$100 trillion needed to rebuild (oil/gas) energy infrastructure

[phantom power]

I know that I'm a relentlessly gloomy fucker, but I'm pretty sure that the human economy doesn't embody $100 trillion.

HOUSTON -- The oil and gas industry will need to invest $50-100 trillion to rebuild its ageing infrastructure within the next 7 years and stave off a serious drop in oil and gas production, Matt Simmons, chairman of Simmons & Co. International, told OGJ May 5 at the Offshore Technology Conference in Houston.

In a worst-case scenario, Simmons said, oil and gas output could fall by 10-20% by 2013 if industry does not replace its rusting, corroded assets. Spare capacity also has run out because formerly cheap prices for oil and gas precluded upgrading and construction of new facilities.

http://www.ogj.com/display_article/327833/7/ONART/none/GenIn/1/OTC:-$100-trillion-needed-to-rebuild-energy-infrastructure/

[LakeSamish706]

1. Might want to ask George and Dick for a loan, they have probably managed...

to steal almost that much from the American Treasury. n/t

[phantom power]

3. Seriously, I don't think $100 trillion exists, in a human economic sense...

I mean, if you could (notionally) convert the economic activity and capital of the entire human species, worldwide, into dollars, I don't think it would add up to $100 trillion. So, saying that any hypothetical project would cost $100 trillion, here in the early 21st century, is basically saying that our species can't possibly undertake that project. Our world economy simply doesn't embody the resources needed.

And even if you could somehow get it all to add up to $100 trillion, you have to take into account that only a fraction of that can actually be allocated to such a project, since at any given time most of it must be used to actually run basic activities day to day, etc.

$100 trillion is a profoundly strong "we cannot fucking do that" kind of statement.

[lapfog_1]

6. Used to either scare the oil companies or the public

... "you see, we NEED $200 barrel oil prices and $100B profits a year because we have to replace our infrastructure at a cost of $5 Trillion Dollars(tm)"

or

... "we can't spend any money on repairing things because it would bankrupt us to really fix it, so for now we'll just slap a new coat of paint on the oil rig"

[lapfog_1]

2. Me thinks the number has been hyped a bit...

$50T to $100T is a *lot* of money.

Let's assume that EVERY offshore platform and EVERY refinery and EVERY pipeline costs $10 billion dollars to replace, 50,000B / 10B is 5,000 facilities, and while there are a lot of facilities for doing oil/gas, 5,000 facilities is probably more than exist in the world, not to mention that repairing each of them, even if they are in a state of neglect, is likely NOT to cost $10B.

Edit to add $50T is $166,666 for every person alive in the US currently.

[phantom power]

4. I wonder if some reporter replaced a 'b' with a 't'.

It's happened before.

[lapfog_1]

7. I don't think so...

$50B to $100B is not enough money to really do the job. $1T to $2T would be a number that I could see, and over a 10 year period, not 7... and for the industry as a whole, not just US based companies or locations. $100B a year for 10 years to repair things... might not be enough!

[lapfog_1]

10. Another way to look at the author's estimates

$50 T (his/her "low ball" number) is equal to

10,000 brand new Nimitz class aircraft carriers.

The US currently has 12 aircraft carriers, built over a period of about 50 years.

10,000 carriers would require 50 MILLION sailors to operate them (that's 1 out of every 6 citizens... but if you only took people between the ages of 18 and 40, it would be 1 out of 2).

[Nihil]

14. Excellent way of highlighting the scale of the figure!

> $50 T (his/her "low ball" number) is equal to
> 10,000 brand new Nimitz class aircraft carriers.
> The US currently has 12 aircraft carriers, built over a period of
> about 50 years.

:applause:

[global1]

5. It's Time To Declare War On The Oil Companies.........

nationalize them - take them over as they are decimating the U.S.

They are a world power. They don't need nuclear weapons. They have the biggest weapon around - OIL. It permeates every part of our life - from the gas we need to get to work - to the tires we ride on - to the packaging materials around our food - everything.

The fact that they didn't reinvest their windfall profits to continually maintain their infrastructure is criminal.

