Natural Gas Ain't Cheap...

One refrain I have been hearing a lot over the last few years is that natural gas is really cheap right now, and this will lead to some sort of economic bonanza. This would be nice, if the premise was true. Now, natural gas is certainly cheaper than it was in the aughts, but how does it compare historically? The EIA publishes all sorts of data on natural gas production and prices, but unfortunately does not have an inflation adjusted series, which is more relevant from a policy perspective. I have gone about constructing one, so that we can compare today's prices with those in the past.

I've chose to use the EIA's wellhead price, which was its longest running series until it was discontinued at the end of 2012. The prices in red are estimated from the city gate price, using a linear extrapolation based on the overlapping city gate and wellhead data from 2010-2012 using the regression formula

WH = (CG-2.9053)/0.7031

As you can see, wellhead natural gas is not unusually cheap. While it did very briefly touch historic lows near the beginning of 2012, it's average price over the last year of around $3.60 per tcf is similar to or higher than the real prices of natural gas in the late seventies and the period from 1985-2000.

But what about before the mid-seventies, you ask? Well, fortunately the EIA has less granular historical data going back to the 1920s! Again, I had to do the inflation adjustment myself, so here is their data in 2014 dollars.

  

Well I'll be. Natural gas was lot cheaper from the 1920's through the mid 1970's than it is today! Who would have guessed?

So no, natural gas is not cheap right now, nor does the futures market predict it ever will be again. It is highly unlikely we will ever return to the real price levels of the middle of the last century, or even to the somewhat elevated but still tolerable prices of the mid 80s and 90s. Instead, we will be faced with high prices in good years and insane prices in the rest. You'd better be ready for it.

 

The Trouble with Game of Thrones, Season 5 (In One Chart)

Very light spoilers ahead....

The directors of Game of Thrones have said many times they were looking forward to Season 4, and dreading Season 5. Here is why.

By my count, there are currently nine plots running in the series, a "plot" being defined as a cluster of characters in a single location. The three major ones are the King's Landing / Lannister plot, the Jon / Wall plot, and the Daenerys / Slaver's Bay plot. Six smaller plots (Stannis and Company, Sansa/Littlefinger, Arya/Hound, Bran and Company, Brienne/Pod, and Ramsey/Theon/Yarra) round out the story. To film the series, the directors tend to focus on one of the three "main" plots each episode, filled with smaller scenes from some of the minor plots or the other two main plots.

As you can see, though, this breaks down in Season 5. If the books are followed, not only are two new significant plots born, but one of the main three splits into three and births another, one splits in two, and the other combines with an existing minor plot and then proceeds to split into five separate lines. At peak levels, there are many as seventeen separate plots going on simultaneously. Two of these do combine towards the end of book A Dance with Dragons (Book 5), and it is clear that many are converging early in Winds of Winter (Book 6), but as it stands, even with some significant pruning of characters and plots, there are some serious challenges to filming Season 5, as so many characters get divided and scattered to the winds. It will be interesting to see how the directors handle this challenge.

Note that this near-doubling of the plot lines is what underlies most of the criticism of the books A Feast for Crows and A Dance with Dragons. With that many threads going on at once, the pace of the overall plot seemed to slow down considerably.

PS: I'll give a small prize to the first person who can correctly decipher my graph!

Land of The Free, Baby, Yeah (IRS Edition)

A few weeks ago, I wrote a post comparing the Japanese immigration system to America's USCIS. Today, it is the IRS that is in my sights. My accountants just provided me with my US returns for 2013, and for the second year in a row (and completely predictably), the accountants cost more than my entire US tax burden.

How did things break down this year? My US returns were 70 pages long this year, beating out last year's 63 pages. In both years, the US collected a whopping 0.3% of my income*, a tiny tax liability I incurred either by traveling to the US on business or having some small US-source income streams that Japan didn't tax.

