SMART Letter #84
Show Me the Science!
January 29, 2003

            SMART Letter #84 -- January 29, 2003
            Copyright 2003 by David S. Isenberg
       - "slippery stuff" -- -- 1-888-isen-com

>  A Word to the SMART
>  Quote of Note: Joab Jackson on Lightbulbs & Candlemakers
>  Smart Remarks by SMART People:
  + Andrew Odlyzko on NZ's Distance Problem & Oil
>  NZ Still Has a Distance Problem, by David S. Isenberg
>  Smart Remarks by SMART People:
  + Porter Stansberry on Hubbert's Peak Again
>  Show Me the Science! by David S. Isenberg
  + Porter Stansberry on Running Out of Energy
>  Isenberg Gets the Last Word, by David S. Isenberg
>  If it's Funny, it Must be True, by Scatt Oddams
>  Conferences on my Calendar
>  Copyright Notice, Administrivia

A Word to the SMART

SMART Letter #84 is more about oil than telecom.  The 
uniting themes here are (1) how advancing technology changes 
the patterns of abundance and scarcity, (2) how 
infrastructure affects everything else, and (3) what a small 
connected planet we call home.  No, I am not an oil expert.  
Once I wasn't a telecom expert either, but that didn't close 
the door on my curiosity or negate my concerns or invalidate
my later contributions. -- David I

Quote of Note: Joab Jackson

  "The light bulb was not invented by the candle industry 
   looking to improve output."

From "Disruptive Technologies," by Joab Jackson in 
Washington Technology, 01/27/03; Vol. 17 No. 20,

Smart Remarks by SMART People

Andrew Odlyzko [] writes:

  "New Zealand's distance problem, as you describe it, is 
   unlikely to be all that much more severe than that of 
   other places.  Even if Deffeyes is completely right (and 
   not everybody accepts that), basic economics will come 
   to the rescue.  Jet fuel is a small enough fraction of 
   total energy consumption that there should be enough oil 
   for it.  It will then be just a natural function of 
   prices to arrange for the dwindling supply to go to 
   where it is most needed.

  "Suppose that due to exhaustion of natural oil, world oil 
   output drops 50% and demand stays the same.  [The other 
   50% would] come from synthetic oil at $100 per barrel.  
   Producers of natural oil [would also] raise their prices 
   to $100 per barrel.  Airlines would still be able to get 
   all the oil they need by offering $100.01 per barrel.

  "Deffeyes's conclusion may be right in that fuel costs 
   are a bigger fraction of total costs for airlines than 
   for most industries.  However, the main point of the 
   posting, that non-substitutability of synthetics for 
   natural oil in production of jet engine fuel (something 
   that I am skeptical of, too) will cause a crisis for air 
   travel much worse than for other industries, simply is 
   not plausible."

New Zealand Still has a Distance Problem
by David S. Isenberg

As best I can remember, neither _Hubbert's Peak_ nor 
Professor Deffeyes' talk of September 26, 2002 directly 
addressed synthetic jet fuel.  He was looking at nearer-term 
substitute energy sources.  For example, natural gas does 
not have enough energy density to support jet travel, as it 
exists today.  Neither do on-board batteries.  Nor are 
on-board nuclear reactors practical.  Could synthetic 
(e.g., bio-) fuels be developed in time to step into the 
breach without a catastrophic market discontinuity?  Could 
synfuels be developed at the hypothetical price of 
$100/barrel-equivalent?  I do not know.  But as Deffeyes 
says, "Crude oil is much too valuable to be burned as fuel" 
(_Hubbert's Peak_, Chapter 1).  Assuming he is right, 
synfuels could be even more valuable; $100 might be a 
gross underestimate.

But even assuming that $100/barrel-equivalent synfuels had 
been brought to market, this would put New Zealand tourism 
and agriculture at a disadvantage compared to the rest of 
the world.  Suppose that today a vacation in Mexico today 
costs $300 in airfare and $800 for food and lodging, and a 
New Zealand vacation today costs $1000 for airfare and $800 
for food and lodging ($1100 vs. $1800, a factor of 1.6).  
Now, suppose the cost of air travel tripled, the New 
Zealand vacation would cost 2.2 times the Mexican one 
($3800 vs $1700 -- check my arithmetic).  New Zealand is 
hurt worse because jet travel is a proportionally bigger 
cost of Kiwi vacations.  