This is like a bad James Bond novel - and the villain is the OIL COMPANIES.

Just read where the American people now believe that gas will go up to $5.00/gal. Well if they believe it - you know that the oil companies will push it to that and past.

We are all slaves to the oil companies. It is time to nationalize them and bring us back from the brink.

[GliderGuider]

11. Most of the world's oil is already nationalized.

Look at Mexico, Venezuela, Russia, Iran, Indonesia, China, Saudi Arabia. 60% of the world's oil is controlled by national oil companies (NOCs) and only 40% by independent oil companies IOCs), aka traditional Big Oil.

A lot of oil is being nationalized so countries can preferentially supply their own citizens with oil at a lower price than than the market is charging. This leaves oil importers like the USA out in the cold, because they're stuck buying on the international export market - a market that is about to start collapsing due to the net oil export crisis. The collapse of the global export market is going to force oil prices up even faster, so expect $10.00 at the pump within two years.

[hogwyld]

17. Wouldn't that ultimately be self defeating?

Say gas goes to $10. Global economic activity would crash, nobody could afford to farm, etc. Wouldn't this then lead to an oversupply of oil, and thus drop the price? Obviously, I'm not as learned on this as most, but basic supply and demand rules are still in effect.

[kristopher]

19. They don't believe in the 'laws' of supply and demand here.

Or any other economic description of the way people are going to behave.

[phantom power]

20. I believe in inelastic demand destruction.

The kind that is extremely disruptive, and occurs via people falling into poverty, people already in poverty starving to death, and various other kinds of mayhem.

That's my economic description of how people are going to behave.

[kristopher]

22. Inelastic demand related to petoleum is usually

Inelastic demand related to petroleum is usually followed by "over the short term."

That is because of the high capital costs to individuals of buying a new automobile. There is, over the long term, considerable elasticity in energy demand as a response to pricing.

[Dogmudgeon]

8. We ought to ask Mr. Simmons to clarify that

Even $60T divided by 6 billion people comes to an average of $10,000 per person. That sounds like about five times the average annual per capita income, or 1/8th the amount of capital the average person accumulates and spends in the course of a 40 year working life.

Which, come to think of it, sounds reasonable. At least it's in the ballpark.

On the other hand, most people have trouble understanding how enormous the challenges of building the future will be. And not only do we have to replace our energy infrastructure, we have to make a massive change in our agricultural system, re-design cities and suburbs, keep our information technology systems as sustainable as possible ... in short, intelligently re-build our world for at least the next century.

The prospects of a thousand nuclear reactors here and a million aeolians there cause many people, even some of us, to choke. But even those numbers are only starting points. There is no cheap, easy way out of our predicament.

Developing a pioneering space-based infrastructure will be a modest effort in comparison.

--p!

[Javaman]

9. Isn't that roughly, the price of the whole world? nt

[GliderGuider]

12. The total global GDP is ~$60T a year.

$100T over 7 years is about 25% of the world's annual GDP devoted to oil infrastructure renewal. It seems high to me, but what do I know -- he's the expert.

[phantom power]

13. Any sense of how much "disposable GDP" there is?

In other words, could we allocate 25% of the GDP, and continue to provide food/clothing/shelter?

I don't actually think the world could organize itself that way, and I don't think its a good plan to spend all that GDP on propping up infrastructure for a resource that is past peak, but it's interesting to think about whether it's even theoretically possible.

[GliderGuider]

16. Is there any "disposable GDP" at all?

After all, excess industrial activity in the non-food/clothing/shelter sector is what keeps the prices of those essentials within reach and supports all the other aspects of the economy we need to keep the food/clothing/shelter sector viable. I would bet that redirecting 25% of global industrial activity into a non-productive infrastructure project would depress the economy so much that the activity would be unsustainable. As a SWAG I'd bet we could do 10% for a decade if we had to, without coming apart at the seams.

[excess_3]

15. needed --> the electric car .n/t

[robertpaulsen]

18. Does this include costs to replace our electric grid?

Or is that problem detailed here a completely separate but equally daunting issue?


