Fossil Fuels: the Case for Divesting

[For this page’s principal post on fossil-fuel divestment, click here. For a brief note on why the Tesla Model X is the electric car I’m buying, click here.]

The Lesson of Ebola This week the inevitable happened. Ebola made its way to a developed nation. It was ironic but perhaps fitting that it landed in Dallas. Governor Rick Perry of Texas stole the show on TV, trying to reassure his public. There he was, in his ill-fitting business suit, looking like a cowboy who had just changed his clothes and combed his copious hair on his way back from the rodeo. He stumbled a bit over unfamiliar medical words, but he did manage to maintain his usual Texas braggadocio. Dallas, he assured the public, is not West Africa. He even managed to make three substantive medical points. First, we Yanks know how to track contacts and quarantine carriers. Second, we also know how to isolate patients to prevent the disease’s spread, while taking good care of them. Third, we have the advanced facilities and the science and technology to do so, as no other nation does. One doctor and two aid workers (see 1 and 2) previously had flown home to America, with ebola. All three have survived and are free of the virus. They were cured without infecting anyone else. So, uncharacteristically, Governor Perry missed an even bigger chance to brag. He didn’t say—although he should have—that ebola hit a brick wall when it landed in America: medical science. But never mind. Governor Perry has made progress. He managed to make three key medical points in simple language. After spending his entire political career demagoguing God, religion and economic nostrums so dogmatic and simplistic they might as well be religion, he relied on medical science to reassure his worried public. Bravo, Governor Perry! Welcome to twenty-first-century America! Now, as governor of one of the sunniest and windiest states in the nation, maybe you’ll extend your newfound acquaintance with science. Maybe you’ll consider promoting solar and wind power, so that Texas can remain an energy powerhouse when the Eagle Ford Shale runs out of fossil fuels. After all, calculations show that solar power falling on a mere twenty-ninth of Texas’ land area could have supplied all our nation’s electrical needs for the year 2005-2006. But I digress. The lesson of ebola is simple. If it can teach someone as thick as Governor Perry the value of science, it can teach the rest of us, too. Science works when religion, prayer, fear and bumper stickers don’t. Ebola hit a brick wall when it landed in Dallas because we Yanks (or most of us) still believe in science and excel at it. All in all, despite our abysmal health-insurance system, we Yanks have the best medical science on the planet. We know how to keep people alive and healthy, at least when they can afford to pay. Now the Texas Health Presbyterian Hospital in Dallas has a very important patient. His name is Thomas Eric Duncan. He’s important because he’s a Liberian and he’s black. If the hospital can cure him and send him home to Liberia healthy, just as American medicine has cured the three white Americans who were flown home from West Africa, that feat alone will work wonders to advance the cause of science. At the very least, it may convince West Africans to listen to doctors and scientists in their own countries. Science knows why two of the worst diseases to emerge in the last century—AIDS and ebola—have come from Africa. The reason has nothing to do with race or politics. It’s a simple matter of lifestyle. Some Africans live closer to undomesticated animals and eat more of their “bush meat” than any other human beings. Undomesticated animals act as reservoirs and breeding grounds for new viral diseases. Their closeness to Africans who live near them and eat them gives these deadly new viruses a chance to jump to humans. The good news is that all of us humans are 98% genetically identical, regardless of race or nationality. So when science finds a vaccine, a cure, or a method of isolation and treatment that dramatically boosts the survival rate, it’s almost certain to work for all of us. No one knows yet how high the survival rate can be when ebola patients are treated in first-rank modern hospitals. It may prove to be higher than anyone expects. Or the unfortunate Mr. Duncan may die. But if we can save him, we may convince the world, including West Africa, of the value of science and modern medicine. Ebola offers other opportunities for the advancement of science, too. West Africa can become—and should become—an emergency testing ground for drugs and vaccines to fight ebola. Of course all experimental medicines should be tested for safety first. But once tested for safety, they could be offered to anyone willing to take them. If I lived in Monrovia, with panic and un-isolated ebola patients all around me, I would take any vaccine or drug I could get my hands on, as long as the doctors assured me it wouldn’t give me the disease or kill me in some other way. If the truth be told, the developed world has failed the developing world with regard to ebola. We haven’t put much effort or energy into vaccines or cures because we didn’t think the disease would ever reach us. Now it has. So now we have the opportunity to show the world what we Yanks can do—and how quickly—in bringing this awful disease to ground. That would be something we could all join Governor Perry in bragging about.

