Category Archives: Technology

Testing Tony Seba’s EV Predictions 4 (FoMO with the Big 6)

Posted on May 21, 2018 | 3 comments

Let’s start with a chart from my last post. I’ve relabelled it to read ‘sales capacity’ adds rather than ‘production capacity’ adds just because we can then tack the time series on to the existing EV sales numbers we have for the last few years as reported by EVvolumes.com. In reality, there is a lag between leaving the factory and delivery to the customer, but given this is less than a year, I think it can be safely ignored.

 

EVSalesCapacityAdds

 

In the chart below I add a bit of texture so you can see some numbers (rounded to the nearest 100k) for total sales and sales additions both historically and projected into the future based upon my Tony Seba central scenario S curve:

EVSalesto2023

I’ve gone only as far as 2023 since we should be able to see evidence of action being taken now in order to obtain outcomes then.

To give you a sense of the development process, below is a fascinating presentation by Alex Patterson of Nissan showing you how to get from sketch to production for a new version of the Qashqai. What jumps out at me from this video is that the whole complex process only took three and a half years!

Now let’s do some bottom-up work. I’m going to do this by looking at the EV strategic intentions with respect to two main categories of auto maker:

  • The major motor manufacturers (VW, GM, Toyota, Hyundai, etc)
  • The disruptors (Tesla, BYD, SAIC, Geely, etc)

The Major Motor Manufacturers

A good starting point to this analysis is to take a look at the latest global market share of auto sales by maker to identify the big guys. The International Organisation of Motor Vehicle Manufacturers (OICA) publishes just such data, albeit with a lag. The latest release is for market share as of 2016 as can be seen here (2017 numbers are not out yet):

GlobalAutoSalesMarketShare

And because we are also interested in how many cars were actually sold, here is the same chart looking at those unit numbers.

GlobalAutoSalesUnits

So from my top charts, we were looking for 14 million EV sales in 2023 for Tony’s S curve, which also translates into 5 million units in additional capacity that year. Those numbers compare with Big 6 sales of between 5 and 10 million units per annum.

Next, let’s look at the declared intentions of the top six global auto manufacturers.

Toyota 

Toyota has been sparring with Volkswagen for the title as world’s number one motor manufacturer for the past few years. When it comes to sustainability, it is well know for its investment in hybrid technology via the Prius and also for pioneering hydrogen fuel cells through the Mirai, but the company has been a laggard when it comes to pure battery electric vehicles (BEVs). Indeed, the company previously pushed the benefits of hybrids far more than pure EVs.

On 18 December 2018, however, the company announced a dramatic change of direction  (press release here) when it stated that it was targeting 5.5 million EV sales by 2030, of which 1 million would be pure BEVs (not hybrids).

The shift away from ICE to EVs was made stark by this statement:

“Additionally, by around 2025, every model in the Toyota and Lexus line-up around the world will be available either as a dedicated electrified model or have an electrified option. This will be achieved by increasing the number of dedicated HEV, PHEV, BEV, and FCEV models and by generalizing the availability of HEV, PHEV and/or BEV options to all its models.

As a result, the number of models developed without an electrified version will be zero.”

And the R&D commitment to battery technology was unequivocal:

“Batteries are a core technology of electrified vehicles and generally present limitations relating to energy density, weight/packaging, and cost. Toyota has been actively developing next-generation solid-state batteries and aims to commercialize the technology by the early 2020s. In addition, Toyota and Panasonic will start a feasibility study on a joint automotive prismatic battery business in order to achieve the best automotive prismatic battery in the industry and to ultimately contribute to the popularization of Toyota’s and other automakers’ electrified vehicles.”

The commitments by Toyota don’t get us anywhere close to Tony Seba’s 95% EV penetration target in 2030, nor do they accelerate us up the S curve near term. But the central core of Seba’s analysis is that incumbents find it exceedingly difficult to counter disruptive technology since they are loath to junk past sunk costs in the old technology (in Toyota’s case also a bridge technology in hybrids). Indeed, every single one of Tony’s presentations has Kodak’s death at the hands of digital photography at the front of the slide deck pushing this point.

In this light, Toyota’s press release can perhaps be seen as reactive rather than proactive. And while Toyota has admitted that there exists a threat from pure EV, their response is measured when compared with arch-rival Volkswagen.

Volkswagen

Wind back two months from Toyota’s press release and you come to Volkswagen’s unveiling of “Roadmap E” on 17 September 2017 (press release here). It leads off with this:

“The Volkswagen Group is launching the most comprehensive electrification initiative in the global automotive industry with its “Roadmap E”: Volkswagen will have electrified its entire model portfolio by 2030 at the latest. This means that, by then, there will be at least one electrified version of each of the 300 or so Group models across all brands and markets.”

