Geopolitics Unplugged

Summary:

In this episode we explore the concept of Deep Big Data Learning (DBDL), a new form of artificial intelligence (AI) that utilizes large datasets and advanced algorithms to uncover hidden relationships and patterns. We begin by outlining the evolution of AI from supervised learning to the current "sequence transduction" approach exemplified by Google's "transformer" and OpenAI's GPT models. These systems, trained on vast amounts of text data, have shown remarkable capabilities in language generation and other tasks. We then explore a proposed DBDL as a further advancement, suggesting that applying similar techniques to Big Data, which encompasses a broader range of data types, could lead to transformative discoveries, particularly in healthcare. While acknowledging the potential benefits, the author also highlights the ethical implications of this powerful new technology.

Questions to consider as you read/listen: 

1. What are the key distinctions between Deep Big Data Learning and traditional supervised learning?


2. How could Deep Big Data Learning be used in healthcare to advance disease prevention and treatment?


3. What are the potential ethical concerns associated with the development and application of Deep Big Data Learning?

Long format: 

Deep Big Data Learning (DBDL).

I in no ways mean to be rude, but I think in order for me to discuss what I mean by Deep Big Data Learning (DBDL ***N.B., I had to change what I was trying to convey from what I originally wrote as “Deep Data Learning” as that concept already exists and is not what I was looking to imagine or discuss), it might make sense to make sure that we are on the same page with the current most prevalent means of computer learning.

There was the old-school way of learning which is supervised learning which requires the computer to be provided with the correct answer for each and every training point. Very labor intensive, very slow and domain restrictive. The alternative is “sequence transduction” a sort of self surprised non-human based learning that requires a tremendous amount of data from different sources and an astronomical amount of computing power.

In 2017 with the introduction off the Google “transformer” we had the birth so to speak of this second form. It trained on huge quantities of text available on the Internet of Things. If we keep things simple this is what we Ean by deep language learning (DLL). After Google came Open AI’s GPT (GPT stands for generative pre-trained transformers). GPT-3 was trained on 45 terabytes of text which would take 500,000 lifetimes for humans to read. And since 2020 with this initial training, it has expanded ten times every year, adding capabilities at unbelievable exponential pace. As best as can be computed GPT-3 produced a gigantic model with 175 billion parameters.

If this sounds to you to be amazing, then wait until you consider what is now going on with Generative Adversarial Network (GAN) which is a deep learning architecture that takes all of the above but trains two neural networks to compete against each other to generate more authentic new data from a given training dataset. The n continues to generate more adversarial networks off of the networks and on and on. Some suggest it is evolutionary. GAN is thought of as an important step towards that Holy Grail of AGI.

So yes, as Mr. Kilgore writes with an exclamation mark, it is truly amazing.

The DLL with GAN is largely built on information data sets from the Internet of Things.

What is not necessarily  or wholly on the IOT, Big Data.

I am wondering what this type of learning, referring to sequence transduction (unsupervised) and GAN, were to involve the dataset is not text from the Internet of Things, but instead the very intimate dataset that exists in Big Data collections. This is what I call Deep Big Data Learning.

The GAN and sequence transduction coupled with the CPU processing and chip power could discover relationships the likes of which we as humans could never discover. This application set is not just in the form of advertising, but think of the possibilities especially in healthcare. Disease prevention. Finding sources of carcinogens that are heretofore not known. Genomics. Therapies. Pretty wild stuff.

Like all new technology it has potential for abuse. When humans discovered fire, it was both good and bad. Good heat and light. Bad fire that burns down house and people. Same same with AI. I just got to thinking about DBDL. Thanks for going down the rabbit hole with me. All substantive comments welcome. Cheers and high fives.

Summary:

 In this episode we discuss the future of the DUI defense industry in light of the development of self-driving vehicles. We examine various aspects of the technology, including its current state, future development, legal implications, and consumer acceptance. We discuss that while the technology is still in its early stages and faces numerous challenges, its eventual implementation will likely lead to fewer traffic accidents and violations, potentially impacting the DUI defense industry. We explore the legal framework governing autonomous vehicles, emphasizing the potential challenges in defining "actual physical control" in Pennsylvania law as an example. We also analyze the economic feasibility of self-driving technology, considering the significant costs involved. Ultimately, we discuss that the future of the DUI defense industry will be significantly influenced by the pace of technological advancements, legal regulations, and consumer adoption of self-driving vehicles.

 Questions to consider as you read/listen:

1. What are the major challenges and opportunities presented by the development and deployment of autonomous vehicles, considering both technological and legal aspects?


2. How will the rise of autonomous vehicles affect the DUI defense industry, and what legal and practical considerations should be addressed?


3. How will consumer attitudes towards autonomous vehicles evolve, and what factors will determine the success of this technology in the future?

Long format:

Will the autonomous car kill the DUI defense industry?

 By Justin James McShane

Published: Dec 18, 2022

I have been asked to address the Boogie Man in the closet. Autonomous cars. The Henry Penny among the DUI defense industry believes that the dawning of the age of autonomous vehicles will the entire DUI defense community go away?

 Do you all have to suddenly become wills, trusts and estates lawyers?

 It is very easy to fall into the Henny Penny aspect of this because if these cars are on the road and they work, there goes all traffic accidents and all traffic stops. Perfect driving. Some have posited that when this age comes to be certainly the legislation will require the human who is in potential control of the vehicle not be impaired. But how does that get enforced? Without traffic accidents and traffic code violations, there are no reasons to stop the cars and discover if the person in actual physical control is incapable of safe driving. Given that the fleet age is 12 years. Does that mean that when these cars truly start rolling out, you have 12 years to find another choice of law sectors?

 I have been keenly in tune with the enabling legislation, NHTSA approvals and real-world results.

 There are three components of the question:

1. The current state of the technology


2. The future state of the technology


3. The current state of the legislation and the regulations through DOT, NHTSA and PennDOT.


4. Consumer adaptation

Current state of the technology

 Here is where the technology is now. I have friends such as Jacki Lee who has a Tesla and bought the “auto-pilot” technology.

• First, Tesla’s (and Fords and all others) currently require there to be pressure on the steering wheel for them to be in this mode, meaning that you cannot simply sit back when engaged and do other tasks, your HANDS (not just hand) have to be on the wheel.


• Second, when my friend first bought her Tesla with the technology, she bought wrist weights and hung them on the steering wheel so that she could do anything else she wanted. Everyone started doing that hack so Tesla fixed it by requiring variable input pressure on the steering wheel over time that is random. Other companies quickly followed. Why? They didn’t want to face liability for any crash as a product liability whereas if there was a crash when someone’s hands are on the steering wheel, they can argue to avoid that type of liability. I see that as being the norm for quite a while. No major manufacturer is willing to assume 100% liability.


• Third, the “auto pilot” is only enabled on highways. It does not work and will not work on stop and go traffic.

At the current, self-driving cars do not work well. That’s just the bottom truth. They do best on highways. According to NHTSA, there are zero cars that are fully autonomous right now in consumer hands on the roads. Currently, states permit a limited number of “self-driving” vehicles to conduct testing, research, and pilot programs on public streets and NHTSA monitors their safety through its Standing General Order https://www.nhtsa.gov/node/103486. 

The future of the technology

Here are the NHTSA levels of autonomous vehicles…

·         Level 1: An advanced driver assistance system (ADAS) aid the human driver with steering, braking or accelerating, though not simultaneously. An ADAS includes rearview cameras and features like a vibrating seat warning to alert drivers when they drift out of the traveling lane.

·         Level 2: An ADAS that can steer and either brake or accelerate simultaneously while the driver remains fully aware behind the wheel and continues to act as the driver.

·         Level 3: An automated driving system (ADS) can perform all driving tasks under certain circumstances, such as parking the car. In these circumstances, the human driver must be ready to retake control and is still required to be the main driver of the vehicle.