In contrast, my Japanese returns for the two years were 6 and 8 pages respectively, including things like cover letters. The actual returns are about as long as a 1040-EZ. The Japanese, of course, actually captured the lion's share of the taxes, around 17% of my income in both years. So just like in the immigration systems, Japan again wins hands-down in terms of simplicity and ease of complying with its laws. There is nothing like living in a true Land of the Free, rather than a false one.

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*Note that payroll taxes are an entirely separate issue. I am only talking about income taxes. Fundamentally, I have a choice where to pay payroll tax, and I deliberately choose the US and participate in that system.

Bicycle Helmet Laws

An interesting article appeared on Vox today and was followed up on Treehugger. The basic argument, which I find compelling, is that mandatory bicycle helmet laws do more harm than good, despite the rather obvious fact that helmets do indeed reduce injuries in the event of an accident. There are several major reasons for this

1: Automobile drivers have been shown to be more aggressive around cyclists with helmets (and interestingly, males) than those without helmets. This increases risks for the cyclists and partially offsets the benefit of wearing the helmet.

2: Mandatory helmet laws significantly decrease bicycle ridership. This has two negative effects

   2A: Cycling is a very healthy activity. Fewer cyclists implies more heart disease, diabetes, etc
   2B: Fewer cyclists on the road increases the risk for those who remain due to some combination of inferior infrastructure and lack of attention by automobile drivers, who are not used to looking for cyclists in areas with low ridership

The combination of 1 and 2B leads to the somewhat counter-intuitive result that while helmets have been clearly shown to be effective in preventing injury, mandating them does not reduce the injury rate on the population level. Add in the costs associated with 2A, and these laws actually appear to be a net negative for the public. It is generally my opinion (one that I hope most people share) that the government should only restrict peoples' freedom when there is a compelling case to do so. I just don't see how you can make a compelling case here, as it appears the non-cycling portion of the public is actually worse off, not better off, due to these laws.

One other point in the article that I found interesting was the similarity in injury rates per hour for walking, cycling, and driving. It's actually rather hard to defend a cycling helmet law without implying that pedestrians and drivers should have to wear helmets as well. Can you really imagine demanding drivers where helmets in the car, or pedestrians don them before crossing the street?

 A typical Japanese bicycle ride

Why Illegal Immigrants Ignore the Law

I just received my third 3-year work visa for Japan. My Japanese wife has a permanent residency in the USA. Here is a breakdown of the costs of my three visas vs her green card:

Item	My three Japanese work visas (combined)	Wife’s green card
Dollar cost (1)	$325	$16,000
Hours spent (2)	30	200
Days taken off work	1.5	30
Processing time	8 days (renewal) or 3 weeks (initial)	3-5 months (visa) or 6-12 months (green card)
Pages of documentation	20	400
Forced unemployment (3)	0	4 months
TSA-style security screenings	2	15
Very thorough health screenings	0	1
Forced international trips	0	5
Immigration office visits	Any office, any time within a broad range	Time and place mandated by USCIS
Immigration officer behavior	“Welcome back” – in English	Hostile questioning about technical immigration details – in English
Senatorial interventions(4)	0	1
Times anyone was reduced to tears upon (re)entry	0	1

Why do immigrants flout our rules? Because our rules are utterly ridiculous. This, and not "security porkulus in exchange for amnesty" should be what our immigration debate is about.


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1: Total dollars or yen spent by myself, my wife or my employer on application fees, medical or biometrics screenings, documentation, legal fees, and travel
2: Total time spent by myself, my wife, or my employer's staff
3: This results from the time gap between arrival in the US and receipt of a work permit that all family-based immigrants must endure, unless they have a work permit for independent reasons
4: Thank you, Senator Brown of Ohio and staff, for making this process "easier" than it otherwise would have been

Some Quick Thoughts on Geoengineering

Just some quick thoughts on geoengineering, the idea of mitigating climb change not by reducing our emissions, but by some less direct method such as recapturing it somehow or blocking sunlight to mitigate the warming. Topics are generally discussed in my order of preference.