And this was written by Matthias Muller, Chairman of the VW Board (not by Tony Seba):

“The transformation in our industry is unstoppable.”

Unlike with Toyota, we have a nice big solid number to stick on Tony’s S curve:

“The Company estimates that around one in four new Group vehicles – up to three million units a year depending on how the market develops – could already be purely battery-powered in 2025.”

In my former industry finance it was always a good idea to follow the money to find incipient trends. In this regard, VW’s press release gives us a lot of money to follow:

  • $20 billion in direct investments in industrialisation of e-mobility
  • $50 billion of battery procurement tenders
  • Setting up of in-house battery production lines
  • Gearing up for next generation solid state batteries

It seems VW has decided to go ‘all-in’ with the EV game. Is this an incumbent showing  enough flexibility to survive? We shall see.

Hyundai

Like Honda and Toyota, Hyundai (and it’s subsidiary Kia Motors) has been somewhat lagging on the electrification of its line-up due to an ongoing commitment to hydrogen fuel cell vehicles. Responding to the aggressive plans announced by Toyota and VW, however, Hyundai announced a $22 billion investment in electric cars in January 2018 and that a new line-up of 31 models by 2020 and 38 models by 2025 . There doesn’t appear to be a specific press release related to their “Clean Mobility” strategy plan, but you can find details in one of Hyundai’s investor presentations here.

No EV sales targets have been announced as of this time.

General Motors

The three emblems of the rebirth of the EV have been Tesla’s Model S, the Nissan Leaf and G.M.’s Chevrolet Volt. Yet until October 2nd, 2017, G.M.’s commitment to the EV space appeared half-hearted due to its meagre model line-up. That all changed with this press release.

“General Motors announced today how it is executing on a major element of its vision of a world with zero crashes, zero emissions and zero congestion, recently announced by GM Chairman and CEO Mary Barra.

“General Motors believes in an all-electric future,” said Mark Reuss, General Motors executive vice president of Product Development, Purchasing and Supply Chain. “Although that future won’t happen overnight, GM is committed to driving increased usage and acceptance of electric vehicles through no-compromise solutions that meet our customers’ needs.”

In the next 18 months, GM will introduce two new all-electric vehicles based off learnings from the Chevrolet Bolt EV. They will be the first of at least 20 new all-electric vehicles that will launch by 2023.”

Like VW, GM appears to have got the EV religion.

 Ford

In May 2017 Ford got a new CEO Jim Hackett whose brief was to prepare the company for a completely reconfigured marketplace. The incoming CEO’s  first strategy announcement in October 2017 was short on detail apart from a commitment to aggressive cost cutting. The forward-looking ideas vaguely centred around a smart car agenda, with the China market playing a key role. The most detail we got on EVs was this:

“The company recently announced a dedicated electrification team within Ford focused exclusively on creating an ecosystem for products and services for electric vehicles and the unique opportunities they provide. “

In January 2018, however, we got more meat when Ford’s Chairman Bill Ford announced the following measures:

  • 16 fully electric vehicles to be added to line-up by 2022
  • 40 fully or partially electrified vehicles to launch over that time frame
  • Investment in EVs to rise from $4.5 billion to $11 billion

In an important move necessary to increase EV penetration, Ford also explained how electrification of existing SUVs and pick-up was to take place, making this comment to Reuters.

“If we want to be successful with electrification, we have to do it with vehicles that are already popular.”

Nissan 

Rather than a standalone company, Nissan can best be thought of as part of the Nissan-Renault-Mitsubishi Motors alliance. As such the group taken together could be viewed as the largest auto maker in the world.

Rather like GM with the Volt, however, Nissan has been somewhat slow to take the technology from its breakout product the Leaf and apply it across its product range. Again I can hear Tony’s voice talking about the lack of ability of incumbents to disrupt their own businesses even when they are leaders in the technology driving the disruption.