·         Level 4: An ADS can perform all driving tasks and monitor the driving environment in certain circumstances. In those circumstances, the ADS is reliable enough that the human driver needn't pay attention.

·         Level 5: The vehicle's ADS acts as a virtual chauffeur and does all the driving in all circumstances. The human occupants are passengers and are never expected to drive the vehicle.

According to them, we are only on level 2/3 on the consumer available level. They state that there are limited Level 4 vehicles in production, but they require a lot of testing. They say full Level 5 automation is 2025+. Here is more data to consider.

https://www.itransition.com/static/cda55ac34dac4236d295913450796a10/2_Projected%20autonomous%20vehicle%20registration%20share%20worldwide%20between%202021%20and%202031[1].svg

The above comes from statistia and the study was funded by Waymo so there is perhaps an optimistic bias. It is also important to note that this is all vehicles meaning test vehicles, fleet vehicles and business/consumer vehicles.

Why is Level 5 so far off?

Level 5 is so far off because actual trusted implementation of Level 5 in a stop and go environment (anything other than highways which are limited access meaning no pedestrians or random balls with random kids chasing them, generally no to low wildlife interruptions, generally straight with no cross traffic) is very very hard to model. The complexity of the chaos that is non-highway driving is unlimitedly complex.

https://www.itransition.com/static/886349d6fb512ac876b00188ee3e4476/3_Autonomous%20vehicle%20components[1].svg

 The camera sensors are still far from perfect. Poor weather conditions such as rain, fog, or snow can prevent cameras from clearly seeing the obstacles in the roadway, which can increase the likelihood of accidents. Additionally, there are often situations where the images from the cameras simply aren’t good enough for a computer to make a good decision about what the car should do. For example, in situations where the colors of objects are very similar to the background or the contrast between them is low, the driving algorithms can fail.

 Radar (Radio Detection and Ranging) sensors make up a crucial contribution to the overall function of autonomous driving: they send out radio waves that detect objects and gauge their distance and speed in relation to the vehicle in real time. Both short- and long-range radar sensors are usually deployed all around the car and each one has their different functions. While short range (24 GHz) radar applications enable blind spot monitoring, the ideal lane-keeping assistance, and parking aids, the roles of the long range (77 GHz) radar sensors include automatic distance control and brake assistance. Unlike camera sensors, radar systems typically have no trouble at all when identifying objects during fog or rain. There are also a lot of false positives where things are sensed but do not in fact exist.

 The pedestrian recognition algorithm definitely needs a lot of improvement, seeing as the automotive radar sensors used in today’s vehicles only correctly identify between 90% and 95% of pedestrians, which is hardly enough to ensure safety on the road. As well, the still widely-used 2D radars are not able to determine accurately an object’s height, as the sensors only scan horizontally, which can cause a variety of problems when driving under bridges or road signs. A wider variety of 3D radar sensors are currently being developed in order to solve these issues.

 Lidar (Light Detection and Ranging) sensors work similar to radar systems, with the only difference being that they use lasers instead of radio waves. Apart from measuring the distances to various objects on the road, lidar allows creating 3D images of the detected objects and mapping the surroundings. Moreover, lidar can be configured to create a full 360-degree map around the vehicle rather than relying on a narrow field of view. These two advantages make autonomous vehicle manufacturers such as Google, Uber, and Toyota choose lidar systems. Moreover, lidar can be configured to create a full 360° map around the vehicle rather than simply relying on a narrow field of view. These two advantages have led autonomous vehicle manufacturers such as Google, Uber, and Toyota to choose lidar systems for their vehicles. Since rare earth metals are needed in order to produce adequate lidar sensors, these sensors are much more expensive than radar sensors used in autonomous vehicles. Yet another problem is that snow or fog can sometimes block lidar sensors and negatively affect their ability to detect objects in the road. Lidar also is reported to have problems at nighttime and inclimate weather.

Inputless cars a reality or a myth

NHTSA right now says that left to be discussed and determined is whether at the time of Level 5 implementation whether vehicles with no input possibilities (pedals, gear shifts and wheel) will even be allowed. In my humble opinion, there will be no major manufacturers who are willing to accept 100% liability for any sort of crash by implementing inputless vehicles unless federal and state legislation is massively changed. Why would they? I don’t see NHTSA allowing for consumer vehicles to have no inputs. I think at least in the very beginning there will be a requirement that driver override at all times be possible.

Pennsylvania law intersection

This is important because in Pennsylvania the crime requires the accused to “shall not drive, operate or be in actual physical control of the movement of any vehicle”. The SCOPA of PA has declined to really adopt a bright line rule for actual physical control and instead allows for an amorphous “totality of the circumstances”. Under the totality of the circumstances approach the factors to be considered include “the location of the vehicle, whether the engine was running and whether there was other evidence indicating that the defendant had driven the vehicle at some point prior to the arrival of police on the scene.” Commonwealth v. Byers, 437 Pa.Super. 502, 506, 650 A.2d 468, 469 (1994).

The results of this lack of bright line rule are just wide to make it meaningless. Here are some examples.

Commonwealth v. Woodruff, 447 Pa.Super. *451 222, 668 A.2d 1158 (1995) (actual physical control found where defendant's car was on berm of the road fifty yards west of the store where he had purchased beer, the engine was running, the high beams were on and the car was protruding into traffic lanes); Commonwealth v. Trial, 438 Pa.Super. 209, 652 A.2d 338 (1994) (actual physical control found where defendant's car was diagonally across a roadway, defendant was in the car with his seatbelt on, the parking lights were on and the keys were in the ignition in the "on" position, although the engine was not running); Commonwealth v. Wilson, 442 Pa.Super. 521, 660 A.2d 105 (1995) (actual physical control found where defendant's car was down an embankment by the roadside, no keys were found, but the hood of the car was still warm on a winter night); Commonwealth v. Leib, 403 Pa.Super. 223, 588 A.2d 922, alloc. denied, 528 Pa. 642, 600 A.2d 194 (1991) (actual physical control found where defendant was asleep in the car in the middle of the road with the engine off); Commonwealth v. Bobotas, 403 Pa.Super. 136, 588 A.2d 518 (1991) (actual physical control found where defendant was parked in an alley on his way home with his engine running); Commonwealth v. Crum, 362 Pa.Super. 110, 523 A.2d 799 (1987) (actual physical control found where defendant was sleeping in his car on the side of the road with the engine and headlights on); Commonwealth v. Kloch, 230 Pa.Super. 563, 327 A.2d 375 (1974) (actual physical control found where defendant was asleep behind the wheel of a car parked along the side of the highway, protruding into a traffic lane with the engine and headlights on); Commonwealth, Dep't of Transp., Bureau of Traffic Safety v. Farner, 90 Pa. Commw. 201, 494 A.2d 513 (1985) (actual physical control found where defendant was behind the wheel in a traffic lane with the motor running and the brake lights activated); cf. Commonwealth v. Price, 416 Pa.Super. 23, 27, 610 A.2d 488, 490 (1992) (no actual physical control established where the defendant was sitting behind the wheel of a parked car; the engine was not running and the defendant had the keys in his hands).

As you can see from the above, as long as there is a capability of input, there will be DUI trials in PA. But you are saying to yourself “how will they legally stop the vehicle?” First, there are a host of technical non driving reasons to stop a car such as illegal tint, registration lapse, equipment issues, lighting issues, insurance lapse, false tipsters who claim bad driving or a drunk “behind the wheel” and even good old-fashioned BS like police saying “the car nearly hit a mailbox” thing. As long as there good faith mistake of fact reason then it is not necessarily illegal to stop the car.