This Monday, I sold shares of Exxon Mobil. On Tuesday, I transferred the money to my bank account. On Wednesday, I used part of it to reserve a Tesla Model X. I’ll probably invest the rest in a leading-edge firm like Apple or First Solar.

My family already has a nominal 6.24 kW solar array for our home. So after Tesla delivers my Model X next year, I’ll no longer use fossil fuels to get around or to power our house. I’ll just use some natural gas to heat it in the winter.

That’s a start on my own, personal fossil-fuel divestment. Call it a protest if you like. Call it investment “radicalism.”

After all, I did go to college at Berkeley. Perhaps as a result, I’ll go to my grave believing fervently in the power of peaceful protest to change the world. Protests helped halt our disastrous blunder in Vietnam, got African-Americans, women and gays civil rights and a running start at equality, and helped abolish Apartheid, including through divestment. Peaceful protest by youth is one of the very few ways our species changes its collective mind without war.

So I’m a big fan of protest. But I’m 69 years old; I’m no longer young. Marching in the streets is not my style, if it ever was. I see my divesting not as a protest, but as an intelligent choice among investment alternatives.

As Will Rogers once quipped about land, “They ain’t makin’ any more fossil fuels.” Nature and geology took millions of years to turn the cellulose of ancient forests into methane, ethane, propane and butane (and their polymers) for our profligate combustion.

Once we’ve burned them all—or all we can reach at reasonable cost—there won’t be any more. We’ll be like the vanished Easter Islanders, who (anthropologists speculate) had to leave their lovely tropical island, and leave it denuded, after burning up all the wood there.

But for our entire human species, there won’t be any other place to go. There’s no wood or fossil fuels on the Moon, Venus or Mars. At least there’s none that we know of, after diligent searching.

Today there are still lots of fossil fuels on Earth that we haven’t found yet. And there are certainly still more in the Arctic, which we can get to easier now, as global warming melts the ice. But when all that starts going, then what?

What our species will have then is an incomparably massive collective investment in extracting, transporting, refining, supplying and using fossil fuels. We will have unsightly oil and gas derricks, dry-land and deep-sea wells (both conventional and “fracking”), monstrous pipelines, massive supertankers, huge LNG terminals, enormous refineries, and innumerable global investments in fossil-fuel burning cars, trucks and planes and the factories that make them.

But what good will all this hideously expensive infrastructure be when there are no more fossil fuels, or when the cost of extracting the few that remain becomes prohibitive? We will have built an enormously expensive global infrastructure that will be obsolete and worthless, or in a rapid process of becoming so.

Talk about “stranded assets!” Any fossil fuels still left in the ground for the purpose of slowing the acceleration of global warming will be negligible compared to this stranded global infrastructure.

Not only that. Our collective investment in soon-to-be-worthless infrastructure will get larger per unit of energy as fossil fuels run out. Even today, it takes hundreds or thousands of “fracking” wells to produce the same oil or gas that a handful of conventional wells used to do, when oil or gas was nearer the surface, in bigger subsurface reservoirs, and in subsurface strata that didn’t need to be cracked to get them out. (Remember the “gushers” in the old movie Giant?) So we can expect our collective investment in soon-to-be-useless infrastructure to rise, perhaps exponentially, just before the fossil fuels it taps run out.

How long might that take? Over two years ago I did a calculation for us Yanks and our own natural gas. For about a decade, natural gas has been the “fossil fuel of the future.” It still is. But if it becomes our chief source of energy, it won’t last very long.

