People and Resources

Guar: Shovels in a gold rush?

noreply@blogger.com (R) — Sun, 10 Jun 2012 20:52:00 +0000

The analogy of selling shovels in a gold rush immediately came to mind when I read this:

U.S. companies drilling for oil and gas in shale formations have developed a voracious appetite for the powder-like gum made from the seeds of guar, or cluster bean, and the boom in their business has created a bonanza for thousands of small-scale farmers in India who produce 80 percent of the world's beans.

"Guar has changed my life," said Shivlal, a guar farmer who made 300,000 rupees - five times more than his average seasonal income - from selling the beans he planted on five acres (two hectares) of sandy soil in Rajasthan. "Now, I have a concrete house and a colour TV. Next season I will even try to grow guar on the roof."

In Jodhpur, under the shadow of an ancient fort, traders buy guar seed at 305 rupees a kg, a 10-fold increase from a year ago.

How big a deal is guar? Up to 30% of fracking cost and enough to send Halliburton shares down 5%, apparently.

With gas barely above $2/MMBtu, iconic producer Chesapeake shedding attractive assets to plug a cash gap, and even the oilfield services companies who do the drilling vulnerable, it seems the winners here are the farmers. But two cautionary notes. First, supply response can be rapid in agriculture - a single season - and such lucrative price fly-ups are seldom long-lived. And second, since guar grows in the desert and is susceptible to drought, I would not be surprised to find (once the dust settles) that guar is a water-hog like jatropha and hardly (like most other cash crops) a panacea for sustainable development.

How much water?

noreply@blogger.com (R) — Mon, 07 May 2012 11:55:00 +0000

Striking image of how much (or little) water there is on/in the Earth. I'd guess that the sphere would be much smaller for fresh water, too (maybe 1% of the total, or between 4.5-5x smaller radius if I'm estimated cubic roots correctly).

Awesome wind map

noreply@blogger.com (R) — Wed, 28 Mar 2012 21:12:00 +0000

See it here.

The importance of the liberal arts

noreply@blogger.com (R) — Thu, 24 Nov 2011 12:51:00 +0000

... the usual suspect scientific and technical conundrums which the techdysiasts would have us address are defined and constrained far more by their social and political dimensions than by the hard science issues at their core. Fixing climate change, poverty, or even global financial regulation is not merely a problem of finding the correct solution to a thorny technical problem. These big issues are big because they entail questions of philosophy, ideology, justice, the proper form of society, and even culture. The underlying science is almost trivial compared to the value questions at stake.

That's the Epicurean Dealmaker.

I am grateful for, among many other things, a broad formal education, as well as the unprecedented opportunity to continue learning through the blogosphere. Happy Thanksgiving.

Unexpected side-effects of floods

noreply@blogger.com (R) — Mon, 14 Nov 2011 23:11:00 +0000

All of the spiders climb into trees (see #8).

Perfectly logical and yet utterly unanticipated; I feel like there is an allegory and/or warning related to systemic financial risk in there somewhere.

Update: It happens in Australia too:

Learning from comments

noreply@blogger.com (R) — Thu, 03 Nov 2011 20:50:00 +0000

Great example of the value of rapid collective dialogue in a comments section, started by Felix Salmon's post on vehicle-to-grid:

This is a fantastic idea, and it’s a no-brainer, really, that all electric cars should have the ability to power the grid, rather than just drawing power from it. The number and size of power plants is a function of peak electricity demand; if electric-car owners collectively can help meet peak demand, then that means we need fewer power plants. And, the revenue from selling that electricity would help offset the extra cost of buying an electric car in the first place.

The comments point out two things. First, constant charging and discharging of a car battery would significantly decrease its useful life. Second (by yours truly), in most states, regulations prevent utilities from charging residential customers different prices for electricity at different times of day, so the financial benefits or charging off-peak wouldn’t be be captured by users.

Then Dan Ferber, the author of the original article that was the subject of Felix's original post, clarifies that the vehicle-grid interaction is mainly frequency regulation, not bulk power - very helpful!

The problem with comments, though, is that people lose interest or stop checking. So my final question - "if the main vehicle-to-grid interaction is frequency regulation, rather than bulk power transfer, then it’s unlikely to lead to the type of load-shifting and peak-shaving that Felix suggests, correct?" - has, as of now, gone unanswered.

The Rise of the North, data center edition

noreply@blogger.com (R) — Sun, 30 Oct 2011 16:38:00 +0000

Facebook, the latest tech company to take the polar plunge, announced this week that it will build a data center just south of the Arctic Circle in Lulea, Sweden, where the average low in January is 3 degrees Fahrenheit.