The U. S. electric grid: will it be our undoing?
by Gail E. Tverberg

Quite a few people believe that if there is a decline in oil production, we can make up much of the difference by increasing our use of electricity--more nuclear, wind, solar voltaic, geothermal or even coal. The problem with this model is that it assumes that our electric grid will be working well enough for this to happen. It seems to me that there is substantial doubt that this will be the case.

From what I have learned in researching this topic, I expect that in the years ahead, we in the United States will have more and more problems with our electric grid. This is likely to result in electrical outages of greater and greater durations.

snip

I am having a very difficult time seeing how this can be done. There are just too many entities and too many funding issues to make a transition from a neglected old system to a much-improved new system in a reasonable length of time. Our current economic model seeks growth and the maximization of profits. This economic model does not facilitate large groups of entities working together for the common good.

The transformation seems unlikely to succeed, if for no other reason than the fact that the cost of the new system is likely to be very high. Electric rates will already be increasing because of higher natural gas prices and the cost of building additional nuclear power. Adding the costs for a substantial upgrade to the transmission system at the same time would be very significant burden for the consumer. If we are dealing with peak oil at the same time, this will add an additional stress. It is difficult to believe that politicians and state regulators will allow such large costs to be passed back to consumers.

If anything would work to produce the desired result, it would seem to be something that approaches nationalization of the electric supply industry. If this were done, the problem of conflicting objectives could be greatly reduced. I have a hard time envisioning current leaders accepting such a radical approach, however.

http://www.energybulletin.net/43823.html

[kristopher]

21. Your post should probably have its own thread, but

From your link:
How do we get from where we are now, to where we need to be, in a reasonable amount of time?

I am having a very difficult time seeing how this can be done. There are just too many entities and too many funding issues to make a transition from a neglected old system to a much-improved new system in a reasonable length of time. Our current economic model seeks growth and the maximization of profits. This economic model does not facilitate large groups of entities working together for the common good.

The transformation seems unlikely to succeed, if for no other reason than the fact that the cost of the new system is likely to be very high. Electric rates will already be increasing because of higher natural gas prices and the cost of building additional nuclear power. Adding the costs for a substantial upgrade to the transmission system at the same time would be very significant burden for the consumer. If we are dealing with peak oil at the same time, this will add an additional stress. It is difficult to believe that politicians and state regulators will allow such large costs to be passed back to consumers.

If anything would work to produce the desired result, it would seem to be something that approaches nationalization of the electric supply industry. If this were done, the problem of conflicting objectives could be greatly reduced. I have a hard time envisioning current leaders accepting such a radical approach, however.
<end>

I don't believe the author proper understands that the electrical system is still regulated pretty heavily. There are two very heavy duty lines going in, one through the midAtlantic congestion region and out west somewhere. These are planned and the Federal government has already passed a law exempting the eminent domain acquisitions from litigation. It crosses both the Chesapeake and the Delaware Bays.

I don't think there is significant problem with our grid, it is outdated and needs modernizing, but it is basically solid. There are more frequent outages now that ownership rights have been unbundled, but that is only to be expected. With a cost plus business model, the goal was 100% reliability. With the competitive business model, they cut back on line maint until it costs them money or attracts the attention of regulators.

There are conflicts and perverse incentives in the present system, however. I think what the author was trying to highlight is the uncertainty faced by efforts to build new lines. The big problem is that if you build a new line into an area, then someone builds a new generating facility in the area you planned on piping electricity into, then you are screwed.

I think we are close to reclaiming public control of transmission and distribution for those reasons.

The "Smart grid" upgrade is not difficult and it will probably be carried out with the electrification of the vehicle fleet, since your car will be the main entity the power company communicates with.

[robertpaulsen]

23. Thanks, that's a good idea.

I didn't check thoroughly, but I guess I'm the first to post this, so I will start a separate thread. My main reason for posting it here was to position it in the context of the aging oil/gas infrastructure and figure out if this is an added or separate cost. If it's separate, then will the cost be in the millions, billions or trillions?

BTW, I hope you're correct that we are close to reclaiming public control. I'm from California, so the names Pete Wilson and Ken Lay have a distinctive repugnance in my mind.