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Exxonomics 101

surfer-girl-2gc2reddit-logoOff the keyboard of Albert Bates

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Published on the Peak Surfer on November 8, 2015

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"You don't need 100,000 marines to secure windmills in North Dakota."

 

 The New York Times, which is quickly becoming to print media what Fox is to television news, has done what no first year news stringer should do. It buried the lead. 

It buried the lead on what is likely to become one of the most important stories of all time.

Hidden in the science section of its November 6th daily edition is this headline from a story by Clifford Kraus: More Oil Companies Could Join Exxon Mobil as Focus of Climate Investigations.  Kraus's lead is:

HOUSTON — The opening of an investigation of Exxon Mobil by the New York attorney general’s office into the company’s record on climate change may well spur legal inquiries into other oil companies, according to legal and climate experts, although successful prosecutions are far from assured.

The story goes on to describe the fraudulent activities undertaken by Exxon Mobil, Chevron and other oil majors from 1990 to 2001, using astroturf fronts with names like Global Climate Coalition and the American Legislative Exchange Council. The writer, and presumably the Times editorial team, assumes the reason NY Attorney General Eric T. Schneiderman is investigating is because the companies spent millions or billions on a disinformation campaign, purchasing no fewer than four U.S. presidents and vast numbers of Congressmen and Senators. These disinformation campaigns cast doubt on climate science by parading shill pseudoscientists before legislative committees. The purchased politicians then went before the public and parroted the oil company line: "Climate Change? Nothing to see here, move along."

The Times seems to think the NYAG is after some kind of conviction for perjury or advertising fraud.

By now this spin on the story is so old and been told so many times, we are surprised that it is still considered news. Maybe that is why it got bumped to the science page. Everyone knew, despite the feigned shock of Bill McKibben, Naomi Klein and others, that Exxon had extensively researched the subject in the 1970s, concluded by the mid-80s that climate change was a serious threat, and then killed its own research program and financed opposition.

The real news story is something else. It is not what the investigation is but where it is. The New York Attorney General's office peers from its eyrie in Albany down the Hudson River, across the white plains and palisades to lower Manhattan, but it is only one of two such offices that watches. The other is located closer to the action, in the Federal Courthouse just below Wall Street, where dwells the United States Attorney for the Southern District of New York, a Mr. Preet Bharara. If you bike by there, however, you see that dog is chained by a very long chain that runs all the way to the back porch of a big white house in Washington. Lest we forget, the nation's last Attorney General came from and went back to Wall Street's Covington & Burling, after 6 years of hearing nothing, seeing nothing and saying nothing as the nation's top law enforcer.

Why should Exxon and Chevron be worried? That would be because what is of interest to a NYAG watchdog is not about buying politicians or suborning perjury. It's about stock manipulation. After a decade of pretty good in-house science, Exxon and the other majors knew by the 80s that the pace of global warming was accelerating and that very soon there would be a massive, increasingly desperate effort underway to shift from fossil fuels to carbon-free renewables in order to escape Cauldron Earth. The hotter it gets, the more frenzied this effort will become, and the less likely Exxon will be able to cash in its balance sheet of fossil assets.
 

Meadows, et al, 1971 Limits to Growth with overlay of
Bates 1990, Climate in Crisis

If you were a CEO of one of these companies, the math would trouble your mind. It would cloud your thinking as you set up for that long putt on the 8th green. It would creep into your internal dialog as you are eyeing that cocktail waitress at a swank restaurant. Your worth as a company, the basis for the company's share price, and your own compensation and stock option packages, all depend on the estimated and proven reserves of oil and gas still in the ground. If, for some reason, those reserves could never be withdrawn – never be burned – then you have a serious problem. Your company is overvalued, and likewise the share price, and your own personal net worth. This is what interests the NY Attorney General. It's the math. Its also the mens rea – your state of mind; what you knew and when you knew it.

