energy


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A NEW commodity spawns a lucrative, fast-growing industry, prompting antitrust regulators to step in to restrain those who control its flow. A century ago, the resource in question was oil. Now similar concerns are being raised by the giants that deal in data, the oil of the digital era. These titans—Alphabet (Google’s parent company), Amazon, Apple, Facebook and Microsoft—look unstoppable. They are the five most valuable listed firms in the world. Their profits are surging: they collectively racked up over $25bn in net profit in the first quarter of 2017. Amazon captures half of all dollars spent online in America. Google and Facebook accounted for almost all the revenue growth in digital advertising in America last year.

Such dominance has prompted calls for the tech giants to be broken up, as Standard Oil was in the early 20th century. This newspaper has argued against such drastic action in the past. Size alone is not a crime. The giants’ success has benefited consumers. Few want to live without Google’s search engine, Amazon’s one-day delivery or Facebook’s newsfeed. Nor do these firms raise the alarm when standard antitrust tests are applied. Far from gouging consumers, many of their services are free (users pay, in effect, by handing over yet more data). Take account of offline rivals, and their market shares look less worrying. And the emergence of upstarts like Snapchat suggests that new entrants can still make waves.

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But there is cause for concern. Internet companies’ control of data gives them enormous power. Old ways of thinking about competition, devised in the era of oil, look outdated in what has come to be called the “data economy” (see Briefing). A new approach is needed.

Quantity has a quality all its own

What has changed? Smartphones and the internet have made data abundant, ubiquitous and far more valuable. Whether you are going for a run, watching TV or even just sitting in traffic, virtually every activity creates a digital trace—more raw material for the data distilleries. As devices from watches to cars connect to the internet, the volume is increasing: some estimate that a self-driving car will generate 100 gigabytes per second. Meanwhile, artificial-intelligence (AI) techniques such as machine learning extract more value from data. Algorithms can predict when a customer is ready to buy, a jet-engine needs servicing or a person is at risk of a disease. Industrial giants such as GE and Siemens now sell themselves as data firms.

This abundance of data changes the nature of competition. Technology giants have always benefited from network effects: the more users Facebook signs up, the more attractive signing up becomes for others. With data there are extra network effects. By collecting more data, a firm has more scope to improve its products, which attracts more users, generating even more data, and so on. The more data Tesla gathers from its self-driving cars, the better it can make them at driving themselves—part of the reason the firm, which sold only 25,000 cars in the first quarter, is now worth more than GM, which sold 2.3m. Vast pools of data can thus act as protective moats.

Access to data also protects companies from rivals in another way. The case for being sanguine about competition in the tech industry rests on the potential for incumbents to be blindsided by a startup in a garage or an unexpected technological shift. But both are less likely in the data age. The giants’ surveillance systems span the entire economy: Google can see what people search for, Facebook what they share, Amazon what they buy. They own app stores and operating systems, and rent out computing power to startups. They have a “God’s eye view” of activities in their own markets and beyond. They can see when a new product or service gains traction, allowing them to copy it or simply buy the upstart before it becomes too great a threat. Many think Facebook’s $22bn purchase in 2014 of WhatsApp, a messaging app with fewer than 60 employees, falls into this category of “shoot-out acquisitions” that eliminate potential rivals. By providing barriers to entry and early-warning systems, data can stifle competition.

Who ya gonna call, trustbusters?

The nature of data makes the antitrust remedies of the past less useful. Breaking up a firm like Google into five Googlets would not stop network effects from reasserting themselves: in time, one of them would become dominant again. A radical rethink is required—and as the outlines of a new approach start to become apparent, two ideas stand out.

The first is that antitrust authorities need to move from the industrial era into the 21st century. When considering a merger, for example, they have traditionally used size to determine when to intervene. They now need to take into account the extent of firms’ data assets when assessing the impact of deals. The purchase price could also be a signal that an incumbent is buying a nascent threat. On these measures, Facebook’s willingness to pay so much for WhatsApp, which had no revenue to speak of, would have raised red flags. Trustbusters must also become more data-savvy in their analysis of market dynamics, for example by using simulations to hunt for algorithms colluding over prices or to determine how best to promote competition (see Free exchange).