If you had told me this fact and asked me the rationale, I would have said something about cheap electricity due to some combination of abundant hydro power and cheap Norwegian gas, but the real reason is more elegant.

Drawn by the promise of lower electricity costs, a growing number of tech companies are harnessing the region’s abundant cold air to cool their servers, cutting expensive air-conditioning out of the equation.

So the electricity savings, which Gartner believes could reach “tens of millions, if not hundreds of millions [of dollars], of savings per year”, are from quantity as well as (more than?) price. Who knew cold air was so valuable?

Hat tip MR, for both this news and an earlier pointer to The World in 2050, which I apparently never blogged about, but was fun to read and also put considerable meat on the bones of the case for why northern countries will rise in importance in the coming decades (better weather, increased agricultural productivity, abundant water, wealthy countries with good institutions, etc.).

Electric power supply-demand is nuanced

noreply@blogger.com (R) — Fri, 28 Oct 2011 14:59:00 +0000

This post over at Marginal Revolution is a great example of why industry-specific knowledge is important, and why extrapolating from general economic principles can be dangerous.

Can you discuss whether [energy efficiency via smarter thermostats] can possibly work? As I understand the power industry, such a high percentage of the costs are upfront (with nuclear plants in particular, but with carbon burning plants as well) and the marginal price of producing energy (up to plant capacity) is so low, that falling demand would mostly cause plants to cut prices until they were again operating at capacity.

So “saving” energy at the consumer level won’t really reduce total energy consumption or gas emission.

As people familiar with the electric power industry already know, baseload power (e.g. nuclear) has low marginal cost but is also not supplying marginal supply - that role is played in most regions by gas turbines (and in some places by older coal or oil), which sell pretty much at marginal cost. A quick way to check this is by multiplying the price of natural gas by the heat rate of the marginal gas plant, and comparing that to the price per MWh of electricity - they will usually be pretty close.

The best commenters do a good job of explaining this. Ignore the first half dozen or so, Alfred and valuethinker are strong.

For what it's worth, U.S. industrial and commercial load is still below 2007 levels; energy efficiency standards from EPAct and EISA may be one factor, although obviously very difficult to parse out the effect of energy efficiency from other drivers like, say, the economy.

Food prices and riots keep company

noreply@blogger.com (R) — Tue, 23 Aug 2011 23:20:00 +0000

Via Michael Roberts, food prices ~~cause~~ are highly correlated with riots.

Cool-looking chart and good hypothesis to pursue further, although I am always suspicious of people who say things that sound suspiciously like dumb linear extrapolations.

Today, the food price index remains above the threshold but the long term trend is still below. But it is rising. Lagi and co say that if the trend continues, the index is likely to cross the threshold in August 2013.

You, too, can innovate

noreply@blogger.com (R) — Fri, 19 Aug 2011 20:52:00 +0000

13-year-old makes solar power breakthrough by harnessing the Fibonacci sequence (and files for U.S. patent).

Apologies for the light posting, which will likely continue - various professional demands on my time have increased, and I'm working to keep a certain amount of personal time sacrosanct.

On droughts

noreply@blogger.com (R) — Sat, 16 Jul 2011 00:26:00 +0000

1. The drought has missed the corn belt, but the heat waves haven't (making Michael Roberts bullish on food prices).

2. You know a drought is bad when the camels are dying.

Ahmed Mohammad, a Somali camel herdsman, told BBC: "It is a terrible sign when camels start dying because when they start to die, then what chance have sheep, goats and cattle?"

Tyler Cowen's next book on food!

noreply@blogger.com (R) — Wed, 06 Jul 2011 02:27:00 +0000

I saw Tyler Cowen live in DC tonight - a fun experience for those of you who are familiar with his written word. Most of the discussion focused on The Great Stagnation (a.k.a. TGS), but an exciting tidbit was that his next book will be on food and food economics. Especially given that agriculture recently surpassed climate change as my most-posted-on topic, I for one can't wait.

Volatility cuts both ways

noreply@blogger.com (R) — Tue, 05 Jul 2011 19:58:00 +0000

Lest we be lulled into the assumption that commodity prices are on a one-way trip to infinity:

In just the last couple weeks corn prices have fallen from nearly $8/bushel to about $6.15. All of that is due to a rather small amount of information about the progress of this year's crop. Yes, there were reports of flooding and late plantings, but that kind of thing rarely has much effect on the overall crop production. The late plantings just set up even more volatility going forward, since the plants will be susceptible to extreme heat in July and August.