But completing our orgy of announcements from the Big 6, Nissan has suddenly decided to aggressively play catch-up with a commitment to sell 1 million EV cars a year by 2022. The March 23rd press release is here and the “M.O.V.E. to 2022 Plan” has these goals:

  • Develop eight new pure electric vehicles, building on the success of the new Nissan LEAF
  • Launch an electric car offensive in China under different brands
  • Introduce an electric “kei” mini-vehicle in Japan
  • Offer a global crossover electric vehicle, inspired by the Nissan IMx Concept
  • Electrify new INFINITI models from fiscal year 2021
  • Equip 20 models in 20 markets with autonomous driving technology
  • Reach 100% connectivity for all new Nissan, Infiniti and Datsun cars sold in key markets by the end of the plan

Conclusion 

The strategy announcements are different in texture and difficult to to compare, but they have elements in common:

  1. A broadening of electrification across the product range
  2. The acceleration of EV model roll outs to the early 2020s
  3. A tidal wave of money going into the EV space
  4. A massive recommitment to EV R&D, particularly with respect to batteries
  5. Not one mention of any new initiative with respect to ICE technology
  6. Lots of FoMO (fear of missing out)
  7. And lots of plain FEAR (It seems that VW’s September 2017 strategy announcement has scared the crap out of VW’s competitors, and their strategic ripostes have been tumbling out one after another since then.)

Moreover, if we assume that the battery materials, battery cells and battery modules will be available to make the cars (I’ll come back to those issues in later posts), the Big 6 makers have the intention to try to sell EVs across every model segment. Thus, on the supply side of Tony Seba’s forecast, the big guys intend to play a major part. Of course, just because you can make an EV, it doesn’t mean anyone will buy it. But that is the demand side, which I also want to leave for later.

Rather, for my next post I want to look at the disruptors. How much money can they raise, how many factories can they build, how many EVs can they sell. To date, Tesla sales are really just a rounding error in terms of total global auto sales. Will that change? And, then there are the Chinese.

For those of you coming to this series of posts midway, here is a link to the beginning of the series.

 

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Testing Tony Seba’s EV Predictions 3 (Fleshing Out the S Curve)

Posted on May 20, 2018 | 2 comments

In my last posts, I have been trying to quantify Tony Seba’s assertion that “essentially no internal combustion engines will be produced after 2030”. Further, we looked at the broad outline of what the required sales trajectory would need be to take electric vehicle (EVs) penetration rates from 1.3% in 2017 to 95% in 2030.

In this post I want to hang some vehicle numbers onto this outline shape. So to start with, we need to determine how many vehicles are being sold today. Various public organisations and private companies put out slightly different numbers, but I have chosen the stats released by the International Organisation of Motor Vehicle Manufacturers (which goes under the abbreviation OICA derived from its name in French).

OICA data show that 97 million vehicles were sold in 2017, consisting of 71 million passenger cars and 26 million commercial vehicles. The recent sales trend looks like this (you can find the chart here):

OICAVehicleSales

These numbers allow us to do a quick fact check with respect to the chart put together by EVvolumes.com at the bottom of my last post. That chart had a total of 1,281,000 EVs sold in 2017 with am EV market share of 1.3%. Put their EV sales number over OICA’s 97 million and we do get 1.3%. Good!

Note we are talking about total vehicle sales. Tony has been full on with his bet, forecasting the demise of the complete ICE vehicle infrastructure. Not for him, wimping out and restricting his argument to passenger cars. So all those trucks, lorries and vans have to go EV too.

In later posts, I will start to slice the data more finely to stress test his forecast, and that will require us to look a vehicle segments, geographical penetration and manufacturer commitment to EV production, but for now let’s just stay with the top line.

Nonetheless, we do need one further tweak before we can attach a number to what 95% sales penetration by EVs in 2030 actually looks like. Obviously, global auto sales are growing, so we are not looking at 95% of 97 million. Accordingly, we need the annual average growth rate in auto sales through to 2030 before we can come up with our EV target.

As a ranging shot, let’s just take the average annual growth rate in global vehicle sales between 2005 and 2017 from the OICA chart above. So I’ve just plugged those numbers into a compound growth rate calculator on the internet to get 3.87% annual growth. Using the 3.87% number, we can then plug that back into a future value calculator and go forward to 2030. A growth rate of 3.87% doesn’t sound much, but the magic of compounding changes 97 million vehicle sales to 159 million vehicle sales by 2030. The bar has been raised for Tony: EV sales now need to go from 1.3 million in 2017 to 159 million in 2030. That’s 122 times!

Nonetheless, we probably need to adjust for a decline in auto sales in China as the market gets more saturated, although India, South America and Africa could start to pick up the growth baton in future.

Moreover, a close reading of Tony’s book “Clean Disruption” suggests that the advent of driverless cars on our roads will dramatically change the pattern of car ownership. Tony is big on “Transport as a Service”, so fewer and fewer people will want to actually own a car when they can tap on a phone app to get the use of one almost instantly.

Even if you don’t believe that autonomous vehicles will pass safety standards for many years to come, app-led transport services like Uber and Lift make car ownership less attractive, particularly for urban dwellers. The decline of driving licence ownership among younger adults in the US and Europe is evidence of this.