Also given the current difficulties in non-highway driving of these vehicles, we have to stop and ask ourselves what type of driving behavior environment do DUIs come from? Non-highway (stop and go driving). We have very very few highway non accident DUIs. Most are in the stop and go environment.

Affordability of the technology

As we can see with the current 40% increase in cost that the Lighting F150 has undergone in the vastly overrated EV orgasm that is in existence today, the perceived end goal of Level 5 meets reality of the pocketbook and just like with the EV F150 Lightning the average consumer will centime to weigh cost benefit analysis. At some point consumers will say “it’s a beautiful dream but it costs too much” which is the current folly of the F150 Lighting EV right now.

This is a very “bare bones” version. Others are more complex. The systems required for autonomous driving can cost well beyond $10,000, while the top sensor being used by Google and Uber costs up to $80,000.

The future state of autonomous vehicle technology is very very expensive as we can see. $80,000 on top of the price of the vehicle really prices most folks out of the market entirely. For fully autonomous, inputless vehicles there is an array of technology involved. For example, Google's self-driving car project, called Waymo, uses a mix of sensors, lidar (light detection and ranging -- a technology similar to RADAR) and cameras and combines all of the data those systems generate to identify everything around the vehicle and predict what those objects might do next. This happens in fractions of a second.

The following outlines how Google Waymo vehicles work:

·         The driver (or passenger) sets a destination. The car's software calculates a route.

·         A rotating, roof-mounted Lidar sensor monitors a 60-meter range around the car and creates a dynamic three-dimensional (3D) map of the car's current environment.

·         A sensor on the left rear wheel monitors sideways movement to detect the car's position relative to the 3D map.

·         Radar systems in the front and rear bumpers calculate distances to obstacles.

·         AI software in the car is connected to all the sensors and collects input from Google Street View and video cameras inside the car.

·         The AI simulates human perceptual and decision-making processes using deep learning and controls actions in driver control systems, such as steering and brakes.

·         The car's software consults Google Maps for advance notice of things like landmarks, traffic signs and lights.

·         An override function is available to enable a human to take control of the vehicle.

That’s literally a lot of moving parts.

The current state of the legislation and the regulations through DOT, NHTSA and PennDOT

 Look above for a lot of discussion on the law of all of this. Additionally, we should consider that in 2020, Gov. Tom Wolf signed into law a bill to permit the driverless testing and deployment of autonomous cars and trucks on Pennsylvania roadways. Pennsylvania law has prohibited vehicle operation on state roadways without a human driver behind the wheel inside the vehicle. There still is no overarching federal law that covers Level 5 vehicles at the federal level. So, there is a lot of work to do. The industry says the biggest thing that would help self-driving cars is if they could communicate with each other and objects around them, but that also may not happen any time soon. In the last days of the Trump administration, the FCC took away most of the radio spectrum that cars were planning to use. Unless that changes, experts say it will be much more difficult for cars to communicate.

Consumer adaptation

Here is the latest report on the willingness to adopt self-driving technology: https://motional.com/mobility-report?gclid=CjwKCAiAkfucBhBBEiwAFjbkr9BiSmXJkMYaz27OGA2GdAP-Pq094NP37_v3j_BVnYWiha-A-sihFBoCNB0QAvD_BwE

While younger folks are open to the technology and the general public increasingly so, willingness or comfort needs to meet the reality of technological capability and price.

 Hopefully this answers your question. No, you do not need to brush up on the Rule Against Perpetuities. 

Summary:

In this episode we explain the challenges facing Russia in exporting liquefied natural gas (LNG) due to international sanctions. These sanctions have targeted Russian LNG vessels, particularly ice-class tankers crucial for transporting LNG from Arctic regions. The sanctions also make it difficult for Russia to find buyers and insurance for its LNG. While Russia has the ability to produce LNG, the lack of suitable shipping vessels and the low price of LNG in Asia make it hard for them to profit from their exports. This situation has resulted in stranded LNG tankers with unsold cargoes.

Questions to consider as you read/listen:

1. What are the primary obstacles Russia faces in maintaining its LNG exports following international sanctions?


2. How do the current price differences between different LNG suppliers and crude oil impact Russia's ability to sell LNG?


3. What is the future of Russia's LNG industry, considering the sanctions, workforce shortages, and global LNG market dynamics?

Long format:

 The health of the Russian LNG sanctions

 Yes LNG requires by its first letter for it to be liquid. To do so,it requires for it to be at about -260° Fahrenheit (-162 C) for shipping and storage. The volume of natural gas in its liquid state is about 600 times smaller than its volume in its gaseous state. There is around a 6% loss along the way on the ship due to “boil-off gas" (BOG) where a small portion of the LNG evaporates into vapor because of heat gain from the surrounding environment, resulting in a loss of natural gas during shipping; this loss is typically around 0.1-0.15% of the total cargo per day depending on the ship's design and insulation quality. Generally simplified in the industry to not more than 6% of total. 

 Turning natural gas into a liquid is technical and requires quite a bit of energy. But it is actually well within even the capabilities of the native Russian intelligencia (which has been in decline for decades) and they do have that capability. Recall, Russia was the fourth largest LNG global exporter pre-ban. It has been in the LNG game so to speak for a while comparatively. Yamal LNG has arguably been the most successful LNG project in the world during the last decade. But the continued fears of conscription into the war in Ukraine is undoubtedly exerting pressure on this workforce. 

 Where the difficulty in LNG and the kink in the proverbial hose is actually in the shipping not the liquidation. (As an aside, regasification-that is turning it safely from liquid back into gas without large loss-is a lot less technical and takes tremendously less energy to accomplish). 

 And in particular the inventory of ice class LNG vessels. LNG vessels are very very unique. 

 To drive home this point, as of February 2024, the global liquefied natural gas (LNG) carrier fleet had 701 active vessels. This includes 47 operational FSRUs and 10 FSUs. 

 Russia doesn’t only need access to these unique beasts but also access to a subset where are ice class LNG. Why? Well these Russian LNGs are in areas that are ice except for a few weeks/months out of the year. 

 A fleet of 15 Arc7 ice-class tankers are being built to transport liquified natural gas from Russia's Arctic LNG 2 project. The tankers are being built at the Zvezda Shipbuilding Complex and are scheduled for delivery between 2023 and 2025. To date, my best information is that at most less than a handful work. 

 The 14th EU Sanctions package really went over the kink in the hose: the ships. It also specifically named and included both Arctic LNG 2 and Murmansk LNG and made crystal clear it is prohibited to purchase, import or transfer of LNG classified under CN code 2711 11 00 originating in or exported from Russia, through LNG terminals in the EU that are not connected to the interconnected natural gas system (key is “not connected to the interconnected natural gas system” part). The former facility being the one that India announced it would not use. The 14th package really focused on making sure non Russian LNG vessels and non Russian ice class LNGs are not available. The insurance and reinsurance in particular is their means beyond just simply banning the ships. Similar as what was tried with Russian crude. Russia has bought, borrowed and stolen a ghost fleet of largely uninsured crude tanks but good luck trying that with the unique beasts that are LNG vessels and wow good luck with ice class LNG vessels. When there’s an inventory of something less than 10k crude oil tankers, one can do that. But when the inventory is 700 or so or max 15, that strategy is hard 

 By all reports there has been a total flight of high-end skilled labor and intellectuals in the Russian crude sector. The primary mover is fears over being drafted for the war in Ukraine.

 Further, there has been a massive reduction in graduation rate in the sector. In 2022, 816,000 students graduated from energy-related university programs, which is a 13% decrease from 2018.

 There have been moments when both crude oil tankers and very recently LNG tankers have been adrift at sea with no ports or destinations.