That's Michael Roberts, who concludes that

this volatility does provide a teachable moment: it shows how sensitive prices are to small quantity changes.

True, but I think we are collectively more attuned to the downside factors (climate change, growing demand) than the potential upsides (e.g., a sudden removal of biofuels mandates, or a restoration over several years of typical buffer stock levels). A 25% fall in a matter of weeks is huge, and a reminder that high food prices and food price volatility are not the same thing (a huge pet peeve of mine).

This can also be true for seemingly exhaustible physical resources, as yesterday's announced discovery of "vast deposits of rare earth metals" on small plots of Pacific Ocean seabed show us.

estimated rare earths contained in the deposits amounted to 80 to 100 billion metric tons, compared to global reserves currently confirmed by the U.S. Geological Survey of just 110 million tonnes that have been found mainly in China, Russia and other former Soviet countries, and the United States.

(don't sleep on the B vs. M - that is 800-1,000x current confirmed reserves)

I am pondering a longer post on what this means for commodities as an asset class (namely that over decades, they will not provide attractive real returns, although they may have some value as a hedge against inflation).

Third largest ag exporter is... the Netherlands?

noreply@blogger.com (R) — Tue, 05 Jul 2011 19:41:00 +0000

Take the case of the Netherlands. Unbeknown to most people, it is world’s third largest agricultural exporter, despite having little land (it has the world’s fifth highest population density). This has been possible because the Dutch have “industrialised” agriculture by, for example, deploying hydroponic agriculture (growing plants in water) that uses computer-controlled feeding of high-quality chemicals—something that would not have been possible if the Netherlands did not have some of the world’s most advanced chemical and electronics industries.

Via Chang via Yglesias via MR. Note that the data is from 2003-2004 (I was suspicious because Brazil didn't breach the top ten). But nevertheless an impressive feat. Although it's worth mentioning that a large $ trade surplus in agriculture is not the same thing as being self-sufficient - the Netherlands is as exposed to rising staple crop prices as any other country (albeit with a high level of income, so consumers don't feel the hurt nearly as much).

Yucca mountain revival and Fukushima design specs

noreply@blogger.com (R) — Mon, 27 Jun 2011 22:34:00 +0000

It seems that science may prove more enduring than politics in the case of Yucca Mountain, which was given up for dead by many two years ago when Harry Reid apparently made it his price to support Obama's legislative efforts. A recent review calls into question the decision, in particular the conduct of NRC chairman Gregory Jaczko (former science advisor to, coincidentally, Harry Reid). My views on this are pretty clear and it's encouraging to see the disappointing decision receive this scrutiny.

In related news, I found it interesting (from this CSIS report on nuclear power after Fukushima) that the Fukushima reactors did not fail their design specifications:

First, the nuclear facility itself seems to have withstood a record 9.0 earthquake without critical damage because all of the reactors struck by the earthquake shut down as intended. The March 11 earthquake exceeded the design criteria and reinforces a lesson learned from an earthquake that damaged the Kashiwazaki-Kariwa reactors several years earlier—these facilities are very robust. A second lesson is that the facility was vulnerable to compromise from damage to external elements of the plant brought about by a tsunami that was 150 percent larger than the design criteria.

Little comfort after a full meltdown of three different cores, but at least interesting in diagnosing the root cause of the problem and planning for the future.

P.S. The fact that that was what jumped out at me makes me wonder if I should be driving more consistently for higher-level messages, rather than interesting factoids.

PUMA's EP&L

noreply@blogger.com (R) — Mon, 27 Jun 2011 22:25:00 +0000

As you may have heard, apparel company PUMA has recently published the world's first EP&L (environmental profit and loss) statement. It is a modest first step in a very neat direction. For example, it's not surprising that

The analyses have shown that the biggest environmental impacts in the value chain occur, not through PUMA’s core operations but at the level of its Tier 4 suppliers, where raw materials are derived from natural resources, such as the cultivation and harvesting of cotton, cattle ranching for leather, and natural rubber production. [36% of GHG emissions and 52% of water]

... but nevertheless a meaningful step to have it quantified, agreed upon and audited. The report notes that there are real risk management benefits in terms of understanding exposures, quite aside from any sustainability benefits. Worth perusing, and hopefully we will see more of this from PUMA (stage 2 plans to include social impact, and stage 3 to include broader economic impact) and from other companies as well.