In 2016, McKinsey issued a report that incorporated such technological-related disruptions into a macro economic forecast. Their ‘high disruption’ scenario sees 15% of new car sales being autonomous vehicles by 2030. Based on this scenario and other trends in car sharing and so on, they came up with 115 million vehicle sales in 2030 (a 2.45% annual growth rate).

AutoSales2030McKinsey

At this stage, it is worth stressing that the choice of vehicle sales figure for 2030 is a question of subjective judgment. The range of macro economic and technology related variables make a more quantitative approach facile. So let’s split the high vehicle growth scenario of 159 million vehicles and the McKinsey high-disruption scenario of 115 vehicles to arrive at 137 million forecast vehicle sales in 2030. Now Tony is looking for 95% of this number, which is 130 million. So we can plug the 130 million number into the S curve from my previous post and we get this:

ElectricVehicleSalesMillions

It looks like not much is happening until around 2024 in terms of high year-on-year jumps in units sold, but that hides some pretty stunning year-on-year growth rates.

%GrowthRateEVSales

Are those growth rates completely mad? Well let’s compare them with recent year growth rates in a chart from my previous post:

EVVolumes.com

So apart from 2016, the EV sector has been achieving growth rates in and around 60% per annum. So it looks tough, but not completely crazy. Next, let’s look at how much additional capacity needs to come on line each year to support those forecast sales.

AdditonalAnnualProductionCapacity

This chart allows us to stress test Tony’s from the supply side. Additional production capacity for the EV final product requires production capacity adds right down the supply chain. So to add 0.8 million units of EV capacity in 2018; 1.3 million in 2019; 2.1 million units in 2020, 3.4 million units in 2021 and 5.3 million units in 2022 requires huge ongoing investment in metal mining (lithium, cobalt, graphite, etc), battery cells, battery assemblies and additional vehicle manufacturing lines and factories.

So for my next post we will just assume that the end-user demand is there. If so, are the miners and manufacturers capable of delivering the capacity adds? Let’s see.

For those of you coming to this series of posts midway, here is a link to the beginning of the series.

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Testing Tony Seba’s EV Predictions 2 (Setting Out the S Curve)

Posted on May 19, 2018 | Leave a comment

In my last post, I explained Tony Seba’s basic thesis as follows: he forecasts the complete transformation of the world’s entire transport and energy infrastructure by the year 2030. And while, Tony stopped there, I surmised that this disruption, if it takes place, will extend into every aspect of the social sciences. Indeed, for those like me who sometimes despair at the state of the planet, his forecasts could even prove a ray of hope with respect to the wicked problem of climate change. I don’t think it is hyperbole to say that such a transformation would be politically, socially and economically revolutionary.

At the heart of Tony’s thesis is the S curve: the idea that the adoption of technology follows an S curve consisting of three distinct phases: a gradual uptake, explosive growth and then a tapering off. His book “Clean Disruption” doesn’t really touch on the S Curve, but in his presentations this issue is front and centre. I highly recommend you watch the section of the video below from 7:50 through to 9:45 minutes.

This is the heart of his argument:

“No technology in history, successful technology, in history, that I know of have ever been adopted on a linear basis, ever. It gets adopted as an S curve.”

And Tony posits that S curves are getting steeper, with saturation points reached in years not decades as shown by the almost vertical lines for the most recent technology adoptions.

Adoption Rates

Therefore, if Tony is wrong, it will be with respect to whether EV adoption follows an S curve and what shape that S curve will take. OK, let’s start by fitting an S curve to Tony’s following prediction:

There may still be millions of older gasoline cars and trucks on the road. Ten- to twenty year old cars are still on the road today. We may even see niche markets like Cuba where 50-year old cars are the norm. But essentially no internal combustion engines will be produced after 2030.

Now an S curve has four parameters; that is, variables that control is shape. Bear with me: it is actually quite intuitive. More formally, an S curve is produced by a logistic function, which you can see examples of here).

From the chart below, we have the starting point ‘a’: in our case EV sales as a percentage of total global car sales, which in 2017 was 1.3% (I’ll come back to that number). We also have an ending point ‘d’. Now Tony says “essentially no internal combustion engines will be produced in 2030”. I have taken that to mean 95% of new sales in 2030 will be EV.

The inflection point ‘c’ relates to whether the growth will be front-end loaded into the beginning of the forecast period, or more back-end loaded into the end of the forecast period (or somewhere in the middle). Generally, it’s easier to ramp up production at the beginning, since you have fewer resource constraints.

Finally, we have ‘b’ the steepness of the curve. That really tells us whether all the growth is concentrated into a short burst; in the adaption curves at the top of the post, those curves which in effect go vertical, like that for digital cameras, have a high value for ‘b’.