If we Yanks use all of our known national natural-gas reserves for continuing our present uses (mostly heating and industry), plus replacing coal for generating electricity (a change already well under way), plus replacing oil for driving cars and trucks, our reserves will last 39 years. And that includes all known conventional reserves on our territory, all known “fracking” reserves, plus then-newly-discovered reserves in Alaska—with every one computed under the most generous estimates made by promoters of fracking.

So if you wonder why youth are pushing their colleges and universities to divest, just think of time scales. Before youth protesting today are even my age, they and their entire societies will be wondering why humanity didn’t plan better. They will be wondering why they spent the best years of their lives building and investing in an enormous and hugely expensive energy infrastructure that is rapidly becoming obsolete, and that will almost surely be obsolete before their own children are my age. They will be poorer, sadder and very, very angry. And rightly so.

All this is part of the reason I invested in Exxon Mobil in the first place. Four years ago, that dominant oil-and-gas firm recognized this very point. Although it had always been an oil company par excellence, Exxon Mobil surprised the financial world in 2010 by buying XTO Energy, a natural-gas “fracking” company.

In the financial press, Exxon Mobil’s managers explained why. They had bought XTO Energy because new sources of oil were getting harder to find, and the oil from them was getting more expensive to extract. So they bought into the natural-gas business because it offered cheaper energy.

It still does, but not by nearly as much. After summer of this year (2014), retail gasoline was only about twice as expensive as retail natural gas on an energy-equivalent basis. Just 2.5 years ago, it was three times as expensive.

Exxon Mobil’s managers may have been sticking their heads in the sand on global warming, but they are good energy engineers and can do arithmetic. When they bought XTO Energy and leapt into the natural-gas business with both feet, they were just being good planners.

But not good enough. Right now, as you read this, the developing world is growing at rates we Yanks, Europe and Japan will never see again. Their rapidly growing populations are madly building roads and cars, trucks, planes and trains that run on fossil fuels. They are also building derricks, wells, pipelines, refineries and all the rest of the fossil-fuel infrastructure to supply these vehicles with energy to run.

Today’s frantic builders of fossil-fuel infrastructure constitute well over half the human race. They are building that infrastructure much, much faster than the rest of us, in “developed” nations, who are still doing our share. Think our species’ finite reserves of fossil-fuels might run out quicker as they do so?

If oil reserves numbered in the billions of barrels sound big to you, just recall that global consumption of oil and liquid equivalents is now north of 90 million barrels per day. So it takes less than 12 days for our species to burn up a billion barrels. And global consumption is projected to increase by more than one percent every year.

Careful readers might note that I have not yet even mentioned global warming and consequent climate change—subjects increasingly on everyone’s mind, which are now driving the divestment debate. Nor have I mentioned pollution, which burning all fossil fuels creates, and which burning coal creates in superabundance.

Does it really make sense to put all our energy-infrastructure eggs in one basket when that burning basket will not only become obsolete in a single lifetime but will also cook us and choke us in the process?

There’s one other point that I’d like to make that, to my knowledge, no one yet has emphasized. It’s labor.

While young and working as a scientist, I had the experience of working at depth in two hard-rock mines. No work that I know, let alone have done personally, is more unpleasant, dirtier or more dangerous. And I was working as a scientist, not a miner, and in a hard-rock mine, not a coal mine.

After a long day about a mile down in the Lucky Friday Mine near Wallace, Idaho, I went to sleep in a local hotel that once had been a brothel. It had open transoms above every door, and a rock band was playing directly beneath my room. A light sleeper, I was afraid I’d never get to sleep. But I slept as soon as my head hit the pillow and didn’t wake up for ten hours.

My scientific colleagues and I discussed this phenomenon, which they, too, had experienced. We attributed it to carbon dioxide and stranger gases, which remain in the atmosphere at depth in any mine despite heroic attempts to ventilate it.

Coal-mining is, of course, the worst fossil-fuel work. But oil and gas drilling are not far behind in dirt, difficulty and danger, especially when done offshore. Recall the eleven men who died, incinerated, in BP’s offshore explosion and spill in the Gulf.