 Just four days ago was this nugget of a headline: http://gasprocessingnews.com/news/2024/10/four-tankers-still-at-sea-with-unsold-cargoes-from-russias-arctic-lng-2/

 Here’s a historical one on crude tankers afloat with no port.

https://markets.businessinsider.com/news/commodities/russian-oil-trade-crude-tanker-india-moscow-price-cap-sanctions-2024-2#:~:text=More%20Russian%20oil%20ships%20have,to%20go%20amid%20sanctions%20pressure&text=A%20growing%20number%20of%20Russian,least%20a%20week%2C%20Bloomberg%20reported

So can they produce more? Maybe. Possibly. Can they drill more? Probably. If they do will it help their bottom line? Probably not. A tanker adrift with no customer is a financial nightmare.

Sources:

https://www.seattletimes.com/business/russias-war-mobilization-starves-its-oil-industry-of-workers/#:~:text=Most%20Read%20Business%20Stories&text=To%20widen%20the%20circle%20of,as%20possible%2C%E2%80%9D%20he%20said

https://www.cnbctv18.com/energy/russia-faces-shortage-of-oil-and-gas-industry-workers-amid-mobilisation-of-economy-for-war-19407018.htm#:~:text=Key%20Industry&text=Last%20year's%20oil%2Dproduction%20drilling,Live%20on%2Dthe%2Dgo!

https://www.whitecase.com/insight-alert/14th-eu-sanctions-package-targets-russian-lng-and-political-donations-expands-import#:~:text=Restrictions%20on%20Russian%20LNG&text=The%20restrictions%20do%20not%20apply,concluded%20before%2025%20June%202024.&text=It%20is%20prohibited%20to%20purchase,the%20execution%20of%20such%20contracts.&text=It%20is%20prohibited%20to%20sell,the%20execution%20of%20such%20contracts

https://www.reuters.com/world/india/india-will-not-buy-russias-sanctioned-arctic-lng-2-project-oil-secretary-says-2024-09-27/

https://www.econnectenergy.com/articles/how-does-regasification-of-lng-work

https://www.sciencedirect.com/science/article/abs/pii/S1364032118306828

https://pubs.acs.org/doi/10.1021/ie801975q#:~:text=Due%20to%20its%20cryogenic%20nature,over%20a%2021%2Dday%20voyage

https://www.oxfordenergy.org/wpcms/wp-content/uploads/2019/11/Russian-LNG-Becoming-a-Global-Force-NG-154.pdf

https://www.arctictoday.com/in-desperate-need-for-more-arctic-tankers-novatek-sends-200-of-its-engineers-to-shipyard-2/

https://safety4sea.com/world-lng-report-2024/#:~:text=With%20the%20delivery%20of%2032,operational%20FSRUs%20and%2010%20FSUs

https://www.highnorthnews.com/en/russian-shipyard-deliver-critically-needed-arc7-lng-carriers-arctic-lng-2

https://www.ship-technology.com/projects/arc7-ice-class-lng-tanker/#:~:text=and%20R&D%20companies-,View%20all,also%20signed%20contracts%20with%20VEB

Just to amplify my point (and if I dare say @patreoner’s point) as to crude. 

The Crude Oil Urals Spot price today is 66.44. WTI is currently trading at 72.32 as I type at 0722 Eastern Time. Very large delta there. 

Now to my point as to LGN. Perhaps @patreoner is right it’s about, but my thesis is the same: price. 

The price for India whether it be ADNOC, Deepak Fertilisers and Petrochemicals-Equinor deal, Qatar, or Russia does not have anywhere near that type of delta. The price for LGN in Asia is pretty low now historically, just like Henry Hub is in the US. 

India's primary suppliers of LNG include:

Qatar: India's largest supplier for five years, with 10.92 MT of shipments in 2023

United States: India's second largest supplier in 2023

United Arab Emirates: Supplied 2.85 MT of LNG in 2023

The price of LNG in Asia has been relatively low, averaging $35 per million Btu in 2022. In 2023, the price fell to $14, and then to around $11 earlier in 2024. It is hovering now in the band of $10-12. So it’s low. 

Why upset the LNG apple cart over a non-existent delta?

Sources: https://www.thehindubusinessline.com/economy/america-overtook-uae-as-indias-second-largest-lng-supplier-in-2023/article68463599.ece#:~:text=Evolving%20trade%20dynamics,has%20been%20declining%20since%202021.

https://asia.nikkei.com/Business/Energy/LNG-shipments-shift-to-India-Southeast-Asia-as-European-demand-sags

https://www.investing.com/commodities/crude-oil-urals-spot-futures#

https://www.investing.com/commodities/crude-oil-streaming-chart

Summary:

 In this episode, we discuss the vulnerabilities of the US industrial cyber infrastructure, particularly the power grid, water management, and communications systems. We highlight how outdated technology, weak security practices, and a lack of sufficient separation between operational and IT networks as contributing factors to these vulnerabilities. While there are agencies like CISA working to address these issues, we discuss that more needs to be done to prevent attacks, rather than simply responding to them after they occur. We explore the need for better cybersecurity measures to protect critical infrastructure from exploitation, especially from foreign actors.

Questions to consider as you read/listen:

1. What are the main vulnerabilities in the US's industrial cyber infrastructure, and how are they being addressed?


2. What are the consequences of these vulnerabilities, and what are the potential impacts on critical infrastructure and national security?


3. How can the US improve its cybersecurity posture to better protect its critical infrastructure from cyberattacks?

Long format:

 Industrial cyber infrastructure vulnerabilities 

 There is a very large issue here in the US that is fairly well known in the national intelligence and even private corporate security corridors which is the US’s industrial cyber infrastructure vulnerabilities including but not limited to the power grid, water management, internet, communications, and industrial control system.

 To me, it seems like we have a lot of congressional hearings and a lot of workshops and a lot of speeches and a lot of blue ribbon panel commissions ADMIRING the problem. But that seems to me to be all that we are doing largely. Admiring the problem. Not solving it.

Many industrial control systems (ICS) use legacy protocols and hardware with limited security features, making them susceptible to exploitation.

 Weak passwords, lack of multi-factor authentication, and inadequate user management practices can enable unauthorized access to critical systems allow for “brute force” attacks into critical areas. And this is thought at least as of now to be the way that the Chinese accessed these telecoms. In previous attacks attributed to Salt Typhoon/Ghost Emperor, the threat actor used a custom backdoor called SparrowDoor, customized versions of the Mimikatz tool for extracting authentication data, and a Windows kernel-mode rootkit Demodex. (https://www.theregister.com/2024/10/07/verizon_att_lumen_salt_typhoon/ and https://www.bleepingcomputer.com/news/security/atandt-verizon-reportedly-hacked-to-target-us-govt-wiretapping-platform/#:~:text=In%20previous%20attacks%20attributed%20to,Windows%20kernel%2Dmode%20rootkit%20Demodex and https://www.channelfutures.com/security/salt-typhoon-hacks-att-verizon-lumen )

 Insufficient separation between operational technology (OT) networks and IT networks can allow attackers to move laterally from one system to another.

 Inadequate logging and intrusion detection capabilities can hinder the ability to identify and respond to malicious activity. A lack of meaningful SCADA.

 I read about the Cybersecurity and Infrastructure Security Agency (CISA). They have issued guidelines and best practices and there has been some limited legislation like the Cyber Incident Reporting for Critical Infrastructure Act (CIRCIA) which mandates reporting of cyber incidents by critical infrastructure entities, allowing for faster response and threat analysis. I read about the DOE’s Energy Threat Analysis Center. And that’s all fine and good to report AFTER an incident and autopsy it, but what is better perhaps is to look at prevention. Are we ever going to get past the point of issuing white papers and reports and past the point of needing to do autopsies and actually look at the health of the proverbial patient and try to do things that avoid the need for an autopsy?

