Matt Simmons on Bloomberg
I was talking about the Matt Simmons story in BP and the Giant Blender. This is his Bloomberg interview. The Bonnie storm is bad, but if this story is true, a hurricane in the gulf is the least of BP’s problems, not to mention the US Administration. What if they knew? What if this is the Oil Industry’s Lehman Brother’s moment? Just imagine if it turned out that the largest of BP’s US shareholders, a little operation called BlackRock, had close connections to members of the Obama administration. When I say “little operation” I mean about $3.15 trillion under management, which is nearly a $trillion bigger than the Federal Reserve. But what’s spooky, in a Jason Bourne kind of way, is the friendship between BlackRock CEO Larry Fink and Timothy Geithner, the current Secretary of the Treasury. It would be weird if Larry Fink, who was the person who pioneered the Mortgage Backed Securities Market while he was at First Boston, and to whom Mr Geithner turned in his hour of need when Bear Stearns went into meltdown in March 2008, was mixed up in some sort of Oil Industry meltdown as well. I mean, that’s just a terrible run of bad luck. You invent a completely clever way to sell Mortages as a kind of faux investment, and you accidentally bring the global economy to its knees. Then, just when you think things are getting straightened out, you buy into a firm that is drilling for oil in the Gulf, for energy security. Makes sense. It’s really energy patriotism, in a way. But then that stupid bunch at Transocean go and blow the thing up. Just bad luck Larry.
I thought the profile of Larry Fink in Vanity Fair was, well, fair…
BP and the Storm of Idiots
Is this possible? The Communications people at probably the most beleaguered large corporation on earth thought it would be okay to (badly) Photoshop an image of the control room. Make the boys at the screens look busier while they’re stopping the oil spill. And then say that it was just some kid showing off. Yeah, that’s reassuring. We are handling the greatest environmental disaster in America’s history, but we thought it would be okay to let someone play with Photoshop. Not really. First you will look like (even worse) idiots, and second, there’s a tropical storm developing in the Gulf.
But when you look at this Jon Stewart video it all becomes clear, in a terrifying sort of way…
BP and the Syncrude Tailings Dam – an apology
In my post “Nature is not a Machine”, since I was essentially writing humour I didn’t think to include references. I apologize unreservedly. I got a comment from a person who disagreed with me that it was a large area and an ecological blight on the landscape. This is a picture of the Syncrude Tailings Dam. You are free to make up your own minds if this a) attractive, or b) an easily fixed piece of geo-engineering. You are looking at 540,000,000 cubic meters of toxic sludge. My original point was a comparison with the “catastrophe” in the Gulf, while this is business as usual in Alberta. Of course I realize that it’s the absolute right of the good people of Alberta to do this to their landscape if they wish. 
Note to Tony BP
You went sailing? You were racing your boat, Bob, in the JP Morgan Asset Management Round the Island race? I can understand the stress you’ve been under, but if that’s your level of insight into the public mood you need to make an appointment with your therapist for Monday. And while you’re at it, fire your publicist.
Wintermute
“Welcome my son, welcome…to the machine.”
Pink Floyd, 1975
Twice a year since 1993 the TOP500 project has released a list of sites operating the 500 most powerful supercomputers. This June, in the number one spot is the Cray Jaguar at the Oak Ridge National Laboratory, with a benchmark speed of 1.759 Petaflops. A Petaflop is 1,000,000,000,000,000 floating point operations a second. In second place is a Chinese system at the National Supercomputing Centre in Shenzhen, called Nebulae. Nebulae has a benchmark speed of 1.27 Petaflops. The benchmark is used to standardize results, but gives a slower speed than the machine’s theoretical maximum. The theoretical maximum for Jaguar is 2.33 Petaflops, and for Nebulae it’s 2.98. So there are now supercomputers running at 2 Petaflops.
What makes this interesting is that futurist Ray Kurzweil estimates the computing speed necessary to emulate human intelligence is 10 Petaflops, or 1016 operations per second. A check of the Top 500 lists from the last few years confirms that Moore’s Law is alive and well in supercomputing. In June 2008 the 1Petaflop barrier was breached for the first time by an IBM cluster called Roadrunner at the US Department of Energy at Los Alamos. So it’s reasonable to assume that by June 2012 a machine will reach 8 Petaflops – within striking distance of Kurzweil’s estimate. Two years after that a machine will exist that is nearly twice as fast as brainspeed.