It is one thing to have a company whose worth exceeds not only that of any company on Earth but also of any company in history. It is another entirely if that worth is overstated, perhaps by a factor of 100, 1000, or one million times. That becomes the biggest stock fraud in history. For a young or politically ambitious AG, it is a ticket to glory.

On Thursday the Times reported:

Attorneys general for other states could join in Mr. Schneiderman’s efforts, bringing far greater investigative and legal resources to bear on the issue. Some experts see the potential for a legal assault on fossil fuel companies similar to the lawsuits against tobacco companies in recent decades, which cost those companies tens of billions of dollars in penalties.

Potential fines and imprisonment don't begin to tell the story here. Devaluation of the stock – mark to market – is the real penalty. Is Exxon, whose shares are held by teachers' credit unions, public employee pension funds, and more people than almost any other stock, too big to fail? Whether it is too big to jail is irrelevant. Once that asset is devalued, something huge will be set in motion: a trillion dollar switch away from fossil investment, and just coincidentally, an end to the leading justification for military adventurism, support for Israeli hardliners, the puppet regime in Kiev, the ISIS black op and Saudi Arabian feudalism, among other pastimes.


That whole shooting match in Syria, driving millions of refugees into Europe, is about whether Bashar al-Assad, an ally of Russia and Iran and a proponent of a gas pipeline from Iran across Kurdistan to the sea, will be deposed by ISIS terrorists trained by CIA in the Colonel Kurtz style of spectacular horror and funded by the Pentagon so that the US could instead build a pipeline to European markets through Syria from Iraq. The Russian Air Force, with a new generation of fighters that can fly circles around anything built by Lockheed Martin, is looking like it will decide that one. It is pulverizing ISIS.

You don't need 100,000 marines to secure windmills in North Dakota.

That is the story the Times is missing.

In the Thursday story, the Times had a link to a 29-page Exxon report for its shareholders. The company essentially ruled out the possibility that governments would adopt climate policies stringent enough to force it to leave its reserves in the ground, saying that rising population and global energy demand would prevent that. “Meeting these needs will require all economic energy sources, especially oil and natural gas,” it said. Here is an image from that report. We especially enjoyed the absurdity of their idea of what better farming looks like.

 

World population is going to grow by 3 North Americas in 15 years.

In their report, Exxon predicts that the world will add 2 billion more people in the next 15 years, or roughly four more North Americas if you include Mexico and Canada. This tracks similar assessments by the UN and the World Population Council. That increase is baked in the cake just from the number of adolescents reaching childbearing age in these coming years. Exxon believes GDP will grow at 3 times the rate of population if energy supply is adequate. "We see the world requiring 35 percent more energy in 2040 than it did in 2010."
 

"In analyzing the evolution of the world’s energy mix, we anticipate renewables growing at the fastest pace among all sources through the Outlook period. However, because they make a relatively small contribution compared to other energy sources, renewables will continue to comprise about 5 percent of the total energy mix by 2040."


While we don't buy the whole package, we find ourselves agreeing with Exxon about one thing. Business as usual is not possible with an all-renewables portfolio. We wonder where even the finance for such a build-out would come from? More debt? The world financial system came with in a hair's breadth of financial collapse in 2008. Since then the balloon has reinflated and stretched bigger. China just arrested its free-falling stock market by issuing even more debt. But sooner or later loans have to be repaid, with interest, and in a shrinking resource economy they cannot be. When the day of reckoning eventually arrives, our chances of avoiding collapse are very slim. Gail Tverberg says,  "The change … is similar to losing the operating system on a computer, or unplugging a refrigerator from the wall."

Where we part company with Exxon is that Exxon thinks governments will choose to keep heating the planet and we think they will dispense with business as usual. Only time will tell, although the issue will be up for serious debate this December in Paris.

Business as usual will not be an easy thing to give up.

In terms of energy conservation, the leaps made in energy efficiency by the infrastructure and devices we use to access the internet have allowed many online activities to be viewed as more sustainable than offline.