Since vacations are discretionary, I'd bet that they're 
more price-sensitive than more mandatory goods.  (Note that 
I'm assuming we'll be able to afford a vacation once we get 
done paying for the increased costs of auto fuel, heat and 
electricity at home.)  The situation is even worse for 
agricultural goods.  When two imported heads of lettuce sit 
on a supermarket shelf, the one that traveled the fewest 
air miles will be less expensive; the greater the transport 
costs, the larger the difference.

If Deffeyes is right, that is.  So far, the biggest 
objection to Deffeyes' projections -- according to Deffeyes 
own reasonably exhaustive examination of objections -- 
comes from the USGS, which uses notoriously inaccurate 
expert guesstimation techniques to come up with projections 
that are significantly more optimistic than Deffeyes'.

Porter Stansberry [] writes:

  "It pains me to see you citing Hubbert's Peak, and 
   worse, to endorse its horrible conclusions yourself. 

  "Please read the well-thought out opinions 
   in _The Color of Oil_ by Michael Economides and Ronald 
   Oligney.  These guys aren't academics trying to get 
   attention from the media (which loves a disaster story).  
   They refute Deffeyes with empirical results in actual 
   oil producing regions.  As you'll see, if you'd care to 
   read it, Hubbert makes several big mistakes, namely that 
   oil production ceases in oil regions and second, that 
   the best oil fields have already been found."

Show Me the Science!  
by David S. Isenberg

I often find Porter Stansberry insightful, even though we 
often disagree.  So I followed his recommendation and took 
_The Color of Oil_ by Michael Economides and Ronald Oligney 
(Round Oak Publishing, Katy TX, 2000) out of my local 
library and thumbed it hard for several hours.  

Indeed, _The Color of Oil_ shows that Hubbert's assumption 
about the shape of a single oil field's production 
distribution is not correct.  A longer-tailed fractal 
distribution fits "second wind" production data better than 
a normal distribution.  ("Second wind" production occurs 
when new, more expensive technology is brought on line 
after cheaper methods, ahem, run out of gas.)  

But this is a minor tweak.  It doesn't invalidate the 
larger work.  The U.S. production peak **was** in 1973 -- 
nobody can argue that.  Amazingly, M. King Hubbert 
predicted it in 1956.  I did not see reference to either 
fact, nor to Deffeyes' work, in _The Color of Oil_.  

Hubbert's misfit distribution did not escape Deffeyes' 
sharp eye.  _Hubbert's Peak_ covers secondary (and even 
tertiary) recovery techniques; Deffeyes explores several 
better-shaped distributions.  In addition, he tunes up 
other minor Hubbert errors.  His workmanlike scientific 
approach is described, hypothesis and test, in _Hubbert's 
Peak_ (by Kenneth S. Deffeyes, Princeton University Press, 
2001, also see

But, Deffeyes points out, no correction or revised 
calculation will create more oil reserves on the planet.  
That would take organic matter, temperature and pressure 
characteristic of the Oil Window (7500 to 15,000 feet 
down), and a few dozen million years.  Sure there are 
uncertainties.  In aggregate these are enough for Deffeyes 
to allow a 5-year window during which, he asserts, global 
oil production will peak.  

There's a lot of useful detail on oil production and oil 
politics in _The Color of Oil_.  But towards the end of the 
book, the authors discredit themselves mightily.  They 
sling the epithet "pseudo-science" at the environmental 
movement.  Then they cite sparse, carefully selected data 
and other non-evidence to dismiss the entire global warming 
hypothesis without honestly considering the large, corpus 
of seriously non-pseudo-scientific work that real 
scientists have developed.  

Show me the science!  If you can't, don't accuse others of 
pseudo-science.  Deffeyes, in distinct contrast, stays 
close to geology and honest, rigorous statistics.  Even 
when I don't like his conclusions (e.g., that nuclear power 
is the only near-term viable alternative to fossil fuels) I 
have to take them seriously.  I suspect that the authors of 
_The Color of Oil_ never heard the one about glass 
greenhouses and throwing stones.