I know, I know. Coal miners and drilling roustabouts take pride in what they do. But were I one of them, and had I time to think before accumulated gases in my blood and tissues (and sheer physical exhaustion) put me to sleep every night, I would daydream about erecting solar arrays, windmills and the power lines to connect them to our cities, in the bright sun, above ground, and in fresh air.

Capitalism is not evil. Unless you prefer the way the Pharaohs built the Pyramids, or Stalin’s forced industrialization of the Soviet Union, it’s the fairest and most effective way our species has yet discovered of organizing productive effort.

Nor are capitalism’s managers evil because they are imbued with the gospel of profit above all. They are just narrow-minded and short-term thinkers. They don’t intend to do anyone any harm. They just don’t think much about consequences beyond the next quarterly or annual report.

They don’t think much about what might happen—and how soon—if our estimates of fossil-fuel reserves are inflated, or if the efficacy of fracking turns out not to be quite what we hoped. They don’t think how soon our reserves might become exhausted or uneconomic to extract.

They don’t dwell on the enormous amounts—now steadily increasing for every barrel, BTU or megawatt-hour of energy gleaned—that we are spending every day on new infrastructure just to keep pace with rapidly increasing global fossil-fuel demand. And they certainly don’t think much about how useless all this infrastructure will become as accessible fossil fuels run out, as they eventually must.

If they don’t even think about these basic planning factors, perhaps we can excuse them for failing to think about global warming, climate change, pollution, and the hard lives of people who subsist by extracting fossil fuels from the ground and refining them, in places like Angola and frozen Edmonton.

I can think about these things because I’m an ex-scientist and retired. My family’s solar array has been generating over a megawatt-hour per month for the last year, far more than we need to run our own household. My power company sends me a check every month, and our array generates electricity without any dirt, noise, effluent, greenhouse gases, smoke, or pollution whatsoever. I can’t even hear it run.

I watched the men erect it. I have absolutely no doubt that I would rather do what they did than work in any coal mine or on any oil or gas rig. And as for longevity, I don’t think sun in Northern New Mexico will run out anytime soon, let alone in the lifetime of the kids or grandkids of anyone living today.

Maybe business-school folk can be excused for thinking about none of this. They are weaned on profit and trained on spreadsheets showing only income and loss, and then only for the current quarter or year. They are simply not trained to take a longer or wider view.

But investors ought to know better, especially in universities. If they don’t take the long view and consider all relevant factors, who will?

In any long view, investing in solar or wind energy, let alone hydropower, is far better than investing in fossil fuels. Maybe that’s why I’ve made far more money in a few months investing in First Solar and Tesla than I made in fourteen months waiting for my leap call options on Exxon Mobil to rise or expire. Maybe that’s also why the Germans, who are among the best planners and engineers on Earth, have invented a new word, Energiewende, to describe their historic transition to renewable energy.

When I gave up on Exxon Mobil this week, it wasn’t because of my political views. It was because, as an ex-scientist and ex-engineer, I’m accustomed to thinking about consequences and following all of them long term.

It was also because my investment didn’t pan out. I came to the firm conclusion that fossil-fuels stocks are worthy of divestment—even by a small individual investor like me—because yet more investment in fossil-fuel infrastructure is bad our human species in the long run, and maybe even in the medium term. If we don’t feel the consequences in our lifetimes, our kids will feel them in theirs.

But let’s be frank. The global balance of supply and demand for oil and gas is precarious. As fossil fuels inexorably run out, there are going to be moments when the balance shifts, perhaps dramatically. So there may be big spikes and dips in fossil-fuel prices before the end comes.

Wars in the Middle East might suddenly cut supply. So might a war in Ukraine, by cutting vital pipelines. On the other hand, successful politics might suddenly increase supply. For example, success in the current talks with Iran might suddenly increase the global supply of oil by ending the Iran Oil Boycott. (If the Oil Boycott isn’t actually suppressing global supply, then what good is it?) So might Libya’s getting its national and political acts together.

So there will be spikes and dips in oil and gas prices, perhaps dramatic ones. There will be opportunities to profit from fossil-fuel-companys’ stocks, among other things. That’s why, as the globe was recovering from the Great Recession, I bought the longest-term leap call options on Exxon Mobil stock that existed and held them for about fourteen months. I made some money, but not much for the long wait.

