jawfish

Corrosion, Infrastructure Entropy and NPV Accounting
john posted in politics & culture, technologies on March 24th, 2009

Another really good post at The Oil Drum ( TOD). This time on corrosion of oil and gas infrastructure. Sounds utterly boring, but in fact the discussion quickly spirals into:

Accounting methods which shortsightedly neglect maintenance across all types of private infrastructure, causing future breakdowns and vast repair costs.
The declining maintenance and investment curve of oil companies as they see increasing taxation, and reduced assets into the future.
A nasty interaction between fluctuating oil prices, supply, credit, and infrastructure maintenance.
Yet another example of simplistic free-market economics failing to handle long-term community issues.

Clump it altogether under Peak Oil, and the interrelationship of a pessimistic oil future ( POV: oil companies), unpredictable supply vs demand and hence price, plus a crashing world economy, the general failure of political institutions to plan for the future, and the complete failure of macro-economics to guide us though this change from an oil economy to some other energy source(s).

Unlike almost all other Web2.0 sites, the comments are a must-read. In an area ripe for conspiracy theorists, actual oil industry engineers weigh in. Just like grown-ups. Imagine!

by sicasu

My comments: Just yesterday articles ran on the anniversary of the Exxon Valdez spill pointing out that Exxon still runs the same type of tanker today. If Exxon thinks that a fresh fleet of tankers won’t be have enough oil in future to carry to full amortization, then this makes a lot of financial sense for them, but not for us. In fairness to the oil companies, their supplies outside the developed world are more and more being controlled by governments, including China, their distribution and sales in the developed world are likely to be squeezed harder and harder by various carbon taxes and environmental rules, and the two great growth markets, China and India, are closed or government controlled. Yet they sell an absolutely essential product, one that will remain essential for decades. Perhaps just knowing it will all come to an end in their childrens’ lifetime is enough to deflate them a bit.

One point rarely covered in the economic press, but with almost daily comment on The Oil Drum, is the connection between the end of the petroleum economy (Peak Oil) and our current financial meltdown. Failure to plan our energy infrastructure worldwide is central to our current crisis. Later on we will be hit with the costs of global warming, and right now we have to spend immense sums to retool for more sustainable energy sources. The few billion allocated in Obama’s first budget is just a trickle of what’s to come.

If Reagan had not been elected to wipe out the nascent Carter-era sustainable energy subsidies, we in America might be 10 or 20 years ahead of our current situation. If Bush had not wasted eight years… but that’s all the past now.