Showing posts with label Hamilton. Show all posts
Showing posts with label Hamilton. Show all posts

Sunday, March 14, 2010

270 Billion Man Days per Day

That is the number of "man days of labor per day" that are offset by the consumption of 120 million barrels of oil and gas. 270 Billion man days per day.

Here are my calculations. How far can a fully loaded semi-trailer travel at 60 MPH on one barrel of oil? (42 gallons x 6 mpg = 252 miles) How much effort would it take to move that product (80,000 lbs) that distance without the benefit of energy. Lets suggest a man walking with 100 lbs of product @ 3 mph, it would take 800 such men 84 hours to move that weight that distance. That is total of 800 x 84 = 67,200 hours of energy equivalent labor. The world produces approximately 120 million barrels of oil and gas per day. 120 million x 67,200 = 8.064 trillion man hours and 1.008 trillion man days of physical labor offset each day. [Please note I am using the 18,000 (or 270 billion man days) man hours in these calculations as all energy use may not be as efficient as the semi-trailer example noted.] Kind of makes systemic risk and the potential of global warming, 50 years from now, look irrelevant.

Here is what we know. Prices for oil and gas have increased substantially in the past decade. These have fueled record activity, yet we still have an ability to produce only 85 million barrels of oil each day. I suggest we are organizationally constrained and are unable to achieve greater volumes of energy production. The bureaucracy can only run so fast.

We're fooling ourselves if we think we can get along without petroleum based energy or even a small decrease to what we use today. With China, India, Brazil and other countries joining the middle class, the future demand for energy will be significant. We need to solve this problem and that is what People, Ideas & Objects is focused on providing. Moving the organizational construct of the industry to the Joint Operating Committee. The legal, financial, operational decision making, cultural and communication frameworks of the global oil and gas industry.

Management are correct to have recognized this is not their problem. I say this with the greatest volume of sarcasm possible. Who's responsibility is it? To sit and do nothing about the scope of this issue shows a complete failure by those that are responsible. It won't take too much to get out of line in order for the collapse of society as we know and understand it today. If demand begins to develop, or supply becomes more challenged, rationing could precipitate the decline of our standard of living and force us to make choices that we should not have to make. All because the management didn't see that their product became so valuable to society. Maybe they are blind. We should start taking the names of the people that are willing to forgo their use of energy and hold them to it. Any rationing of energy is as logical and costly.

What is the future of this industry? Will it be the bureaucracies that are in power for another 100 years? Do we just let the world figure this one out on their own? Is there money to be made in this environment? It's time we began to take this opportunity and start providing the world with the potential for 2 trillion man days of effort, offset every day. What is our potential? And should we limit it so willingly?

People, Ideas & Objects proposes we build the systems to support the Joint Operating Committee. The design of these systems are detailed in this blog, the Preliminary Research Report, and Draft Specification. A design that moves the compliance and governance of the hierarchy to be in alignment with the five frameworks of the Joint Operating Committee. A design that enables innovation in the earth science and engineering disciplines to accelerate and meet the market demand for energy.

By saying things of this nature I risk alienating the status-quo. I say let them cut my budget. And it's no longer just me talking about this problem. In a blog post today, Professor James Hamilton is noting similar warnings. March 31, 2010 is the deadline for raising our 2010 operating budget. After which a variety of consequences, such as financial penalties and a loss of one years time will occur. Our appeal should be based on the 26 compelling reasons of how better the oil and gas industry and its operations could be handled. They may not be the right way to go, but we are committed to working with the various communities to discover and ensure the right ones are.

If your an enlightened producer, an oil and gas director, investor or shareholder, who would be interested in funding these software developments and communities, please follow our Funding Policies & Procedures, and our Hardware Policies & Procedures. If your a government that collects royalties from oil and gas producers, and are concerned about the accuracy of your royalty income, please review our Royalty Policies & Procedures and email me. And if your a potential user of this software, and possibly as a member of the Community of Independent Service Providers, please join us here.

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Sunday, October 11, 2009

James Hamilton on Exxon Production

I have highlighted the work of University of San Diego Professor James Hamilton on this blog before. He writes this weekend on the changing face of the oil and gas industry. Focusing on the difficulties Exxon has experienced this past decade in moving their daily production volumes higher. Exxon has stated on two occasions, 2001 and 2006 they will increase production 3% each year. Only to experience an overall small decline.

This is in many ways last weeks news and something that was known by most "in the know" in the industry as early as the mid 1990's. With the commodity pricing being so bullish in the past decade, it is reasonable to assume that all was done by all the producers to bring on as much production as was possible. Nonetheless the overall deliverability of the global industry has been somewhat stable at around 85 million barrels per day.

What I find interesting in Professor Hamilton's article, is the range of Exxon's risk profile. Spending $4 billion for a 25% interest in Ghana's offshore Jubilee oil field.