On the internet, however, advances in energy efficiency have a reverse effect: as the network becomes more energy efficient, its total energy use increases. This trend can only be stopped when we limit the demand for digital communication.
 

***

In recent years, the focus has been mostly on the energy use of data centers, which host the computers (the “servers”) that store all information online. However, in comparison, more electricity is used by the combination of end-use devices (the “clients”, such as desktops, laptops and smartphones), the network infrastructure (which transmits digital information between servers and clients), and the manufacturing process of servers, end-use devices, and networking devices.  

Low Tech Magazine

By 2017, the electricity use of the internet globally is expected to rise to between 2,547 teraWatt-hours (low case) and 3,422 tWh (high case). The high case is made more likely by underdeveloping nations bypassing wired communications to go directly to smart phones and other devices, which are increasingly dependent on cloud services. Under these circumstances electricity use for internet will likely double every 5 years, to 110000 tWh (110 petaWatt-hours) by 2040. This would add another USA in electricity consumers every 5 years  three more USAs in 15 years. That, of course, assumes that cloud computing doesn't follow the exponential growth its proponents seek.

Can renewables meet this demand? Right now in the US, renewables account for 13.2 percent of domestically produced electricity. Wind turbine capacity is 65 GWe installed (0.07 tWe), but because of wind and load intermittency, the mills only turn about 32% of the time, producing about 180 million kWh last year (180 GWhr, or 0.2 TWh). That was one ten-thousandth of what was used globally by the internet. To build out renewables to power just the internet by 2040 would require 110 pWh, or more than a million times all the renewable electricity produced by the USA today.

How probable is that? Exxon is completely accurate in labeling it fantasy.

And speaking of fantasy, imagine for a moment that Mr. Schneiderman gets his teeth into Exxon's stock fraud and won't stop shaking until the company restates its book value, sans proven reserves. There has been a recent fall in oil price (owing less to fracking, as the popular narrative has it, than to China's deflationary spiral that has tanked world demand), but if you are a shareholder, this might be a good time to sell.

Or you could take your advice from the nation's paper of record and assume everything is hunky dory. 

Navigating the Blockchain: Drones, Droids and BitCoins

Off the keyboard of Albert Bates

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Published on Peak Surfer on July 5, 2015

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A robot may not injure a human being or, through inaction, allow a human being to come to harm. A robot must obey orders given it by human beings except where such orders would conflict with the First Law. A robot must protect its own existence as long as such protection does not conflict with the First or Second Law.


— Isaac Asimov, Runaround (1942)Barack Obama may be remembered for many things — becoming the first Hawaiian President of the United States, withdrawing allied forces from epic military disaster in the Muslim World, dismantling market moral hazard, and reopening Cuba to the mob — but his most lasting legacy may be still to come.

There is a revolution quietly taking shape in Air Force joystick cubicles near Las Vegas, in the Horn of Africa, the Tribal Territories of Pakistan, the DMZ of Korea, and in secret sites in Tel Aviv and Kiev. Autonomous Robot drones are evolving capability to select and execute targets of opportunity.   

The word robot comes from the Czech word robota meaning forced labor, and is generally attributed to a 1924 play by Karel Capek. The idea that men will build machines that may all too easily destroy their creators runs back through Mary Shelley’s Frankenstein and Greek mythology. We have a deeply engrained wariness of anything that might knock us out of our place as top-predator in the food chain. And yet, we ignore these death machines we are building, seeing nothing more threatening than a good movie script. 

The median response from Artificial Intelligence programmers when asked when AI-droids will have better processing power than humans is 2030. Put another way, the coming generations of flying robots that kill their human prey from 10,000 feet up will be smarter than people in about 15 years, barring total collapse of petroleum civilization, or maybe even because of it.

Removing Asimov's three laws from the kernel of killer robot CPUs is a death wish. Actually, Asimov wrote four laws. The fourth or zeroth law that outranked the others:

0. A robot may not harm humanity, or, by inaction, allow humanity to come to harm.


Blockchain

 
 In the midst of the 2008 financial meltdown, the open source protocol for a public asset ledger called the blockchain was put forward. The core of this invention was the idea of decentralized consensus on a large scale, an app version of Occupy, if you will.