These speeds are opening up entirely new kinds of science. Simulation of complex systems like climate, astrophysics, fusion, and genetics. Researchers will be able to run simulations faster and cheaper for a huge variety of scientific and technological problems which have until now been impossible or prohibitively expensive. The most challenging of these problems is how to simulate operation of the brain’s 100 trillion neurons – the most complex object in the universe.
The Transhuman event horizon is nearly upon us. The merger of our biological intelligence with non biological intelligence is now within one decade. We are in the process of radically accelerating our own evolution. We began doing it inside computers in the 80s, molecular biology labs in the 90s and now we’re about to do it to ourselves. We are entering an era in which we will no longer be the smartest one in the room. By 2020 supercomputers wil be running at 64 Petaflops, more than 6 times brainspeed.
This represents the most fundamental paradigm shift in human evolution – a radical discontinuity in human history.
The TOP500 is a list only includes the systems that are volunteered to them. As Dr. Lockley, of the Oxford Supercomputing Centre, pointed out: “The spooks have got some pretty big machines.” So it appears that within five years either the US or Chinese intelligence agencies will have machines that are capable of simulating human intelligence.
Do we really want the NSA to be the first one on the block to have a functioning AI?
Good morning Wintermute, how are you today?
2010: The Next Leg Down
Before I go off on my transatlantic sailing trip next week I thought I’d make some forecasts for 2010: The next leg down.
Oil and Globalization: First thing is our reaction to the arrival of triple digit oil prices. Right now oil is at $80. I’m not expecting a miraculous recovery in demand, but a political crisis could easily drive prices into triple digits. If so, whether or not you actually believed the news tripe about recovery, oil over $100/barrel will begin the next leg of the post peak oil crisis. Right on schedule. The same process will be broadly applicable to most of Western Europe, the US and the rest of the developed world, but my immediate concern is Britain. This is the year when transport begins to trump labour arbitrage and the global part of globalization starts to look shaky.
On the face of it, this is disastrous. The OECD industries have come to rely on almost completely on foreign manufacturing sources, obviously for the most part China. But in fact it’s a tremendous opportunity, because except for bankers and entertainers, globalization has been a disaster for wage earners. The myth of the service economy has run its course. It was largely an artefact of cheap oil. It brought cheap goods, but the side effects have been an ecological horror. According to a recent report in the Guardian, major companies caused $2 trillion worth of environmental damage just in 2008.
Sir Richard, my new best friend: Probably the most important signal for Britain is Sir Richard Branson’s discovery of peak oil. Dollar short and a day late, but he may be the person to make it mainstream in Britain. He’ll be our Al Gore. It’s a pity that Matt Simmons, Colin Campbell, Jean Laherrere, and all the rest of the ASPO folk couldn’t get any traction for the last decade. Never mind, now that Sir Richard has noticed and the Industry Taskforce on Peak Oil and Energy Security has been formed at the Royal Society finally we’ll see some righteous panic.
Re-Industrialization: I’m expecting to see talk of the rapid re-industrialization of Britain. The flag wavers for the service economy will be ushered off the stage. Despite being the economic darlings of the last decade or two, suddenly they’ll be seen as hopelessly out of touch. Start watching for some new clever marketing speak. Right now in glass walled offices with aluminium furniture, there are eager young marketing drones with perfect complexions, dreaming up the sound bites for the new new clean energy renaissance: Social enterprise resourcing , Clean Tech revolution, Cloudsourced inventory control, AgroUrbanOrganic complex …it’ll be some such jabber. Especially watch for UrbanFoodCommunities.com and “Liveability.” And yes, I have trademarked all these buzzwords, so don’t even think about it, nasty little marketing children.
What it means is that if the bloody Chinese are too far away to make all our stuff we’ll have to remember how to do it ourselves.
Does that mean I’ll have to get mud on my Vivien Westwood?
Yes darling, I’m afraid it does.
Nukes: I’m expecting some real surprises around nuclear energy. I remember talking to Kjell Aleklett in 2003 about the nuclear renaissance. This is one of those issues that gets normally polite ecology people at each other’s throats. Whether or not nuclear energy has an EROEI to make it worth building is one thing, but the politics will be interesting. The current British Government is talking about going from 19% to 40% electricity from nukes in 20 years. I stand in awe of the nuclear energy PR machine that has completely turned the government’s opinion round from 2003 to 2006. Now watch for the demonstrations.