In summary, _The Color of Oil_ neither discredits nor 
credibly contradicts Deffeyes' claim that global oil 
production will peak between 2003 and 2007.  If Deffeyes is 
wrong, show me the science, readers.  If he's right, 
humanity's in deep shift.  

Porter Stansberry [] replies:

  "There is no looming shortage of energy because, as with 
   the production of any commodity, the powers of human 
   ingenuity far outstrip the costs of human consumption.  
   Thus, the more power we consume, the larger our future 
   energy reserves will become. Although I can't have a 
   large enough technical knowledge of the individual 
   factors in the world's future energy production, I can 
   be guided by this principle, which has throughout all of 
   recorded history been true: people produce new abundance 
   when guided by the free market. 

  "Consider prices, which I believe to be the best source 
   of information on relative supply and demand 
   characteristics in any free market. Prices for things -- 
   commodities of all types, including energy -- continue 
   to fall in real terms have done so for as long as 
   reliable economic records have been kept.  This, I 
   believe, is the strongest evidence that over time man is 
   highly productive.

  "If energy is truly limited, we should carefully ration 
   its use.  If we do not, we are condemning future 
   generations to a world where the standard of living must 
   decline.  On the other hand, if there is a positive 
   relationship between energy use and energy reserves, we 
   should pursue exactly the opposite course -- we should 
   encourage all profitable uses of energy with the 
   knowledge that this will actually increase the total 
   level of wealth and benefit future generations.

  "The steam engine launched the first crisis of fuel: 
   England was rapidly deforested and, much like today, 
   smart and far thinking people hypothesized that without 
   strict controls on the use of fuel, soon there would be 
   no more trees. Fortunately, someone soon discovered that 
   there was a certain kind of rock that could also be used 
   to power a steam engine. 

  "The discovery of coal increased energy use even faster. 
   Leading thinkers tried to calculate when this inherently 
   limited resource would run out - Stanley Jevons, for 
   example, wrote the famously alarmist 1866 tract, "The 
   Coal Question." 

  "Will we run out of oil?  Will global production decline, 
   setting the stage for rapidly escalating price?  I don't 
   know, of course.  But I can't believe anyone who has 
   looked at the track record of people who have forecasted 
   a day of energy reckoning, would not come to the 
   conclusion that something strange is amiss. 

  "The people who have done the scarcity math through the 
   years have all reached the same conclusions -- we're 
   soon to run out of a vital resource from which we can 
   derive cheap power.  These people were all very smart, 
   had accurate data and were empirically right on the 
   mark, yet all of them turned out to be fantastically 
   wrong.  In each case new technology arrived to extend 
   the resource in question or to provide a much richer 
   source of energy.

  "As Sheik Yamani, once head of Saudi Arabia's oil empire, 
   says: "The Stone Age came to an end not for a lack 
   of stones, and the oil age will end, but not for a lack 
   of oil."  David, I urge you to please consider this 
   human factor and need we have for free markets to spur 
   innovation, keeping this trend alive.  Do not make the 
   same mistake as so many very smart thinkers before you, 
   don't sell mankind short."

Isenberg Gets the Last Word, by David S. Isenberg

Porter Stansberry makes the case that humanity is not going 
to run out of energy and will develop post-fossil-fuel 
sources of energy, but these were *NOT*EVER* the issues 
addressed by Hubbert or Deffeyes.  The claim on the table 
is that U.S. oil production *did* peak irreversibly in 
1973, that world oil production will peak between 2003 and 
2007, and that demand for oil shows no sign of decline at 
this time; in fact, demand is growing.  

Will humanity learn new, more sophisticated techniques to 
produce the oil left in the ground?  Undoubtedly.  Will we 
develop new non-fossil-fuel energy sources?  Certainly.  
Will we "run out" of energy?  No.  Stansberry, Isenberg, 
and (I am confident) even Deffeyes, are in violent 
agreement here.  

Stansberry cites undeniable long-term trends towards 
falling commodity prices and the dismal record of many who 
attempt to predict the future.  But he cannot deny that 
history is full of dramatic discontinuities in supply and 
demand, even (maybe especially) when "efficient" free 
markets exist.

If we take Deffeyes findings at face value (which starts by 
reading his book) we must anticipate a major discontinuity 
in the supply of oil vis a vis its demand.  I believe that 
we must act now to accelerate research into alternative 
energy to dampen the coming discontinuity -- now, even 
before new market dynamics are established that would 
motivate such research.  