Sources: 

https://commercial.allianz.com/news-and-insights/expert-risk-articles/cyber-attacks-on-critical-infrastructure.html#:~:text=Recent%20years%20have%20seen%20growing,priority%20issue%2C%E2%80%9D%20he%20explains

https://www.energy.gov/policy/articles/cyber-threat-and-vulnerability-analysis-us-electric-sector#:~:text=With%20utilities%20in%20the%20U.S.,physical%20security%20related%20events%20that

https://www.forbes.com/sites/chuckbrooks/2023/02/15/3-alarming-threats-to-the-us-energy-grid--cyber-physical-and-existential-events/

https://www.esecurityplanet.com/cloud/industrial-control-systems-cyber-security/

https://www.cisa.gov/sites/default/files/recommended_practices/DHS_Common_Cybersecurity_Vulnerabilities_ICS_2010.pdf

https://cbsaustin.com/news/nation-world/national-security-agency-investigates-chinese-hack-of-3-telecommunications-companies-att-verizon-lumen-technologies-surveillance-federal-government

https://www.cisa.gov/news-events/cybersecurity-advisories/aa24-038a

Summary:

 In this episode we explore the economic feasibility of investing US taxpayer money to improve the Lobito Atlantic Railway (LAR) in Angola, aiming to facilitate the transportation of cobalt, lithium, rare earth metals, and copper from the Democratic Republic of Congo (DRC), Zambia, and Angola to the Atlantic port of Lobito for eventual US consumption. We raise concerns about the feasibility of this project due to the significant Chinese presence in cobalt mining and processing in the DRC, with Chinese companies controlling a large majority of cobalt production and refining. Additionally, we question the impact of the project on US consumption given that most non-Chinese cobalt refineries are located far from the proposed Atlantic port, suggesting that the investment might not significantly increase US access to these critical minerals.

 Questions to consider as you read/listen:

1. What is the impact of Chinese control over cobalt mining and processing on US economic interests and national security?


2. How viable is the proposed "fixing" of the Lobito Atlantic Railway (LAR) to enhance US access to critical minerals from the DRC?


3. How does the current global cobalt refining landscape affect the potential benefits of the Lobito Atlantic Railway (LAR) project for the US?

 Long format:

Does it make sense for US taxpayer money to go to “fix”’ the Lobito Atlantic Railway (LAR) Benguela railway corridor?

 I wish to look at this project strictly from an apolitical fact-based economic perspective. Good old fashioned ROI.

 I freely acknowledge that $250m is on the scale of US government backed investment is minor/small, but as I understand the hypothesis of this project, it still makes me scratch my head leading me to ask myself “what am I missing?”

 As I gather the hypothesis behind this investment is: 

 By “fixing” or enhancing the Lobito Atlantic Railway (LAR) for train-based shipping along the Benguela railway corridor, it will allow for the practical possibility of shipping cobalt, lithium, rare earth metals and copper from primarily the DRC as well as Zambia and Angola to the Atlantic port of Lobito. Further in producing this capacity or expanding it with “opening” of the west African Atlantic port of Lobito will make these materials more practically available for eventual US consumption. 

 If I have stated the hypothesis correctly then we can evaluate it, right?

I only had time this morning to evaluate it based upon the variable of cobalt mining.

In doing so I discovered this:

 If you want to really oversimplify cobalt mining in this region, it can be divided into traditional mining and artisanal miners (miners who are not officially employed by a mining company and use their own resources to mine and often do not mine on their own land). While it is not known precisely the percentage between the two, according to multiple sources, artisanal mining in the Democratic Republic of Congo (DRC) accounts for roughly 10-20% (one study says up to 30%) of the country's total cobalt production, meaning a not insignificant portion of cobalt mining in the DRC is done by artisanal miners. 

 Why does this matter? Who controls the physical removal of the resource from the ground controls to a large degree where it goes. Yes, there are supply and demand influences, but the law of capture matters.

 Who controls the physical removal of cobalt in the DRC, for example? 

 Chinese companies own or have stakes in 15 of the 19 cobalt mines in the DRC. This would be the traditional mining operations. This gives China control over 80% of the DRC's cobalt output in and of itself. When you add into it the high penetration of Chinese citizens or small outfits as intermediaries between artisanal miners to the eventual export referring to the fact that in a lot of neighborhoods the miners who extract ore go to Chinese individuals or small outfits, called Négociants, to sell the ore and then those first level intermediaries then sell to larger area intermediaries (depots) that are also largely Chinese, then upwards to eventual export. Although there are no great technical papers on how many steps along the way exist from artesian extraction to export, according to the Fair Cobalt Alliance from anecdote that it may be as few as four to as much as a dozen. According to their limited case studies and anecdote, each step was Chinese or largely Chinese.

 These intermediaries and aggregators get a vote on where the cobalt goes. Will it be influenced by supply and demand pricing, sure but to what degree?

 In terms of our hypothesis stated above, does the law of capture referring to the Chinese penetration falsify our hypothesis? I don’t know but it sure has potential to falsify our hypothesis, I think.

 But we can go one level deeper in our analysis, I suggest. As stated above I stated part of the hypothesis as “… Further in producing this capacity or expanding it with “opening” of the west African Atlantic port of Lobito will make these materials more practically available for eventual US consumption.”

I want to focus on this part. Will opening up an Atlantic based port to export these materials mean in practical reality as it exists now that it will impact US consumption?

Here is what I discovered.

According to available information, China processes approximately 80% of the world's cobalt. This means that a super majority of global cobalt refining happens in China.

 Opening a port to the Atlantic when a supermajority of cobalt refining is in China does what in practical reality? Beats me.

 Perhaps the thought is that by opening the POSSIBILITY of an Atlantic export that the non-Chinese refiners to the east of DRC (Atlantic side of West Africa) could grow. That’s a theory. Let’s look….

Here are some major cobalt processing plants outside of China:

• Sumitomo: Produces cobalt in the Philippines and refines it in Japan


• Vale: Produces cobalt in New Caledonia and Canada and refines it in Sudbury


• Nornickel: Produces cobalt in the Kola division of Russia


• Glencore: Produces cobalt in Western Australia and Canada and refines it in Norway


• Sherritt International and General Nickel: Mines cobalt in Cuba and refines it in Fort Saskatchewan, Canada


• MCC: Mines cobalt in Papua New Guinea


• Cengiz Holding: Mines and refines cobalt in Turkey


• Cubaniquel: Mines cobalt in Cuba


• Ambatovy: Mines and refines cobalt in Madagascar

So of the list above not many of them are to the east of the DRC benefiting an Atlantic sea port on the West of Africa. The major three outside of China are in Finland (north), Indonesia (west) and Madagascar (west) which combine to provided 17% of the world’s cobalt refining. In 2023, Finland accounted for 8.8% of the world's refined cobalt production. The other ones outside of China, Finland, Indonesia and Madagascar are much smaller in scope.

All of that leads me to the question that if the major non-Chinese cobalt refineries are not to the east of the DRC where a port on the western side of Africa with the Atlantic would help, does opening a port to the east of the DRC on the western side of Africa with the Atlantic actually do anything? Recall Finland (north), Indonesia (west) and Madagascar (west).

I suppose a theory might be that we (the US) would stand up its own domestic cobalt refineries. Again, being practical, I just don’t see the US allowing (heavy regulations and environmental concerns) or finding margins (due to high labor costs, cost of capital, and that cobalt is a volatile commodity in the market) for standing up our own cobalt refining. The Westin Elements project is very unique and the Ohio Nth Cycle project looks at recycling not true ore refining.

This is a long-winded way of me asking “what am I missing?”