...it still seems to signal a change in philosophy for a company that has historically been extremely careful with its investments in order to maintain its position as a very low-cost producer.
It is suggested in the article that Exxon needs a price greater then $100.00 per barrel of oil in order to provide a return for that investment. I would suggest that the ways and means of managing this investment in Ghana is not any different then what a groups of start up producers would face in a low risk onshore play in North America. The Joint Operating Committee is the systemically global method of managing oil and gas assets.

Exxon did not spend $4 billion to have the "operator" take operational control of the property. They will influence what they want to see in the property and participate effectively through the Joint Operating Committee. A form of organization that SAP is not even aware it exists! The members of the JOC are able to pursue their own independent strategies as to what they want and need from the property. The conflict and contradictions only arise when Exxon Mobil should attempt to apply a global corporate compromised strategy. These corporate compromises are unable to extract the value that properties like the Jubilee oil field provides. Each JOC needs to be managed in the best interests of the property. A critical change to the way things need to be done in oil and gas today.

Corporate strategies can be developed on what is done with the value of the proceeds from the Jubilee field, and that is where the large International Oil Companies (IOC's) and the start up producer may differ. I recall my many days when I was auditing Imperial Oil the Canadian arm of Exxon. I was reviewing the firms gas royalty operations on behalf of my client the Alberta Government. This was between the years 1988 to 1994 and I accumulated the knowledge of how the firm was designed.

It was brilliant and awe inspiring. The times were different then today, the commodity prices and oversupply of the market were the two overriding concerns. Looking at how the firm extracted value from each property, granted under a standard corporate strategy, and used their "might" to make the operation the most impressive accumulation of assets that I had ever, and still had the opportunity to see.

What I am suggesting is that today Imperial would need to be run in a different manner. A manner where each property is designed to maximize the return and minimize the risk of each individual property. You can not do that with the bureaucracies that are in play, and the software they use, such as SAP. 

Whether a producer is a local startup or ExxonMobil I don't think makes a difference. The innovative oil and gas producer, the National Oil Company (NOC), or IOC will need to make these changes to this fundamentally different oil and gas marketplace. The world is in a deep recession, except for oil and gas. The pricing has never been better and the upside more dramatic to those producers that can innovatively use their earth science and engineering capabilities against their asset bases. With demand for energy from China and India, the future of the industry looks to be the best it ever has. I would challenge the thinking that SAP, conceived in the 1970's, and bureaucracies, conceived of in GM by Alfred Sloan in the very earliest part of the 20th Century, is the solution to the industries needs today.

As I am one to suggest, you should never expect a mouse to run like a horse, do not expect a bureaucracy and SAP to meet the challenges of this industry on a go forward basis. Please join me here.

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Sunday, April 05, 2009

Professor James Hamilton on energy.

Professor James Hamilton writes the popular and often cited weblog www.econombrowser.com. (Click on the title to download this paper.) I have highlighted many of his writing in the left hand column of this blog, his writing is clear, comprehensive and based on fact. Through the Brookings Institute he has published a paper entitled "Causes and Consequences of the Oil Shock 2007 - 2008". The abstract to this paper reads;

This paper explores similarities and differences between the run-up of oil prices in 2007-08 and earlier oil price shocks, looking at what caused the price increase and what effects it had on the economy. Whereas historical oil price shocks were primarily caused by physical disruptions of supply, the price run-up of 2007-08 was caused by strong demand confronting stagnating world production. Although the causes were different, the consequences for the economy appear to have been very similar to those observed in earlier episodes, with significant effects on overall consumption spending and purchases of domestic automobiles in particular. In the absence of those declines, it is unlikely that we would have characterized the period 2007:Q4 to 2008:Q3 as one of economic recession for the U.S. The experience of 2007-08 should thus be added to the list of recessions to which oil prices appear to have made a material contribution.
I recommend people download and review the comprehensive nature of this paper. This is an individual who, with tenure at the University of San Diego, and an impressive global following has nothing to gain or lose by saying what is said. This is the first paper that I have seen that confirms the concern that all should have with respect to our energy demands.

We see the political leadership continue down the road to energy alternatives. I would expect these moves will be short lived as the reality of their stupidity begins to show. If they are truly concerned about the CO2 that oil and gas production and consumption produce. What will their move to electric cars with lead acid or lithium batteries recharged by electricity generated by coal do. A little rational thinking from alarmist politicians would show them the demise of the landfill and the far more polluting coal. 

The solution to these problems does not involve a car. To move away from internal combustion engines to electrical can never happen. The costs would be formidable. Transportation should have a priority on the oil and gas resources. People, should begin skipping the 9 to 5 commute, and keep short trips to the Segway. People, Ideas & Objects are a big part of how these problems can be approached.
A key finding of Professor Hamilton's includes:
The most important principle for understanding short-run changes in the price of oil is the fact that income rather than price is the key determinant of the quantity demanded. p. 1
In a related item Bloomburg is reporting that many of the difficulties the major producers are having in increasing their production profiles. It sounds to me they need a new more innovative organizational construct supported by a capability based software developer. Please join me here.

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