Deffeyes says, "Doing nothing is essentially betting 
against [a peak in world oil production].  Ignoring the 
problem is equivalent to wagering that world oil production 
will increase forever."  

My friend Darryl Buckingham, a genuine (successful) 
independent oil driller, says, "I don't know if Deffeyes is 
right or not.  Most of the oilmen I know don't have much 
good to say about him.  I figure that if I take him 
seriously, I'll also be prepared if he's wrong, but if I 
ignore him I could get into big trouble.  So if he's right,
and the other guys aren't taking him seriously, I'll come
out ahead."  

Is the oil economy a free market?  Big oil will no more let 
go of their power than telephone companies will theirs, 
even when advancing technology establishes new patterns of 
abundance and scarcity.  

How severe might a coming oil discontinuity be?  How many 
people could die and suffer in the resulting power 
struggle?  A war with Iraq would cost the United States 
some US$200 Billion according to the most conservative, 
optimistic estimates; in contrast, the alternative energy 
budget of the U.S. Department of Energy is US$0.4 Billion.  
The former would attempt to establish control over a share 
of a shrinking pie; the latter would grow a bigger pie for 
all humanity.  

We could use Deffeyes' work to keep priorities straight, 
even if he's off the mark.  This is quite the opposite of 
"selling mankind short."  We sell ourselves short when we 
ignore empirically established wisdom and in so doing, risk 
drifting into the maw of a potentially catastrophic market 

If its Funny, it Must be True,
by Scatt Oddams

The post-September 11 world is a threatening place; and the 
Moon is evil -- see!  Not only 
that, the Moon has not cooperated enthusiastically with our 
inspection teams, but we got the goods on it, see


[Scatt Oddams is The SMART Letter's cartoon-critic-in-
(sporadic)-residence.  If you think there's an association 
between Scatt Oddams and Dilbert creator Scott Adams you've 
probably got dylsexia.  -- David I]


February 4, 2003, Santa Barbara CA.  Center for 
Entrepreneurship and Engineering Management (CEEM) at UC 
Santa Barbara.  I'll deliver the good ol' Stupid Network 
stump speech and explain why it is time for the telephone 
companies to take a walk in the snow.

March 31 through April 3, 2003, San Jose CA.  VON.  I am 
organizing a panel on April 1 (5:00 to 6:15 PM) with Tim 
Horan of CIBC, Roxane "smarter-than-your-average-bear" 
Googin, and Anders Comstedt, the fellow who built the 
profitable, profitable, profitable, profitable, profitable, 
dark fiber network in Stockholm.  April 1 is one of my 
favorite holidays.  You will believe EVERYTHING my panel 
presents --

April 22-25, 2003, Santa Clara CA.  O'Reilly Emerging 
Technology Conference.  My presentation will be called 
Operating Models for Stupid Networks, Friday, April 25 at 
2:00 PM --

June 11-14, 2002, Philadelphia PA.  TedMed3.  Come if you 
possibly can.

COPYRIGHT NOTICE: Redistribution of this document, or any 
part of it, is permitted for non-commercial purposes, 
provided that the two lines below are reproduced with it: 
Copyright 2003 by David S. Isenberg -- -- 1-888-isen-com 

[There are two ways to join the SMART List, which gets you
the SMART Letter by email, weeks before it goes up on the web site.  The PREFERRED METHOD is to click on and supply the info
as indicated.  The alternative method is to send a brief, 
PERSONAL statement to (put "SMART" in the 
Subject field) saying who you are, what you do, maybe who 
you work for, maybe how you see your work connecting to 
mine, and why you are interested in joining 
the SMART List.]

[to quit the SMART List, send a brief "unsubscribe" 
message to]

[for past SMART Letters, see]

[Policy on reader contributions: Write to me. I won't quote 
you without your explicitly stated permission. If you're 
writing to me for inclusion in the SMART Letter, *please*
say so. I'll probably edit your writing for brevity and
clarity. If you ask for anonymity, you'll get it. ]

David S. Isenberg            , inc.                         888-isen-com                       203-661-4798 
     -- The brains behind the Stupid Network --