In the end, I was ashamed of myself. Why, I think now, should I have bet on our species’ inevitable transient energy tribulations? Isn’t there something morally odious about that? And even under purely cold-blooded investment analysis, isn’t that much like trying to time the market—something that every rational investment adviser tells us not to do?

If that’s wrong for a small, individual investor who’s just trying to maintain a comfortable lifestyle in retirement, isn’t it wrong for the folks who run and fund our great universities and the pension plans on which our workforce and retirees depend?

Our university endowments and our great pension funds have fiduciary obligations that go far beyond transient success in what amounts to gambling outside Las Vegas. They have an obligation to invest in things that seem reliable, including our species’ future. They have an obligation to discover, as much as they can, what in our future is close to a sure thing.

Nothing in our species’ discordant and chaotic future is surer than that fossils fuels (or those we can reach at bearable cost) will some day run out. So nothing is more certain than our species’ collective need to find other sources of energy. If the smart people who work in and manage our great universities and pension funds can’t see the writing on the wall and act on it, who can?

All this has nothing to do with “politics.” It’s all about the good planning and engineering that we Yanks used to consider our birthright and that, if we don’t resume them soon, will spell our inevitable national decline. And if the rest of the globe follows our heedless lead, as it often does, the same head-in-the-sand approach might spell the demise of our species, or at least its prolonged and unnecessary suffering.

It’s a Tesla Model X!

Faithful readers of this blog know that I’ve been dithering over what electric car to buy for nearly four years.

Almost seven years ago, I wanted to buy a Chevy Volt. I even promised to do so.

My primary reason was to reward GM for its useful innovation, after a half-century of woeful industrial stagnation. It was GM’s corporate commitment to the Volt that started the global auto industry moving beyond hybrids toward real electric cars.

But as time went on and GM’s leadership took hold, I began to think more carefully about my own personal situation. After I retired, I moved to Northern New Mexico.

New Mexico is consistently one of the sunniest and windiest states in our nation. Yet its energy leadership is pitiful. It lags woefully in wind and solar energy, falling far behind states like California and Texas, even on a per-capita basis. At the time I started looking into the matter (2011), about 87% of my electrical energy still came from coal, the dirtiest fuel in common use and our principal source of greenhouse gases from stationary sources.

I was not about to switch from cleaner gasoline to dirty coal for driving. I wrote a blog post about my dilemma and warned others, too. Eventually, I decided I would have to install my own solar array to avoid driving on coal. In summer 2013, I did.

Our nominal 6.4 kilowatt solar array is over a year old now. According to actual on-line measurement, it produced 1.1 megawatt-hours in a single month, August 2014. That’s enough to charge a Volt or Nissan Leaf 44 times, or more than once a day.

So now I’m ready to roll. Except perhaps for long trips, I can drive on the Sun alone and never buy a gallon of gas again.

In the meantime, the electric-car field has become a lot more crowded. There are a number of entries at the low end, including the Volt, the Nissan Leaf, an electric Ford Focus than never seems to reach critical mass (or serious marketing), and a host of lesser also-rans. At the high end, one pioneering innovator stands out: Elon Musk and his Tesla Model S.

As the field grew, I reluctantly abandoned the Volt. It’s not really an electric car, but a serial hybrid. Since I live 17 miles from town (Santa Fe), a round trip for mere grocery shopping would push its nominal 40-mile electric range. And as I understand it, the Volt itself, not the driver, decides when to run on electricity and when to run on gasoline.

Don’t get me wrong. The Volt is a fine car, especially for singles and single-car families with short commutes. They can use the car to shop and get to work, running only on electricity. And they don’t have to buy another vehicle for long trips; they can go on gasoline. If I were still young, single and working, I might well fulfill my promise to buy one. But I’m not. My needs have changed.

So with the Volt out, my gaze shifted to the rest of the field. It quickly focused on the Tesla, for two reasons. First, the Tesla Model S is a mouth-watering piece of technology fit to excite any engineer’s techno-lust. Second, Elon Musk’s Tesla Motors is the only car company on the planet to bet its entire future on fully electric cars, without hedges or compromises. It offers GM’s Volt leadership on steroids.