SCurveParameters

Now because we can produce different curves to get from 1.3% penetration in 2017 to 95% penetration in 2030 it may take a little time to prove whether Tony is right or wrong in his projections. But by inspecting the shape of the curves, we can start to discern which of them are completely barking mad and which are mildly ambitious. So I will start with a curve that I have rustled up in Excel as the base-case scenario:

Seba Central Scenario

Under this curve, we start with a penetration rate of 1.3% in 2017 and end with one of 94% in 2030, with 50% penetration reached in 2025. Note that it takes 6 years to go from 20% penetration in 2022 to 80% penetration in 2028. Next, let’s increase parameter ‘b’ and get the curve to stand up.

SebaHyperGrowthSecenario

This is pretty damn aggressive. Tony is doing his victory lap in 2025 and the move from 20% to 80% penetration has taken all of four years. That is a lot of lithium, a lot of battery cells, a lot of battery units and a lot of EVs to bring on stream in short period of time. But note we could take that graph and shift it 5 years to the right. Under that scenario, Tony would still have bragging rights in 2030, but the curve would not go vertical until around 2025.

Now I am going to make the growth period a bit less manic in the middle, with a longer run-up by increasing the value of ‘a’.

SlowRampUpScenario

Now Tony gets to 95% one year late (I think we should be generous enough to give him that). Further, the EVs take over the world period (from 20% to 80%) now takes place between 2024 to 2029.

OK, time for some real numbers. Here are global EV sales and penetration rates from EVvolumes.com (as you can see, this is where I get my 1.3% starting penetration rate from in 2017).

EVVolumes.com

This adds a couple of new dimensions to our analysis: unit sales of EVs per year and year-on-year percentage growth rates. Keeping unit sales and growth rates in mind, we can take the theoretical underpinnings and parameters of Tony Seba’s EV S-curves, and attach just such real-world numbers onto the curves and see if they look sane. That will be the topic of my next post.

For those of you coming to this series of posts midway, here is a link to the beginning of the series.

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Testing Tony Seba’s EV Predictions 1 (Spring Is Coming)

Posted on May 18, 2018 | 12 comments

You should have an opinion on Tony Seba,  He is someone not to be ignored because the upcoming technological change he predicts is so important. Indeed, if he is right, everything is about to change. So if you aren’t aware of his take on where the world is going, I highly recommend you watch one of his videos (for example here).

Tony’s PowerPoint presentation and pitch hasn’t actually changed much over the last four years. Indeed, if you click through his YouTube presentations from a variety of events, you get a distinct feeling of deja vu. But perhaps, like a modern-day Messiah, Tony feels the need to deliver just one central message:

“Get ready for a technological disruption that will dwarf all those that have gone before.”

His first book “Winner Takes all” is a typical airport self-improvement shopping list for the wannabe tech CEO, but then came “Clean Disruption” in 2014.  In this, Tony broadened his range to encompass, well, everything. The tag line on the front cover says it all:

“How Silicon Valley will make oil, nuclear, natural gas, coal and conventional cars obsolete by 2030.”

While this industrial disruption is epic, the follow-on implications for urbanisation, climate change, geopolitics, development, growth, wealth and inequality are just as mind-blowing. Thankfully, Tony didn’t run with those themes too, but it doesn’t take much of an imagination to extrapolate out from his conclusions into a broad variety of social and political domains.

So this is what he says will happen by 2030:

  • Solar will become the dominant form of energy production
  • Centralised electric utility companies will be in retreat and the price of electricity will plummet
  • Electric vehicles will replace internal combustion engine vehicles
  • Cars will become self-driving and individual car ownership will collapse
  • Nuclear is dead
  • Oil is dead
  • Natural gas is dead
  • Biofuels are dead
  • Coal is dead

Wow! Moreover, this book was written in 2014, and given it’s now 2018, that means we only have 12 more years to go! That sounds ridiculously ambitious, if not ludicrous. Nonetheless, Tony always includes a pair of photos to tackle such doubts. Here is a picture of New York in 1900:

Where Is the Car? jpeg

And here is a picture of the same street in 1913, 12 years later:

Where Is the Horse? jpeg

You have to respect Tony for one thing: he has given us a testable hypothesis. In times gone by, futurologists were careful to either give a specific numerical forecast, or a specific date for a vague non-numerical forecast — but never a specific numeral forecast with a specific date attached.

If such strategists were “doing a Tony”, they would have said everything will change in 2030, but not specify how much it will change; or, things will change by X amount, but not when such change would take place. By so doing, an erroneous forecast could always be dumped without too much reputational risk.