NYTimes weekend round-up

noreply@blogger.com (R) — Mon, 27 Jun 2011 21:57:00 +0000

I don't often read the full NYTimes, but I happened to this Sunday, and since I haven't posted in over a month, and it's almost the end of June, and my blogging progress seems eerily paused at 666 posts and 7,777 hits, I figured I'd throw out a few links with brief commentary:

Insiders Sound Alarm Amid Natural Gas Rush: an interesting article seriously examining the claim that shale gas isn't profitable and is a big bubble. There's certainly some truth to that idea that many shale gas investments aren't making very good returns at $4.30/mmbtu gas; that said, the article would have really benefitted from some actual numbers (even ranges) comparing production costs to current and potential future gas prices. Without those, it's a qualitative discussion of a problem with a largely knowable quantitative answer.

The one thing I did find intriguing (and again, would love to see real numbers on) is the steep decline in productivity of shale gas wells over the first few years. I would assume that since the technology is not new, this performance has been built into business cases for individual wells, but you never know...

There's also a fundamental difference between a gas "bubble" (if there is one) and the typical bubble (e.g. internet) in media parlance, which is that North American gas prices have already crashed. This article would be analogous to calling the internet a bubble in 2003, not 1999, and that limits the usefulness of the analogy.

Chevy Volt and Future of Electric Cars: A feel-good article from Joe Nocera after he test-drives a Chevy Volt; made me want to try one too. The “it’s like playing a video game that is constantly giving you back your score” comment particularly resonated with me. The lack of that type of feedback is a common motif across consumer energy usage (think about the current opacity of household electric power) and a thematic area for substantial change and impact.

Power Drain From Cable Boxes: Striking; I had no idea that "some typical home entertainment configurations eating more power than a new refrigerator and even some central air-conditioning systems." Once again, greater feedback in home energy consumption could help move the needle on consumer behavior here.

Ethanol Production Wastes Corn: Steve Rattner is right, but has nothing new to say

6/30 addendum: A colleague told me that Chevy loses $18,000 per Volt it sells. So we are still a ways away from the economic tipping point.

Great news for cows

noreply@blogger.com (R) — Tue, 31 May 2011 20:22:00 +0000

Rinderpest, a cattle disease that for centuries felled herds in Europe, Africa and Asia and caused periodic human famine, has been eradicated, veterinary epidemiologists announced this week.

Eradication is the Holy Grail of disease prevention and has been successful only once before. Smallpox, an equally devastating human scourge, was eradicated in 1980, proving it is possible to stamp out a microbe across the entire planet.

I always wonder how they prove eradication beyond a reasonable doubt. But nevertheless, a huge triumph. I spent some time last year with some folks who were instrumental in beginning this campaign back in the late 1980s/early 1990s - here is to them and their hard work over two decades.

Germany to phase out nuclear by 2022

noreply@blogger.com (R) — Tue, 31 May 2011 13:53:00 +0000

This isn't the first time they've said this (the last was before the commodity boom), but

Germany will shut down all its nuclear plants by 2022, and eight reactors shut down after Japan's nuclear disaster in March won't be reactivated, the government announced Monday.

I'm generally bullish on nuclear power compared to other power sources (especially those which are currently baseload capable), so I'm sad to see this. And as a colleague of mine noted, the Russians must be grinning with glee that their geopolitical leverage and economic profits from natural gas will return with a vengeance.

Finite room for construction in China

noreply@blogger.com (R) — Fri, 20 May 2011 23:48:00 +0000

China's explosive demand will finally drop from its stratospheric level, either because China's economic development falters or because China is finally totally covered over in cement.

That is Rick Bookstaber, a deeply thoughtful blogger on financial markets, in response to Jeremy Grantham's newsletter on "the mother of all paradigm shifts" (i.e., "Days of Abundant Resources and Falling Prices Are Over Forever"), which excited the likes of Cowen and Krugman.

Like Rick I am in the less apocalyptic camp, although for much prosaic reasons (he believes that eventually our resource consumption will decrease as we increasingly lead virtual lives and turn away from material consumption). As Tyler Cowen says, China cannot continue to invest 50% of its GDP forever. There is a long way to go for the world to catch up to rich-world consumption levels, but it also won't happen all at once (apply an optimistic GDP growth rate to your favorite sub-Saharan African country and you'll be shocked at how long it will take to get where China's income is today, even if everything goes well). Resource demand may not be curbed any time soon, but ultimately I have more faith in the power of prices and markets to change behavior than the doomsayers seem to.

A few responses to Prince Charles

noreply@blogger.com (R) — Sun, 15 May 2011 14:36:00 +0000

I just read the transcript of Prince Charles' speech on sustainable agriculture in DC last week. There are a lot of good ideas, and a few areas in which I think more can be said.