Immigration is going to hit the big time: 2010 will be a tipping point in the collapse of Africa and the mass migration into Europe. For the last 4 decades, more or less since the independence of the last colonies, there’s been a tragic failure of Africa to adapt. As William Easterly puts it, “Spending $2.3 trillion (measured in today’s dollars) in aid over the past five decades has left the most aid-intensive regions, like Africa, wallowing in continued stagnation; it’s fair to say this approach has not been a great success.” A mixture of tribal identity, corruption, over population, infrastructure and ecological collapse combined with increasingly severe climate effects have initiated the collapse of sub Saharan Africa. The collapse seems to be propagating rapidly out of the Horn, and accelerating. The Africans are doing what populations always do in the face of collapse. They die or leave. In this case the death toll will make the term “Biblical” obsolete, by an order of magnitude.
It’s the leaving that’s the problem for Europe. The population of sub Saharan Africa and Europe are roughly the same; something over 800 million. Europe is already far past carrying capacity, probably by a factor of two, like Britain. The transport and agricultural infrastructure, health systems, education systems and societies of Europe cannot successfully cope with such an influx and remain viable.
I’m not suggesting for a moment that Africa is the sole source of illegal migration into Europe. If only. But Africa seems to me to be in the worst shape. Add in the populations of failing countries in the Middle East, Eastern Europe and the Indian subcontinent from which migrants will flood into Europe and the total is well over a 1.5 billion.
The cracks are beginning to show. In Italy last month there was a riot in Rosarno in which illegal immigrants from set fire to cars and shops. Italy’s demographic is changing very rapidly. At least 7% of the population, not counting illegal immigrants is now non-Italian. 1 in 6 babies is born to a non-Italian. Italians are about to wake up to the permanent changes in their country. I expect some desperate headlines as we head into summer. Naturally the cry of ‘racism’ will be the sure sign of backlash.
In 1997, the number of foreigners living in Spain was 500,000. In 2008 it was 5.3 million. That is an order of magnitude difference. In Catalonia 15% of the population is foreign born. The Spanish are now beginning to realize the full effects of such high levels of immigration on its school system.
In Greece, which is already close to financial meltdown, has a non-Greek population of 10%. Until recently most of that influx came from Balkan states, but as Africa’s situation deteriorates more of the illegal immigrants will come from Africa. Aside from street riots in Greece over the economy, expect a backlash over immigration.
The cultural, religious and ethnic divides in the new Europe have been ignored by a generation of politicians. There is even a rumour in Britain that the Labour party secretly decided to allow unlimited immigration to Britain during its tenure since they thought immigrants would be more likely to vote Labour in future. For the past decade it’s been almost impossible to talk about immigration without being silenced by cries of racism. I’d expect this debate to get a lot more difficult in 2010. For better or worse, Europe is now a fundamentally different place demographically than it was 10 years ago. How it fares in the 21st century with this starting population is anyone’s guess, but if history is any guide balkanization is a lot more likely than peaceful integration. I wish there was something vaguely humorous about this whole thing, but I can’t see it.
Fighting in the street: Whole areas of Britain, Europe and the US have fallen into decay. Along with it communities have been destroyed, and we are left with a vast underclass living on benefits. Add to that the tensions in the middle classes as the last of the savings dribble away. People can generally last about 3 years if they’ve got some savings, but now it’s down to the dregs. Living on the kid’s education money and worrying about losing the house. The last shops in the high street boarded up. No room at university for the kids anyway – and nowhere for them to go. 50% unemployment in the under 25s. The austerity measures announced from the balcony of some grand old palace by some unelected Brussels apparatchik with a bad comb over. The human mind can only stand so much. It’s impossible to predict the spark, but if it’s an el Nino hot summer, look for trouble in the streets.
Weather: I know that economists are the only profession with a worse record than weather forecasters, nonetheless I’m going to chance my arm. The la Nina conditions of the last couple of years have given way to a new el Nino. If it persists into summer 2010, as looks likely, we may be getting some exciting weather. As I said above, if it results in a very hot summer look out. Angry unemployed people and 40°c are a bad combination.
War: Rule number 1. Do not under any circumstances allow yourself to be drawn into an endless campaign in Asia. You are not that rich. No empire ever was, nor ever will be. You are thinking in years. They are thinking in centuries. From Babylon, with love, Alex@Macedon.
Anyone got a film crew they’re not using, I’ve got the oil film script re-done. Now I’m going to cross an ocean under sail for the first time. Wish me luck.