No such intellectual cowardice for Tony. Here is just one example of his forthright approach to forecasting, from page 127:

“There may still be millions of older gasoline cars and trucks on the road. Ten- to twenty-year-old cars are still on the road today. We may even see niche markets like Cuba where 50-year old cars are the norm. But essentially no internal combustion engines will be produced after 2030. Oil will also be obsolete by then.”

To make things manageable, I am going to pick off his forecasts in bite-sized chunks and see how they are doing from when they were first floated back in 2014. To put that in perspective, we are already 25% through Tony’s original forecast horizon.

Let’s  start with the above quote surrounding electric vehicles, not least because Tony set out a variety of milestones back in 2014 that should show us whether we are on our way to his EV nirvana. The first of these relates to S curves, which will be the topic of my next post.

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I’m Back with Bad News and Good News

Posted on May 17, 2018 | 3 comments

Well, the emergence from hibernation took some time (it’s a long story). So since I’ve been away, let’s firstly start by depressing everyone with four charts from the excellent and scary NASA’s “Vital Signs of the Planet”:

GlobalTemp

Not forgetting this:

CO2\

Plus this:

SeaLevel

And of course this:

LandIceAntarctica

Also for Arctic sea ice extent, below is how we have started the current melt season (hint: not good), from National Snow and Ice Data Center):

ArcticSeaIceExtent

So am I totally depressed (it seems an occupational hazard for anyone paying attention to climate change these days, see here)? While the above charts do not fill me with joy, I will finish this new post (after a very long time away) with something a bit more upbeat: batteries.

Now in prior posts, I was a little bit skeptical about the battery revolution. But that was in 2015 and it is now 2018.

The evangelist of the great battery nirvana is Tony Seba, who sees EVs plus battery storage as the next great disruption: a disruption so massive that it will eclipse the computer and compete with the coming of the railways and the spread of electrification.

Being a grumpy old Brit, I was somewhat cynical about Tony and his PowerPoint battery slide deck. But, to repeat, that was 2015 and this is 2018. And after doing a deep dive into battery material miners over the last few month, I feel I may have been a tiny bit wrong and Tony a tiny bit right. Quite how wrong I was and how right he is I have yet to fathom. So for my return to blogging, we are going to go ‘full on’ battery nerd for a while. So it is Battery Banter Redux folks.

For those of you who think this is all tech ‘blah’, I actually disagree. In fact, I think batteries hold the key as to whether we can constrain climate change to around two degree of warming (give or take a bit), or the dystopian three and up. So I will finish this post with what I think is a very upbeat chart from a company called Nemaska Lithium. And in future posts I am going to explain why I don’t think this chart is barking mad (in fact it could be conservative) and why, if true, it will change everything.

LithiumMarket

 

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The EIA Sees Our Energy Future – Which Doesn’t Look That Much Different from Today

Posted on June 12, 2015 | Leave a comment

Exams finished (I’ve been exercising my brain cells by doing some data analysis and computer courses with the UK’s Open University), so I have at last had a chance to blog.

Let’s kick off with a report I usually try to catch each year: the US government’s Energy Information Administration (EIA)‘s “Annual Energy Outlook 2015“, which looks out to 2040.

If you keep up with media reports, the backdrop to the 2015 Outlook would be something like this:

US oil production has pushed up toward 10 million barrels per day (bpd) and is a whisker away from overtaking Saudi Arabia; five LNG export terminals have been approved and are under construction because the US is so awash with natural gas (due to the fracking boom) that it needs to export it; solar PV panel price falls coupled with efficiency gains have brought the levelised cost of solar PV down so substantially that solar energy is now making a major contribution to electricity generation in an ever-growing number of American states; Texas has become a wind-energy king second only to Denmark; and Elon Musk is bringing power to the people (literally) in the form of a new generation of home super batteries.

Wow, sexy stuff! So I guess we are going to see the EIA predicting radical changes to the energy mix in 2040, especially as many of the trends I just highlighted are only getting started. Right? Let’s look at EIA’s flagship chart (page 17 of the report, click for larger image on all charts):

US Primary Energy Consumption jpeg

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Utopia, Dystopia, Uncertainty and Our Psychological Selves

Posted on May 31, 2015 | 1 comment

I have just finished reading Dylan Evans’ book “The Utopia Experiment“, which chronicles the author’s doomed attempt to found a self-sufficient community in rural Scotland as a post-collapse prototype for others to learn from.

