast doubt on that figure.

More recently, Bassam Fattouh and Lavan Mahadeva of Oxford’s Institute for Energy Studies and Lutz Kilian at the University of Michigan’s Center for Economic and Policy Research examined the same topic.  In a review of recent research on speculation and financialization in the oil markets, Fattouh, Kilian and Mahadeva found that

the existing evidence is not supportive of an important role of speculation in driving the spot price of oil after 2003.  Instead, there is strong evidence that the co-movement between spot and futures prices reflects common economic fundamentals rather than the financialization of oil futures markets.

Now, a 15% price cut would be a significant savings for most drivers, to be sure, but attempting to ban oil market speculation would simply move the practice off shore.  There are bigger and better ways to attack the price of oil – primarily by attacking the cartelization of supply by leveraging other liquid fuel substitutes, as we have noted many times in the past.

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The micropower revolution

April 23, 2012

I have never been a big fan of large, industrial scale wind and solar energy projects.  The supply is too inconstant, energy storage is not sufficiently developed, and the installations are enormously expensive.  Big Solar and Big Wind are simply not competitive without ongoing government subsidies.

At the same time, however, I have long been a fan of distributed wind and solar – small scale projects developed by landowners for their own local use, with the ability to sell excess power into the larger grid (and, eventually, it would be nice if small scale local producers could sell directly to their immediate neighbors).

Bloomberg Markets has a good story up about how micropower is revolutionizing the third world, and how large corporations – especially mobile phone providers – are finding ways to enable and profit from it.  Distributed power can eventually break the power of energy utility monopolies, kill (or at least radically transform) the subsidy-dependent failures of Big Solar and Big Wind, and, of course, enhance personal freedom.  Win-win-win.

I must note, however, that I disagree with Jeremy Rifkind’s contention that distributed power is causing carbon based energy systems to “sunset.”  Distributed power is an additional input into  global energy consumption, but solar and wind still lack the potency and portability of carbon fuels.  Distributed power will lessen some demand on fossil fuels, and thus extend their life expectancy (another reason why Peak Oil is a zombie theory).

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China’s demography bomb

April 20, 2012

The Economist has a new story today called China’s Achilles Heel, focusing on their declining birth rate and rapidly aging population.   If current rates hold, then by 2050 China is expected to have over 350 million citizens over the age of 65 – about 1/4 of their projected population – and at least 30% of that number is expected to be 80 or over.  This will put an increasing burden on Chinese social services and health care systems.  This is part of what I have taken to calling “Peak China.”  China is probably at or near the peak of its economic power right now, and its wave will crest before it passes the United States.

It is the other rising Asian giant that is destined to surpass the United States and become the next leading world power.  India has nearly as large a population as does China, and its fertility rate is much higher.  This means that, not only will it continue to grow, it will not age as rapidly and the economy will have sufficient numbers of young, productive workers to support a modern state.  Additionally, India currently has an adult literacy rate of only 63%, vs. China’s 94%.  This means that India has much more intellectual capacity to mine and develop for the knowledge economies of the 21st century, while China has nearly maximized its own potential.

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The growing China-India military rivalry over Arunachal Pradesh

April 19, 2012

Namrata Goswami, writing for India’s Institute for Defense Studies and Analyses, details the history of the Chinese claims of sovereignty of the peripheral Indian state of Arunachal Pradesh.  China’s claims are grounded in the historical ties of Arunachal Pradesh to Tibet, which China claims to be, not an independent sovereign state, but rather a historic and integral part of greater China which was rightfully reunified with the core in 1949.  India followed this action by annexing Arunachal Pradesh in 1951, and there have been border skirmishes and boundary disputes between the two powers ever since.  Goswami covers this history in her report.

Goswami then details the very large Chinese military buildup in and around Tibet, and outlines the danger that this presents to India.  In addition to the overt military buildup, China’s aggressive infrastructure development in this remote region will give that nation the ability to rapidly mobilize troops to the border in the event of a future conflict, a definite advantage over India, which side of the border does not have a modern transportation system developed.

Goswami concludes with a list of policy options for the Indian government to take in order to prevent and/or prepare for any conflict with China over the region.  India’s defense and infrastructure needs here presents an opportunity for the US to further deepen our developing ties with India.  Goswami’s policy recommendations include infrastructure projects (especially roads and other transportation efforts) and the development of a military special forces contingent that can rapidly deploy to the region.  After our experience in Afghanistan, the US military has more experience with fighting in high altitude regions than any high tech military in the world.  A training program to share that experience with and to transfer relevant technologies to Indian forces would be an excellent way for the US to maintain its influence in South Asia even after the eventual withdrawal from Afghanistan.