Requiem for a Dream
It was a very peculiar experience these last few days to live without a computer. The old mac’s transformer popped and she died, sudden as a heart attack. None of the gradual dementia of malware decaying OS, just goodnight. Naturally there followed the reincarnation ritual of data transfer to the gleaming new imac. And the new printer because the perfectly serviceable HP isn’t supported by OSX 10.6. When is the computer industry going to get off its disposable styrofoam cup version of tech? But it doesn’t matter really. Because by the time I got it all sorted Europe was having a nervous breakdown.
Old Europa is crumbling. That EU lobbyist, self-congratulatory ‘end of history’ marketing speak never could quite paper over the cracks of language and ancient wars. They wanted it to be a rerun of American history, but the history of Europe is a different beast. Free trade? Sure, I like olive oil and German cars as much as anyone. But a puzzle palace in Brussels making laws for all, accountable to none? Not really.
There is something splendid about the fact that it’s Greece where the end began. Go tell the Spartans, stranger passing by, that here obedient to the laws of finance we lie. That’s what we need: 300 sweaty men in leather jock straps to hold the bond market at bay. Will the Germans really be willing, or able, to support 11 million Greeks? So who will take care of the Portuguese, the Spanish, the Italians, the Irish…the British? Because that’s a lot of people and a lot of money. How the euro zone survives this without default is anyone’s guess, but I’d expect people in the streets before too long.
What no one seems willing to bring up is the possibility that growth may not be possible while oil is near $80/barrel. According to the Independent on the 11th of February, soon we’ll be looking back at $80 with nostalgia. All that’s left to do is watch as the people who’ve grown used to cheap money and oil learn to live with expensive money and oil.
Suppose it’s not about the bankers wondering how to get out before the roof caves in. Suppose it’s about the fact that the EU happened to be one of those ideas that came to be popular during the era of cheap oil, and now it’s obsolete because it belongs to a resource environment that no longer exists. I’m sure that some sort of smoke and mirrors deal will be figured out to keep it going for a while. But in the event of a major oil spike it will simply be impossible to find all the money needed to bail out 5, 6 countries. Who will be buying all this new sovereign debt: China? And this is just at the moment when all the headlines were trying to buck everyone up on the idea we were headed out of recovery because all the subprime mortgage lending in the US had been handled. Do you believe that the problems in Greece and Portugal were the direct result of mortgage dealers misbehaving in Cleveland?
Meanwhile I’ve been wondering about the numbers on the “recovery.” It seems as if more than half of the supposed growth over the last quarter is inventory rebuilding, which is normal, but the next part that has to happen is that the new inventory has to be bought. But consumer spending isn’t improving, it’s declining. So the businesses that are buying inventory will adjust to new lower levels of consumption. People are busy paying down debt and looking for work. If people in Europe and the US aren’t buying then China isn’t selling. China’s manufacturing miracle was based on transport being cheap. Now it isn’t, and it’s unlikely that it will ever be again. It looks as if the price of fuel will reverse 3 decades of trade liberalization. In the absence of a new technology boom, and with unemployment staying high and growing, and governments still trying to borrow their way out of a debt crisis it looks like a fake recovery to me.
What’s happening is that the service economy which has been the central mythology of the cheap oil era in Europe and the US is done. But like all our favorite myths, it takes a while to wake up to the truth. There is simply not enough productive capacity left in Europe to support the population at current standards without cheap oil and gas. The income from Tourism and coffee bars just isn’t going to crack it.
In the new local world Europe has to figure out how to get its hands on energy. Because the good folk of Venezuela, Saudi Arabia and Russia are using their own oil and gas at unprecedented rates. At a time when the bank vaults of Europe are full of bad paper we need a massive and immediate wartime level energy infrastructure mobilization. An intelligent HVDC Europe wide grid for a start, with inputs from all over, including French nukes. It’s the only way that the Europeans are going to keep things running.
It’s an unfortunate fact of human history that this kind of paradigmatic change seldom, if ever, comes without blood in the streets.
There is a chance we can make a break with history here. We’re at a critical juncture. We cannot afford to allow ourselves the luxury of civil war and social breakdown because our model of global capitalism is obsolete. One of the things we’ve done in our race to build this Utopia is use up or waste a good portion of the world’s rare resources. Sir David King, who knows a thing or two about this business, is trying to get people to understand that we are going to be running short of Helium, Platinum, Copper, Tin, Neodymium, and a host of rare earth metals, before mid century. Contrary to the economist’s idea of substitution, there are some things that we can’t substitute for. It reminds me of that Fred Hoyle quote from 1964:
“It has often been said that, if the human species fails to make a go of it here on the Earth, some other species will take over the running. In the sense of developing intelligence this is not correct. We have or soon will have, exhausted the necessary physical prerequisites so far as this planet is concerned. With coal gone, oil gone, high-grade metallic ores gone, no species however competent can make the long climb from primitive conditions to high-level technology.