Sources:

https://www.iied.org/formalising-artisanal-cobalt-mining-drc-much-work-remains

https://www.iied.org/formalising-artisanal-cobalt-mining-drc-much-work-remains

https://www.cfr.org/blog/why-cobalt-mining-drc-needs-urgent-attention#:~:text=More%20than%2070%20percent%20of,large%20mining%20firms%20are%20recurrent

https://www.faircobaltalliance.org/app/uploads/2024/07/FCA-Impact-and-Financial-Report-2023-EN-1507-low.pdf

https://www.cecc.gov/events/hearings/from-cobalt-to-cars-how-china-exploits-child-and-forced-labor-in-the-congo#:~:text=80%25%20of%20the%20DRC's%20cobalt,battery%20makers%20around%20the%20world

https://www.csis.org/analysis/window-opportunity-build-critical-mineral-security-africa#:~:text=In%20the%20Democratic%20Republic%20of,a%20Chinese%20one%20in%202020

https://www.nationaldefensemagazine.org/articles/2022/8/3/united-states-seeking-alternatives-to-chinese-cobalt#:~:text=Almost%20all%20the%20cobalt%20mined,percent%20of%20the%20world's%20cobalt

https://www.cobaltinstitute.org/wp-content/uploads/2022/05/FINAL_Cobalt-Market-Report-2021_Cobalt-Institute-1.pdf

https://www.economist.com/united-states/2024/02/29/a-millennial-is-building-americas-first-nickel-cobalt-refinery

Summary:

I this episode we examine clickbait legacy media drumbeat fear stroking of China invading Taiwan. In it we look at six main reasons. We discuss the logistical challenges of a large-scale land invasion, including the difficulties of transporting troops and supplies across the Taiwan Strait, the lack of deep-water ports in Taiwan, and the island's challenging terrain. Additionally, we discuss the risks posed by Taiwan's urban concentration, which would lead to difficult urban combat, and the relative transparency of the battlefield, making a large-scale invasion difficult to stage without detection. We conclude that an invasion would be a highly resource-intensive and risky undertaking, highlighting the complexities involved in such an operation.

Questions to consider as you read/listen:

1. What are the major logistical challenges that China would face if it attempted to invade Taiwan?


2. What are the key strategic weaknesses of Taiwan that could make it vulnerable to a Chinese invasion?


3. What are the potential consequences for China if it attempted to invade Taiwan, and what are the implications for regional and global stability?

Long format:

Is China going to invade Taiwan?

 This is why I think the reality of China invading Taiwan now is very low for 6 major reasons. China is saber rattling.

 1 Logistics of a land invasion. 

 The logistics of a large land invasion encompass the complex planning and execution of moving vast numbers of troops, equipment, supplies, and supporting infrastructure across a large distance, including managing transportation, fuel, food, medical care, communication systems, and securing vital supply lines, all while considering potential enemy disruptions to these critical elements; essentially, it's the "behind-the-scenes" operation that enables a military force to sustain combat operations on enemy territory. (https://madsciblog.tradoc.army.mil/486-the-hard-part-of-fighting-a-war-contested-logistics/#:~:text=Logistics%20in and https://www.dla.mil/About-DLA/News/News-Article-View/Article/682964/history-highlight-world-war-ii-logistics-lessons/#:~:text=DLA%20accomplishes%20this%20by%20engaging,work%20effectively%20during%20the%20war ) Think Desert Shield quite the buildup.

2 Getting there en masse. The amount of troops and logistical support needed requires a lot of naval resources. It would be total commitment for China. And even then this time of year the Straight of Formosa/ Straight of Taiwan is choppy at best and treacherous at worst. That would be thousands of ships. Multiple crossings taking hours in rough to bad seas all in all taking weeks. That’s very risky just from the point of view of the physical crossing but when you add in the Taiwanese antiship and other defensive measures… Taiwan and the US and Japan will not likely grant safe passage. 

 3 Lack of deep-water ports. Taiwan has a few but not enough DWP with enough capacity to allow for this. And maybe Taiwan just scuttles their own ports and hunkers down. I would. 

4 Topographic challenges of the island. Pull out any topographic map of the island and you will see the issue abundantly. Look at where the capital is. 

5 Urban concentration. Taiwan has 23 million people mostly concentrated in urban centers. Urban centers mean urban combat. Door to door. Not pretty for the invader. 

6 The relative transparency of the battlefield. True sneak attacks of invading a land mass that has 23 million inhabitants involving as some estimates say not less than 400,000 to more than two million troops takes a long time to stage and won’t go unnoticed. 

I can go on. As we all know, invading a country isn’t like on a video game. It is a resource intensive risky proposition. 

For a more robust treatment I offer these:

https://www.cfr.org/article/why-china-would-struggle-invade-taiwan

https://media.defense.gov/2023/Apr/24/2003205865/-1/-1/1/07-AMONSON%20%26%20EGLI_FEATURE%20IWD.PDF

Summary:

 In this episode we explore the economic viability of domestic cobalt and lithium mining in the United States compared to global mining operations, particularly in Australia and the Democratic Republic of Congo (DRC). We explore how domestic mining is unlikely to be competitive due to higher costs, regulatory hurdles, and potential environmental concerns. Furthermore, we point out the ethical implications of cobalt mining in the DRC, where child labor and low wages are rampant. While the Inflation Reduction Act (IRA) seeks to incentivize domestic mining with subsidies, we examine why there should be skepticism about their effectiveness. We discuss how without significant policy changes and technological advancements, domestic US cobalt and lithium mining will struggle to compete with lower-cost, albeit ethically problematic, global mining operations.

 Questions to consider as you read/listen: 

1. What are the economic and political factors that make it challenging to establish a sustainable domestic cobalt and lithium mining industry in the United States compared to other countries?


2. What are the environmental and ethical considerations surrounding lithium and cobalt mining, particularly in the context of global supply chains and the role of the Democratic Republic of Congo?


3. How might the Inflation Reduction Act impact the future of cobalt and lithium mining in the United States, and what are the potential implications for global supply chains and the overall EV industry?

  Long format:

Is there a future in US domestic mining for cobalt and lithium versus global mining for them?
If you look at discoveries in the US such as the recent McDermitt Caldera in Nevada. I mean academically it is interesting but practically it might as well not even be of note. 

 Lithium carbonate mining measured in LCE in Australia is way way way less per ton than the same unit costs in the USA. It only truly becomes economically viable to mine these domestic discoveries if they are heavily subsidized which is value judgement or political judgment. The IRA seeks to do this to a degree. Will it work? Dunno. Lithium is perhaps the best case for it. Cobalt perhaps the worst case for it working. 

 Australia could produce lithium hydroxide at approximately $6,600 per ton of LCE (assuming integration with lithium mining), compared with $10,400 per ton of LCE for China. Indeed, South Korea and Canada, the closest countries to Australia from a cost perspective, still have costs approximately 24 to 51 percent higher than Australia’s. 

 China

Analysts estimate that processing a ton of LCE from lepidolite in China costs around 80,000 to 120,000 yuan ($11,120), while processing the same volume from brine deposits and spodumene costs around 40,000 yuan and 60,000 yuan, respectively. 

 Although projection of costs for production LCE/ton in the US is to a degree opaque because of IRA subsidies and that we don’t have a long history of lithium mining in the US, there are hard cost estimates in some published accounts but very few soft cost estimates such as overcoming NIMBY objections such as run into at Thacker Pass. Regulatory compliance issues with EPA and state environmental protection agencies too. Labor and mining labor certainly costs more here than in China. There’s also the investor risk of capital investment into brine water use or recirculation issues that the federal or state government might suddenly clamp down on. 

 Lithium perhaps has the highest margin and therefore the best potential to attract investment. 

 Contrast lithium with cobalt mining in the US. Just look at what happened with Jervois Global's Idaho Cobalt Operations. When price dropped to $25 or so the company decided to shutter. 