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1: Cloud seeding: The basic idea here is that clouds reflect sunlight more than land or water, thus cooling the earth. The reason I like this concept in principle is that if we had sufficient know how, we could do this in a way that mitigated droughts or other unwanted precipitation evens as well as cooled the climate. Though it would likely be expensive, it would generally be better than benign and could have a significant impact on global warming.

2: Ocean fertilization: The idea here is that much of the ocean is essentially a dead-zone due to a lack of iron in the water, which is necessary for life. Iron salt solutions would be attached to ships (probably already going about other business) and poured into the water in strategic places. This spawns plankton blooms (confirmed) which then presumably works up the food chain and ultimately sequesters carbon. Unfortunately, any carbon sequestration appears to be small and speculative, but on the other hand, if done well, we could use this to increase the biological capacity of the oceans, both increasing the amount we could harvest AND increasing the amount of life in the ocean. There is modest promise in this idea that  is stupendously cheap, and it should be pursued.

3: Biochar: The basic idea here is to char plant material and use it as a soil amendment. Generally the idea is pretty sound and I don't see a whole bunch of downsides other than economic issues and a limited capacity, if managed properly.

4: Space mirrors: I divide these into two types - dumb mirrors whose only object is to block light, and smart ones which have good control over when and where the light is delivered. The first is possible with current technology but expensive. The latter is beyond us for the foreseeable future. Dumb mirrors, like any light-blocking scheme, have a huge downside - less light causes less photosynthesis, which means less life and lower crop yields. Also, it has no effect on ocean acidification and could disrupt ocean and weather patterns we rely on. To use any uncontrolled light-blocking scheme is an act of desperation. Controlled light blocking with smart mirrors, however, is something I have a hard time imagining our distant descendants not doing. Imagine moving light from the equator to the northern latitudes, making the former cooler and the later inhabitable. Imagine, using cloud seeding and the smart mirrors, turning Antarctica into an even huger block of ultra-cold ice, in order to offset rising oceans. Imagine using the smart mirrors to manipulate local weather patterns in order to ward off extremes. This is all possible in principle, but is not really relevant to solving climate change because it is still something that is far beyond our technological capabilities.

5: Light management with sulfates: This is basically the poor-man's version of dumb mirrors. It's cheap, but now you are making the air even filthier. Also, there is no meaningful method of controlling where the sulfate blocks light, so the technique cannot really evolve or improve towards being smart, as mirrors could.

6: Clean coal / carbon sequestration: Mostly a political farce. It's technically possible, but too expensive, and the sequestration is almost impossible to guarantee over long time frames. A limited amount of CO2 is and will be pumped underground in order to force out gas and oil, but the amount of demand here is trivial and by using the CO2 to extract fossil fuels, it makes the problem worse, not better. In the end, it is just thermodynamics. A coal plant would have to use a quarter of its output (at minimum in theory...in practice even more) just to compress the CO2 and put it back underground. Unless there is a pre-existing demand for CO2 nearby, which is rare, there is simply no way that this process will make financial sense vs wind, solar, or just about anything else. Also, since the plant would have to burn extra coal in order to compress and pump the CO2, it would release that much more soot, SOx, NOx, PAH's, particulates, heavy metals and all the other junk that continually comes out the smokestacks. 

Missing the Tree for the Forest

I'll share another photo I took today, of one of the more amazing trees I can ever recall seeing. It's an old Japanese cedar tree (sugi, or Cryptomeria).

On the right is the main trunk, about seven feet in diameter. On the left is what appears to be a second tree, growing out of the branch of the main tree. Broken roots can clearly be seen hanging down from the daughter tree. I've never seen something like this, and am at a loss to explain it, as sugi do not sucker and even if they did, some really bizarre landslide would be required to suspend a tree over a twenty-foot cliff.

What was disappointing to me, however, was that as I sat there and ate my lunch exactly from the vantage point of that picture, around two hundred Japanese passed me by in their way up or down the mountain. Not one noticed this. Instead, they were all looking at some tiny little natural spring off to the left of the picture. Why? Because there was a sign there that gave a name to the spring, and if there is a sign, it must be important. No one bothered to look up and see what really matters.