This is a one-shot affair. If we fail, this planetary system fails so far as intelligence is concerned. The same will be true of other planetary systems. On each of them there will be one chance, and one chance only.”
What a shame it would be if it turned out we had blown our one chance at developing intelligence for this entire solar system because we were too busy swanning around in luxury cars right before the lights went out.
The Local
First – Everyone has to watch this video. That’s an order!
You know, it’s funny how things work. Last week I asked for a new paradigm, or at least I wanted to start thinking about how it might look, and bingo, there it was. Jeff Rubin, the former chief economist at CIBC, has outlined it – and it’s what a great many of us have been arguing about for a long time: the end of globalization and the re-localizing of the economy. The difference is that Mr. Rubin is a mainstream economist, so it’s harder to dismiss his analysis.
Perhaps the most important point he’s making is the time factor. This is not something that’s a decade out. He’s estimating triple digit oil prices about 15 months away, with luck. It is almost inconceivable that any significant changes can be made in that time, even if his analysis is believed by policy makers and the markets. As Rubin points out, if the gains of labour arbitrage are eclipsed by the costs of transport – “Distance is Money” – then the entire edifice of globalization collapses rapidly.
As I was saying in Obsolete Paradigms, we need to start acting as if the laws of physics are true, by which I meant full cost accounting (The definitions here can be confusing. I mean accounting that includes the true cost of all resources used, ecological footprint if you like) and the end of artificial externalities. Full cost accounting will force our current model of capitalism to adapt. Certainly the model we’ve used for the last quarter century is, quite literally, bankrupt. Western Europe and the US will have to re-localize at an unprecedented rate. I think he’s right, but my concern is whether or not these economies can adapt fast enough or go through a severe depression towards a new structure.
The western version of globalization, the service economy – or what he calls the barista economy – is obsolete. The entire range of skills of the blue collar world, you know, people making stuff, which most economists have written off, will have to come back. Did any of us really think we were going to run a world class economy on coffee shops and back rubs?
The problems we have with rapid re-localization was driven home to me by an article in the Evening Standard, January 21. Britain is building the world’s largest offshore wind farm, called the London Array, 20 km off the Essex coast in the Thames estuary. You would think it would be a great opportunity for British firms and engineers. Not so. The majority of the contracts to build the London Array are going overseas. Britain has neither the skills nor the manufacturing base to produce the turbines. The major contracts have gone to Dong Energy of Denmark, E.ON of Germany, and Masdar of Abu Dabhi. This is no criticism of those companies. I was in Denmark recently and what they’ve done with wind power in just a few years is extraordinary. It is, however, an appalling indictment of the government’s and British industry’s short sightedness. Britain is the windiest country in Europe and the need for alternate energy sources has been obvious for years. Now with oil prices set to rise to above $100 if Rubin is right, we find ourselves with an army of media studies graduates and baristas to build a new grid for the 21st century.
I said in Recrimination vs Innovation on Christmas day, we have a workforce, what we desperately lack is leadership. These young people need new skills, they need new opportunity, and they don’t need to be burdened with £20,000 for a degree in something they’ll never get a job doing. This is not impossible, but it’s not trivial either. Danny Stevens of the Environmental Industries Commission has called for the Government to establish a National Environmental Skills Academy. I couldn’t agree more, but I would argue it’s on too small a scale. We need to mobilize this generation on a scale that hasn’t been contemplated since WWII. Since the war, Britain has allowed its position as a world leader in science and technology to slip away, preferring to rely on wage arbitrage and cheap transport to support a version of globalization which has benefited a tiny minority, while leaving the economy as a whole in ruins. That flapping you hear is the vultures coming home to roost.
So I’d like to ask the government to immediately establish a British Environmental Engineering Corps, (being that this is Britain I wanted to make the acronym come out as BEER, but Regiment seemed a bit severe), which will train people, for free, forgive the student debts they already have, and go about building a new energy infrastructure, reconfiguring our cities so that they are sustainable and liveable, and making the transportation infrastructure as efficient as the Japanese. In 10 years. Get a move on.
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