 Further, for example, a report by the US Bureau of Mines estimated the capital cost of a hypothetical copper-cobalt processing plant (with a capacity of 10,000 tons per day) to be around $700 million, and operating costs at $44 per ton processed. This is a 1991 report so it doesn’t include IRA based subsidies or more recent technology accomplishments but it is of note. 

 Whereas in the DRC with Artisanal miners, the cost is very very very low. No regulations. Just labor. Of the 255,000 Congolese mining for cobalt, 40,000 are children, some as young as six years. Much of the work is informal small-scale mining in which laborers earn less than $2 per day while using their own tools, primarily their hands. The margins are astronomically high. 

 So until there is a political decision to make DRC cobalt something like Blood Diamonds which might slightly skew the market or a sudden decision by DRC to nationalize cobalt (which would be utterly practically unenforceable I think), I don’t foresee a viable subsidy free, market based reason for future US cobalt mining with current technology and more or less abundance of cobalt in DRC for cheap. 

 My Sources:

 https://www.mckinsey.com/industries/metals-and-mining/our-insights/australias-potential-in-the-lithium-market#

https://www.reuters.com/markets/commodities/china-lithium-boom-slows-sagging-prices-batter-high-cost-miners-2024-03-13/

https://www.npr.org/2023/12/14/1219246964/cobalt-is-important-for-green-energy-so-why-has-americas-only-coablt-mine-closed

https://www.miningpedia.cn/dressing/cobalt-extraction-plant-price.html#:~:text=03Estimating%20the%20Cost%20of%20a%20Cobalt%20Extraction%20Plant&text=For%20example%2C%20a%20report%20by,at%20%2444%20per%20ton%20processed

https://www.wilsoncenter.org/blog-post/drc-mining-industry-child-labor-and-formalization-small-scale-mining#:~:text=Of%20the%20255%2C000%20Congolese%20mining,own%20tools%2C%20primarily%20their%20hands.

Cobalt Red: How the Blood of the Congo Powers Our Lives by Siddharth Kara

Summary:

 In this episode we explore the potential motivations behind the "defund Ukraine" movement. We posit two primary scenarios: Scenario 1 attributes the movement to an organic backlash against the post-9/11 US neoconservative agenda and its perceived failures, like the Iraq War. Scenario 2 suggests the movement is a product of successful Russian "active measures," a covert propaganda campaign aimed at destabilizing foreign opponents through misinformation and manipulation. We invite further exploration of these possibilities, highlighting the importance of discerning whether the movement is a genuine response to US foreign policy or a result of Russian influence.

  Questions to consider as you read/listen:

1. What are the motivations and potential consequences of the "defund Ukraine" movement?


2. How do the ideas of "neoconservatism" and "active measures" relate to the current political climate and the Ukraine conflict?


3. To what extent has the "neocon revolution" shaped the current US foreign policy and its approach to international conflicts?

Long format:

 Necons and Active measures define Ukraine

This may kick up a hornet’s nest or it may not, but here it goes….

If I had a bet, the outcome of the election won’t decide IF the US becomes more isolationist, but rather to what degree. 

The neocon days of democracy spreading, being world police and the like seems to me to have pretty much spun out of energy. The wholesale seizure of policy by the neocons after 9/11 has come and it seems gone except for some entrenched isolated parts of the bureaucracy. 

It’s interesting to contemplate if the current anti-Ukraine or defund Ukraine movement is an organic reaction to the neocon movement post 9/11 or if it is successful Russian active measures exercise as some suggest. 

Just a thought. Is it the former or the latter or a combination of the both?

I guess my main focus I’m trying to discern is whether or not the defund Ukraine message is either:

Scenario 1: an organic, referring to one that has come about natively (without outside influence), as a reaction to internal stimuli mostly likely as an abrupt reaction to the US neocon revolution (Bernard Lewis, Lulu Schwartz, Richard and Daniel Pipes, David Horowitz, and Robert Kagan as executed by Bush Jr, Paul Wolfowitz, Elliott Abrams, Richard Perle, Paul Bremer, and Douglas Feith and as some suggest Cheney, Armitage and Rumsfeld) post 9-11 and questions and the experience of the invasion of Iraq

Or

Scenario 2: It is a successful Russian active measures event. Active measures referring to an actor’s covert propaganda campaign that is used to destabilize a foreign opponent through misinformation to affect the news cycle or social media echo chambers or recruitment of unwitting protagonists of a cause that the unwitting person leans towards and messages them until they sway fully and actively in the desired direction (useful idiots)?

Suggested additional reading:

https://news.sky.com/story/amp/foreign-interference-and-active-measures-why-overstating-disinformation-campaigns-helps-hostile-states-12048341

Thomas Rid’s Active Measures: The Secret History of Disinformation and Political Warfare

Summary:

 In this episode we analyze Saudi Arabia's recent announcement to increase oil production. We highlight how this decision seems to have been made without OPEC+ consensus, is a "punitive" move and how it may be interpreted as a move to try to discipline US shale producers, who have been overproducing oil. Is Saudi Arabia, frustrated by the US shale industry's lack of price coordination and inability to reach a $100 barrel price goal, attempting to lower prices to force American producers to curtail their production? We highlight the significant difference in break-even costs between US shale oil and Saudi Arabian oil, suggesting that Saudi Arabia is willing to take a hit to its own profitability to achieve its objective.

 Questions to consider as you read/listen: 

1. What are the key factors driving Saudi Arabia's decision to increase oil production?


2. How will Saudi Arabia's production strategy impact the US shale oil industry?


3. What are the potential consequences of Saudi Arabia's move on global oil markets?

 Long format:

 Saudi Arabia as swing producer and Saudi Claims of Increase Production: Why you should care?

 Today (October 18) news reports abound with the announcement by Saudi Arabia to increase its production levels.

 For as far back as for all practical purposes, Saudi Arabia has been a “swing producer” of international crude. You can think the Shah of Iran for this. The Shah of Iran was a man that was known far and wide for his enjoyment of the fine things in life. The fine things in life are quite expensive. There was never a period of under production in his reign. If one wants to control the price of crude, one must control production. In 1982, Saudi Arabia fully embraced its reluctant role as swing producer. 

 Prior to the shale revolution, and also the discovery of outside of the Middle East large deposits like those in the now being shuttered North Shore of the UK and in the now over producing American shale sector, OPEC and eventually OPEC+ were the dominant players in the crude market. It is only recently as measured by decades that oil prices were segmented into the dozens of individual spot prices that we now have today due to the diversity of global choice due to diverse production areas (and sweet versus sour choice)

 A swing producer is a supplier that can increase or decrease production of a commodity at a low cost, and can use this to influence prices and balance markets. Ever since the formation of OPEC, Saudi Arabia has reluctantly found itself in this role. Saudi Arabia is a swing producer because of its large oil reserves, its large share of global oil production, and its position as one the world's largest POTENTIAL petroleum exporter. Keyword is potential. Saudi Arabia's oil and gas sector accounts for about 50% of its GDP and 85% of its export earnings. If Saudi Arabia “takes one for the team” and underproduces while others don’t concomitantly reduce, it hurts. They feel it. 

 Now I don’t hang out with MBS or Prince Abdulaziz bin Salman but I know through one degree of separation folks who do. 

 This move to produce and produce punitively is being done so far without the “blessing” of OPEC+ as I understand it. I could be wrong but that’s my information. 

 Those folks I know who know folks say that people (not necessarily MBS or the Prince) that the people who swim in that circle have been really fed up with a lot of things. The complete blow up of the normalization of relations with Israel. The internal hardening of factions. The Israel-Iran thing. And never being able to hit $100 barrel price goal. But most importantly, they are quite upset with US shale producers. 

 This move by The Kingdom from “swing (producer) mode” to what is technically referred to as “punitive mode” where Saudi Arabia increases production to punish other producers and re-establish its position in the market is largely due to frustration not so much with its neighbors as it is with American shale. This is what I’m told anyway. 