Ag subsidies: I believe there’s a strong consensus across many individual issues and disciplines that American and European agricultural subsidies are wasteful and counter-productive. The challenge is a political one – there are about 20 farm states, and it’s very difficult to get things done legislatively in other areas (health care, immigration, climate change, you pick) without the support of at least some of that bipartisan group of 40 farm senators. It’s not a rich-world-only issue, too – here’s a year-old WSJ article (subscription required) on how difficult it has been to repeal fertilizer subsidies in India despite 40 years of trying, and recent fertilizer subsidies in Malawi have become a darling case study of country-led agricultural development proponents, despite criticism by the World Bank and others.

Scale: I think Prince Charles is too blasé about dismissing the benefits of scale for cost and efficiency of agricultural production. Cost is important not as much to you and me, but definitely to the urban slum-dweller in Cairo or Mumbai who spends 2/3 of his or her income on food. And efficiency is important for the environment – less yield per hectare of land means more land under cultivation, and since there’s not much unused cropland around the world, this results in degradation and cultivation of ecologically sensitive areas like the Amazon, the Sahel, Indonesia’s peat swamps, etc. If we can replicate current yields at scale using organic methods, that would be great, but the burden of proof is still on those who claim this can be done.

Local production: Another attractive idea that I think is easier to apply to ourselves (living in not only the richest but also one of the most agriculturally productive countries), but runs into difficulty when generalized across the world. There is a lot of upside in smallholder productivity in Sub-Saharan Africa, but in other regions that import food today – I’m thinking of mainly the Middle East and China – it would be very difficult for them to produce more food domestically without exactly the kind of unsustainable drawing down of natural capital that Prince Charles rightly warns against. If we want the most holistic and least naturally destructive agricultural system at a global level, it has to include a significant component of trade between the most fertile parts of the world and the less fertile but more populated parts (unfortunately the two don’t match).
To close, a photo I took from an airplane of pivot-irrigated wheat in the middle of the Egyptian desert, with water drawn unsustainably from the underlying aquifer (we do this in the American West, too). We Americans are very fortunate for the fertility as well as the economic prosperity of our country, and not all countries have the agro-ecological potential to feed themselves in a sustainable way.

Who funds mining in Afghanistan?

noreply@blogger.com (R) — Fri, 13 May 2011 17:26:00 +0000

When he landed in Baghdad for a meeting with Iraq's oil minister, the minister asked, "What are you here for?"

"I'm here to make five new Iraqi billionaires every year for the next 10 years," Hannam said with a twinkle in his eyes. It was an effective icebreaker...

Remember Afghanistan's $1 trillion in mineral reserves? Meet the JP Morgan investment banker who is catalyzing financing for their development. Not very critical, but pretty interesting.

Feeding the world just got harder

noreply@blogger.com (R) — Fri, 06 May 2011 02:45:00 +0000

Whoops, that would be 10 billion people, not 9. Africa is the big driver. I suspect this number could still move a lot. Economic growth will be a key determinant.

Whoa

noreply@blogger.com (R) — Fri, 06 May 2011 02:08:00 +0000

So apparently crude fell ~10% today. I've heard poor economic data, OPEC raising output limits and even "sudden realization of the impact of CNG and EVs" (not joking), but that is still a whopper of a one-day move.

Refining margins and crude price

noreply@blogger.com (R) — Thu, 05 May 2011 01:12:00 +0000

Linking to a comment exchange with Geoff Styles in response to his recent post on the oil earnings backlash. My initial reaction was that it seemed like Geoff was implying that refining businesses are structurally short crude and therefore oil majors are not as long oil as we think they are.

I agree with you and Robert that the majors are price takers, and accusations of "gouging" are generally misguided, but it's misleading to imply that they are not way long crude price. High prices are great for upstream and generally passed through by refining (unless there's some evidence that refining margins shrink when crude prices rise?), so on net a clear plus for the integrated majors.

In brief, I ran a few quick correlations based on this refinery margin data, and came out with R squareds of approximately zero. This would indicate no consistent relationship (i.e. full price pass-through over time), although I recognize that the analysis is crude and I'd welcome any improvements or corrections.

Also keep in mind that while refining margins don't rise and fall with crude prices, it's a highly cyclical industry, and through-cycle returns are pretty thin. Not a place I'd want to be sinking a lot of capital right now, especially with lots of NOCs building refinery capacity for reasons often more related to jobs than pure financial returns.