It is always interesting to find a hidden back story about one of the authors who sit on my book shelf–and boy does Evans have a bizarre back story. Evans is an LSE-trained philosopher and scholar of risk, robotics, artificial intelligence and evolutionary psychology (after many a wayward turn).  I already own his book “Risk Intelligence”, which deals with many of the issues I confront in this blog, particularly ‘decision-making under uncertainty’. Unknown to me, Evans’ interest in risk, combined with his own personal demons, had previously led to a decision to opt out of conventional society, which in turn led to a complete nervous breakdown.

Evans displays a compulsive personality: he pours himself into a particular endeavour for a year or two, then recoils from any further long-term commitment. To launch ‘Utopia’, he sacrifices everything: his house, his job, his relationships. To justify this, ‘Utopia’ becomes more than a mere experiment but rather a lifeboat being made ready for the collapse of civilisation. In a conversation with Oxford academic and scholar of existential risk Nick Bostrom, he is asked this question:

How likely do you think it is that something like the imaginary scenario you are acting out in Scotland might really come to pass in the next ten years?

Evans replies:

I thought a bit longer, and finally declared that I thought that the chance of such a thing happening within the next ten years was about 50 per cent. Nick looked shocked. Not even the most pessimistic scientists thought things were that bad….

….the precision that Nick had demanded of me forced me to own up to my error in a way that vagueness never would. It betrayed the extent to which what had started out in my mind as an exercise in collaborative fiction had already become an insurance policy against a global disaster that I was increasingly convinced was imminent.

Later he frames this decision as more psychological rather than intellectual. A predisposition toward depression coupled with a generalized angst at living within large corporate structures results in a rejection of his existing social and institutional ties. The irony here, as he later admits, is that for one so psychologically fragile discarding structure is about the worst thing he could have done mental health-wise.

Moreover, ever the contrarian, Evans comes to question his own beliefs more rigorously the more advanced the experiment becomes. Intellectually, his certainty is lost and without that comforting narrative ‘Utopia’ become less a personal lifeboat but more of a rip tide dragging him below the waves.

So are there any wider lessons here? I think there are many. First, as behavioural economics teaches us so well, humans and not what the economist Richard Thaler calls ‘Econs’; that is, emotionless calculating machines as opposed to humans. We can only perceive risk and uncertainty within an emotional framework. Humans have an optimism bias partly as an evolutionary means to advertise positive traits that allow us to mate and flourish but partly just to keep us sane. Examining the downside is painful and can lead to isolation, rejection and depression.

Yet perhaps there are those of us who can maintain contrarianism without falling apart. Evans documents how the participants in ‘Utopia’ rapidly progress from viewing the commune as an experiment to one of preparation for real collapse. They need a narrative to inoculate themselves from the outside world. Yet after a time, Evans starts to question all the collapse narratives that the commune volunteers espouse, falls into depression and is eventually replaced as leader by an early volunteer called Agric.

What Agric offers to the remaining volunteers is a narrative of certainty, which Evans could no longer offer. Further, this is a narrative that is immune to any counter-argument since it rests upon an irrefutable theory.

Part of the reason why Agric was so dismissive of any suggestion that civilisation might not be about to collapse was the fact that he had a powerful theory. He was in the grip of Malthus, like many before him. Malthus had shown that population growth must always outstrip food supply, right? He had proved it.

And earlier:

The idea that our civilisation might not only survive global warming but also continue to grow richer had appalled me, and this was perhaps why I had believed so ardently that it would collapse. I had wanted it to. Agric still did.

At this point it would be easy to laugh at the ‘Utopia’ pioneers, painting them as New Age fools. But not so fast. Evans’ story shows how hard it is to disentangle the dispassionate from the emotional when it comes to risk and uncertainty, particularly when it comes to tail risk. But this cuts both ways.

Let’s assign a 1% probability to collapse rather than Evans’ 50% and let’s push out the horizon to five decades rather than one. We are now entering the territory of intellectual respectability. The kind of probabilities that former Astronomer Royal Martin Rees sets out in his book “Our Final Century“.

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Yet the vast majority of us are repelled at discussing such negative scenarios. Nick Bostrom points out that the academic literature is many times richer when it comes to publishing papers on dung beetles or Star Trek than it is to considering existential threats to humanity (here).

Academic Prioritisation jpeg

I propose that to seriously consider those dark-side scenarios you need either 1) immense psychological detachment and resilience or 2) no psychological detachment at all (a joyful embrace of the collapse narrative). In short, psychology-wise you need to be built differently from the vast majority.