 As I see from reports and published production rates, the compliance by OPEC+ countries to the set agreed upon production limits is as good as it has ever been historically. 

 https://oilprice.com/Energy/Crude-Oil/This-Is-About-As-Bearish-As-Oil-Has-Been-Since-the-2008-Financial-Crisis.html

 And guess what? Even as a small time US NOWI, I agree with him. The US is overproducing. 

 Why can’t America discipline themselves? 

 God I would love it if we could. But meetings among companies to manipulate prices is strictly prohibited under US antitrust laws, meaning any coordinated effort to fix crude prices could face legal action from regulatory bodies like the Federal Trade Commission. The diverse nature of the shale industry with many independent players really hurts any non coordinated action. Recall, according to available data, major oil companies produce a relatively small percentage of US oil, with independent producers contributing significantly more; estimates suggest that major oil companies account for around 17% of total US oil production, with independent producers responsible for the remaining majority. Just ask Scott Sheffield how real this potential FTC and criminal case for colluding can be. (https://amp.cnn.com/cnn/2024/05/02/energy/oil-ceo-opec-scott-sheffield)

 PZ’s analysis of domestic (American) break even points is correct generally. I can give you the average break even points for my 9 wells. I have two others fully drilled but not fracked and therefore no free flow because of futures prices. 

 The notion of break even point does not have a standard definition in the industry. It depends if you include the start up costs and how or whether you amortize them as laid out in the AFE (completion cost report) or not. It depends on if you amortize artificial lift. Do you include the very handsome tax write offs of tangible/intangible costs?

 The average break-even cost for US shale oil which is in my experience as low as $25-35-45 per barrel and on the upper end of that when it is a legacy or vertical well or if artificial lift is used. So it’s low. 

 For comparison according to a May of 2023 report of the International Monetary Fund forecast the Saudi Arabia’s breakeven oil price at $80.90 per barrel. In 2023, the Russian budget assumed a breakeven price of $70.1 per barrel for Urals. In 2022, Bahrain's breakeven external oil price was $39.38 per barrel, and in 2024 it was projected to be $45.70 per barrel. In 2022, Iran's breakeven external oil price was $48.79 per barrel, and in 2024 it was projected to be $44.11 per barrel. In 2022, Iraq's breakeven external oil price was $75.68 per barrel, and in 2024 it was projected to be $76.54 per barrel. In 2022, Kazakhstan's breakeven external oil price was $65.78 per barrel, and in 2024 it was projected to be $96.18 per barrel. ( https://prosperitydata360.worldbank.org/en/indicator/IMF+MCDREO+PZPIOILBE_B_USD )

 So Saudi Arabia is Walmarting the US shale play. Just like when Walmart comes into a small town, they are taking a hit to their profitability driving price down to the level where no reasonable NOWI or operator will drill a new site or where no reasonable NOWI or operator will invest in artificial lift. US shale is going to be getting a hair cut. 

 Each horizontal well costs about $5m on the AFE to drill to free flow. It takes us 2 months or so to get the drilling rig on site once ordered depending on how much demand there is. From spudding to free flow is 2-3 months. But there’s also a period of time (weeks) to get the frac fluid out to get to volume production. So it’s not overnight. 

 While yes the operating costs you get on the JIB after free flow does drop off, the rate of flow does too quite a bit. After about year 2 or so, it just sinks. 

 Here’s a pretty good production chart:

https://www.energy-cg.com/USA/Wyoming/PRB/Unconventional_LTO_prod_well_exam11_plot_1x1_EnergyConsutlingGroup_web.png

 Don’t just take my word for it, here’s a good study to consider. 

 https://www.energy-cg.com/economicsofshaleplays.html

 And it’s this precipitous drop off that causes us to use artificial lift products (the pump jacks y’all think of when think of an oil field is indicative of an older oil field that’s past free flow, Electric submersible pumps (ESPs), Progressive cavity pumps (PCPs), condensers, artificial gas lift like CO2 or water, etc). But no rational person will invest in artificial lift when the price is low.

 In my opinion (and that’s all it is an opinion) and for what it’s worth, this seemingly unilateral move is motivated to some degree to try to force discipline on the US shale market. Is it the prime motive? Dunno. Probably not. But is it a factor? Absolutely. 

 The open question what actual impact will this have in the WTI futures market and what will people like me do?

 Right now, I hear words (and yes they have me thinking) but I look at the futures market and see it “only” down to $67.91 for July 2025 right now. https://www.marketwatch.com/investing/future/cl.1

 Hedging or let it run? Dunno. Fun stuff. 

Summary:

In this episode, we discuss France's recent commissioning of a new nuclear aircraft carrier and how it signifies its commitment to remaining a blue-water navy, a powerful naval force capable of operating across vast distances. This move comes as the world experiences a shift away from full-scale globalization and a return to reshoring industries. A blue-water navy is critical for projecting military power, influencing global maritime affairs, and safeguarding vital sea lanes. France's investment in this new carrier underscores its ambition to remain a major player on the international stage.

 Questions to consider as you read/listen: 

1. What are the key characteristics of a "blue-water" navy, and how do they differ from "green water" and "brown water" naval forces?


2. How does the commissioning of France's new nuclear aircraft carrier illustrate the strategic importance of having a blue-water navy in the context of globalization and global power dynamics?


3. How is France's commitment to a blue-water navy reflected in their broader foreign policy goals and regional security interests?

Long format:

France commissions a new nuclear aircraft carrier and the essential need for becoming a blue water navy

 In the news today (October 18, 2024 was the announcement that France had commissioned a new nuclear aircraft carrier to replace the aging Charles de Gaulle.

 What does this mean and why is it noteworthy?

 A blue-water navy is a naval force that can deploy ships across the open ocean and support them from a distance. The term refers to the ships themselves, as well as the sailors who operate them. 

 A blue-water navy has several characteristics, including:

 Force protection: The ability to protect against threats from underwater, surface, and aerial warfare

 Logistic reach: The ability to sustain a presence at long range with alliances made to long distant foreign ports that will allow for restocking of consumable resources at a reasonable cost.

 Replenishment at sea: The ability to conduct replenishment while at sea

 Submarine protection: The ability to protect against enemy submarines, either with its own submarines or other means. 

 In contrast, "green water" refers to coastal waters, ports, and harbors, and "brown water" refers to navigable rivers and their estuaries.

 Currently worldwide, the only true blue water navies are the US, France and Japan. There is debate over the UK with a lot of folks pointing to the lack of reliable operating aircraft carriers and its historical loss of naval capabilities as making it less than a full blue water navy. 

 China, Russia and India clearly have aspirations to be true blue water navies but are not there yet. 

 A Bluewater navy is important for a country because it allows them to project military power far from their home shores, enabling them to influence global maritime affairs, protect vital sea lanes, deter potential adversaries, and respond to crises in distant regions, essentially establishing them as a significant player on the international stage. A strong Bluewater navy can control vital sea lanes, safeguarding trade routes and ensuring the free flow of goods.  It is the free passage safely of the seas that made globalization possible and profitable for everyone. 

 As we the world continues to decouple and there continues to be a retreat from full scale globalization, having a true blue water navy becomes essential. 

 With today’s announcement of commissioning a new nuclear aircraft carrier, France continues to show its commitment to this key future orientated necessity as the world continues to decouple and nations reshore industry and manufacturing with the retreat from full globalization. 

  https://armyrecognition.com/news/navy-news/2024/new-nuclear-aircraft-carrier-for-france-order-confirmed-for-2025

Sources:

 https://nationalinterest.org/blog/reboot/what-makes-real-blue-water-navy-heres-list-183441#:~:text=Analysts%20and%20politicians%20throw%20around,important%20parts%20of%20their%20job