Just as I had wanted to reward GM for its initiative in producing the Volt, I now wanted to reward Tesla for taking the next giant step. The significant money I made by investing in Tesla’s stock whetted my appetite (and will help pay for the car).

There were just four drawbacks. First, I don’t really need a range over 200 miles. The farthest I’m likely to go without careful planning is down to Albuquerque and back—a distance of less than 100 miles round trip. Second, the weight of the Model S required to achieve much greater range—over 5,000 pounds—seemed excessive for my 150-pound body. My engineering Calvinist sensibilities rebelled.

Third, there was the matter of ground clearance. I’ve got a 600-foot rutted gravel driveway. I didn’t want to damage my first-ever brand new luxury car, let alone its all-important battery pack (the lowest thing on the chassis) the first time I drove it home.

Finally, there was the price. I’ve never spent anything like $70,000 for a car. I use cars for transportation, not self-aggrandizement. My current car is a Hyndai Elantra that I bought over the phone for less than $17,000. (I love it.) Before that, I had a 1984 Toyota Corolla that I bought for around $9,000 and ran for 25 years in four states, including Hawaii.

The deciding factor was new information on Tesla’s website. Tesla offers an optional Smart Air Suspension [scroll down or search] with the Model S (which requires an optional Tech Package) that makes the ground clearance adjustable. Comments on a German forum suggest that ground clearances well over 6 inches are possible—more than enough for my long, rutted driveway, which is mostly flat.

I assume the same thing will be true of the Model X, a four-wheel-drive SUV designed for use in country applications like mine. That’s the car I intend to buy. I hope the adjustable ground clearance will be standard in it, as the off-road applications suggest.

With the only serious engineering drawback resolved, the others melted away. Having excess range can’t hurt. And the extra battery weight it requires won’t produce any greenhouse gases or pollution because I’ll charge the car from my own solar array.

At my solar array’s 5.40 kW peak measured power, and the industry-standard mileage of 3 miles per kWh, I can charge the car enough to get to town and back, with a three times range safety factor, in less than seven hours. If I want to go to Albuquerque and back, I’ll need a two-day charge. But I can manage that, as I’m retired and rarely use a car more than two or three days a week. So I can enjoy the excess range and tolerate the extra weight, all the while driving solely on the Sun.

As for the price, I’ll have to gulp hard. I just put down the $5,000 reservation fee, and I hope to have the Model X in about a year. After that, I’ll drive on the Sun and thumb my nose at the Koch Brothers, the frackers, rising gasoline and natural-gas prices, and the Saudis. And I'll be running one of the most elegant and advanced pieces of machinery ever offered the driving public—and one whose drive train promises far rarer and cheaper maintenance than any internal combustion engine.

Who says being being environmentally conscious can’t be fun?

Footnote 1: As of September 22, 2014, the national-average retail price for a gallon of gasoline (all grades) was $3.43. As of June 2014 (the latest month for which figures were available when this post was written), the national-average retail residential price of a thousand cubic feet of natural gas was $16.06. The energy-conversion factor between the gallon of gasoline and the thousand cubic feet of natural gas is 8.27. [Scroll to note entitled “Natural Gas (Residential)”] So the cost of a volume of natural gas that is energy-equivalent to a gallon of gasoline was $16.06 / 8.27 = $1.94—a bit over half the actual price of the gallon of gasoline.

With rapidly increasing demand, the energy-equivalent price of natural gas has risen rapidly, from about one-third that of gasoline in March 2012. As the “fossil fuel of the future” becomes the fossil fuel of the present and the past, there is no reason to doubt that the price advantage of natural gas over gasoline will continue to decrease.

Footnote 2: For all the many reasons why electric cars should be more reliable, and should require far less frequent maintenance, than the Rube Goldberg machines that now line our streets, click here. For a Model S owner’s experience with the “ninja-like” service that Tesla offers to put its customers first, click here.

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