From the blockchain emerged BitCoin. BitCoin was modeled on the gold standard for valuing transportable wealth – there was a finite supply but it could be "mined" to enlarge what was available for transactions by users. New gold went to miners who solved mathematical problems. The Cyberpunk community extolled its virtues:

"Psychopathic tendencies as the side effect of extreme individuality can be brought into balance within a new social contract, enforced by Satoshi’s perfect market with its equilibrium of supply and demand. Characteristics that are often considered negative in society such as risk taking, calculated selfish acts and profit motives can now be channeled to serve a larger shared vision of a more free society.

 

***
 

"Instead of arms races and financial wars, with bitcoin the competition for solving a mathematical problem helps to achieve a global level security infrastructure. This new flow of currency has the potential to end financial apartheid and begin serving the unbanked and underbanked that have been excluded from the current financial system. It can free those who are restrained by rent-seekers and subjugated to financial colonization. Out of the torrents emerging through the massive hashing power, the torus of a new heart grows and with every beat expands our collective goodwill to flow throughout the entire network."


— Nozomi Hayase, Taming the Beast  

Anytime someone comes on to us like a Snake Oil salesman, we check to make sure we still have our wallet, even if that wallet is now an app on our wristwatch.

Actually, this exuberance is immediately suspect in the case of bitcoin because "free" coins will gravitate towards whomever has the most computing power, leaving a 99 percent of lesser power users to purchase from the 1 percent who get theirs for "free." This is not a paradigm shift, it merely shifts the elite class (temporarily) from banksters to any hackers with supercomputer access and an ability to pay the electric bill.

The top coin miners have a Red Queen problem. In the Queen’s race in Alice in Wonderland, everyone runs faster and faster and no-one gets ahead. In coin mining, more and more computing power is required to solve the mathematical problems. The software underpinning the network reacts to successful miners by elevating difficulty, so hackers add even more computing power, and so on. 

As this cycle speeds, it takes more datacenter CPU heat, and more cooling electricity, to mine a bitcoin. The computational power of the bitcoin mining network surpassed the world's top 500 supercomputers in 2013. On average, for every megawatt of electricity spent mining bitcoins, 0.65 tons (1300lbs) of CO2 are released into the atmosphere. Dave Carlson, founder of Megabigpower, a mining datacentre in Washington state, figures he spends 240 kWh and releases 312 lbs of CO2 for each coin he mines. Worldwide, bitcoin mining generates about 25 tons CO2 per hour, or 219,000 tons per year. This is not virtual CO2. This is real CO2.

Can the blockchain prevent HSBC’s illegal money laundering for Mexican drug cartels? No. It makes it easier. Nigeria is already becoming a blockchain haven for Citibank, with ambitions to colonize all of payments space. If it seems oddly ironic to speak of Nigeria as a colonial power, just remember how quick its entrepreneurs were to colonize and monetize spam.

Does Citibank have any compunction about employing the fastest available processing power to (a) game bitcoin mining; (b) replace devalued bitcoins with its own CitiCoin; and (c) unleash predatory trading algorithms from the blockchain that operate at warp speed or even employ quantum mechanics to execute trades before they are even imagined by the trading partners? 

The Cyberpunk response is that blockchain transparency will flush the bandit algorithms. But one man's bandit is another's freedom fighter, layering, spoofing, and generating wash trades. The sheriff (SEC, FIRA, FBI, or a State or US Attorney) is outgunned and doesn't usually want to do anything that might jeopardize his/her pension, or the party in power. 

In his White House War Room, The Commander-in-Chief is assured that if we don't do this first, our rivals will. And so we drift, towards unparalleled catastrophe.

Above, circling the heavens, are autonomous killer drones that keep getting smarter by the year. In a world where all things connected to the Internet are hackable, so too are they.

Knarf plays the Doomer Blues

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