Nonetheless, some true contrarians do exist in a variety of fields, for example, finance, and walk a fine line between delusion and perception. It is such people who populate Gregory Zuckerman’s book “The Greatest Trade Ever” which retells the story of five individuals who made their fortunes from the collapse of Lehman Brothers and the onset of the Great Recession. These are not Thaler’s dispassionate, calculating ‘Econs’ devoid of emotion. These are five individuals with their own rather peculiar character quirks who are naturally uncomfortable with both the status quo and the institutions that support the status quo. In this particular case, they emerge from Zuckerman’s book as prescient heroes. Of course, we never hear of the thousands of similar individuals whose backs are broken on the wheel of markets that go the wrong way.

Perhaps our differing reactions to upside and downside risk is nature’s way of hedging its bets. A few of us are comfortable operating in the super optimistic probability tail of upside risk and fewer still like Agric like to wallow in the pessimistic tail of downside risk. From an evolutionary perspective, most of the tail risk jockeys end up as road kill. But things do change, and perhaps a maladaptive mutation will suddenly becomes a vital survival trait. Those Agric-like fellows who believe they know the future will be the equivalent of bacteria on a petri dish that survive a dose of penicillin. A mutation that may previously have been an impediment becomes a life-saver as circumstances change.

We each have our own view of rationality, but it is our emotional state that keeps us sane when seeing the world. Don’t get me wrong: I am no post-modern relativist. For example, I think there does exist an objective assessment of the likelihood that the globe will experience extreme climate change leading to economic collapse by end century (and a non-negligible one at that). This is certainly not enough risk to make me run off to the wilds of Scotland, but it is a risk nevertheless. But I think that only some people can psychologically live with such a fact. Most can’t. The dominant narrative is: let’s pretend that climate change doesn’t exist as a factor in our or our children’s lives and carry on regardless.

Dylan Evans’ story may perhaps be one of the delusion of a few, but humanity’s inability to tackle climate change is a story of the delusion of the many. So let’s not laugh too long at ‘Utopia’.

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GMO and Plant Modification

Posted on May 31, 2015 | Leave a comment

Apologies for my poor blog post productivity: I am in the midst of Open University exams, which are occupying a lot of my time. Further, I have a number of draft long blog posts on the go that I am having difficulty completing; sometimes blog posts write themselves, sometimes they have to be extracted like an impacted wisdom tooth.

In the meantime, here are a few fabulous infographics. I don’t dare stray into the GMO debate at this time as I haven’t researched it enough. I think, however, that these graphics vividly demonstrate that we have been pretty adept at modifying plant organisms irrespective of GMO technology. We could open a philosophical debate here about what are “natural” plants (but I won’t).

All I will say is that these modern plants are very different from their descendants. They have also been developed to meet human needs.

Hat tip to James Kennedy, a chemistry teacher in Australia, who put these graphics together (here).

Watermelon Development jpg

Corn Development jpg

Peach Development jpeg

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Charts du Jour, 6 April 2015: US Natural Gas Production

Posted on April 6, 2015 | Leave a comment

The US government agency The Energy Information Administration reported natural gas production numbers for January 2015 on 31 March (numbers are reported with a two month lag).

US dry gas production was up 8.9% year on year in January, and the 12-month moving average was 6.1% higher year on year, the highest growth since October 2012 (click for large image; source: here).

US Dry Gas Production Jan 2015 jpeg

Meanwhile, natural gas prices have continued to trend down and are now reaching around $2.5 per million British thermal units (Btu). This is not far off their 2012 lows (source: here).

Henry Hub Prices Mar 15 jpeg

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Wantability, Well-Being and Risk

Posted on March 30, 2015 | 4 comments

I’ve been mulling a name change for the blog for some time. The name the “The Rational Pessimist” was a riposte to Matt Ridley’s book “The Rational Optimist“. Ridley’s book is a paean to global free markets and human innovation–and in parts is correct. Since the industrial revolution commenced, technology coupled with capitalism has lifted the bulk of the world’s population out of a Hobbesian life that was “nasty, brutish and short”. But where I differ from Ridley is in believing that a 200-year data set of economic growth can fully capture all future risk.

Ridley’s book is Panglossian. He believes that every problem we face–from climate change to resource depletion–is relatively minor, just waiting to be solved by a technological fix. For him, price always trumps scarcity. Whenever something looks like it is running out, the magic of markets will  always lead to new discoveries or acceptable substitutes.

As an economist by training, I accept that the everlasting dance between supply, demand and price is something of beauty. But I also believe that it has its limitations. A backward-looking empirical observation that things haven’t run out is different from a forward-looking theoretical prediction that things won’t ever run out. North Sea oil is running out regardless of price, and a global supply of oil is not qualitatively different from a local one.

Of course, technology may provide a perfect, or dare I say it better, substitute for fossil fuels. But then again it may not. That is uncertainty, and the consequences of that uncertainty is the concept of risk.

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