The second principle is to loosen the grip that providers of online services have over data and give more control to those who supply them. More transparency would help: companies could be forced to reveal to consumers what information they hold and how much money they make from it. Governments could encourage the emergence of new services by opening up more of their own data vaults or managing crucial parts of the data economy as public infrastructure, as India does with its digital-identity system, Aadhaar. They could also mandate the sharing of certain kinds of data, with users’ consent—an approach Europe is taking in financial services by requiring banks to make customers’ data accessible to third parties.

Rebooting antitrust for the information age will not be easy. It will entail new risks: more data sharing, for instance, could threaten privacy. But if governments don’t want a data economy dominated by a few giants, they will need to act soon.

The chart tells the story. The problem clearly is that oil, once the plentiful cheap provider of energy and of course the million other uses that it has, has reached the point of where the costs are prohibitive to production, or very close too it.

The US is now sitting on a massive supply of natural gas, in addition to a mountain of coal. The generation of power needs to be switched to gas, away from oil. Less demand, lower prices. The result will allow oil to be used in other areas at a lower price. Electric cars, filled up with electricity generated by natural gas.

Productivity and the natural rate of interest need to rise if there is to be any chance of reducing through payment of the now unmanageable debt loads. If productivity does not rise, and the natural rate of interest with it, vast quantities of capital [debt] will be destroyed in default. America and the world are no longer rich enough to simply default and maintain the standard of living currently enjoyed.

The world faces a long-term uranium shortage as China and India build new nuclear plants, and major buying opportunities may emerge for shares of some beaten-down uranium producers.

Uranium prices have seen the largest drop in two years following the Japanese nuclear disaster and Germany’s decision to phase out its nuclear plants, both of which hit uranium prices hard. This has hammered the stocks of the leading uranium producers, but the longer-term fundamental and technical outlook suggests a major buying opportunity may lie ahead.

Germany depends on nuclear power for 23% of its needs, and with Japan considering cutting back on its nuclear expansion plans, the entire industry has been in retreat. Though Japan is the third-largest nuclear power producer after the US and France, it’s important to take a much more global look at the prospects for nuclear power.

Well I’ve held a uranium position for a little while, currently I’m up about 13% on the position. Buy on the cannons as they say. The above article is from Forbes, but the Economist has been running similar articles. While nuclear will probably remain feared and generally unpopular, there are many new power stations being built, particularly in China, thus the demand for uranium will rise, as will its price.

Economic growth. The panacea. For Western economies, the mature economies, carrying far too much debt, economic growth is required to lift them past the major problems brewing and soon coming to the boil.

Energy fuels productivity from capital investment. Coal fueled the industrial revolution, providing abundant, and therefore a cheap energy source to England, which in the the early 1800’s was burning in coal, the equivalent of 15M acres of wood per year. From coal, the world moved to oil. Oil has been the stalwart since the early 1900’s.

Energy, cheap energy, is what provides capital with it’s amazing productivity. With the advent of electricity, powered by power stations, fueled with coal, oil, the genie was out of the bottle. Oil of course fueled transport, which further enhanced the division of labour, and added further wealth.

Currently it’s not so much that oil is running out, although that will at some point be an issue: it is that the cost in energy, of extracting the oil is rising. The key ratio is: Energy Return/Energy Invested. In the 1930’s this was circa 100:1 in the 1970’s 30:1 currently, calculations put it somewhere around 16:1 If the world were a giant corporation, running financial statements, an analysis would disclose that the return on capital is falling. Productivity is falling. Growth is falling. This, when combined with the negative demographics and crippling liabilities incurred via the Socialist dream, has placed the world in a tricky position.

Biofuels have been an area of research. Until yesterday I held BIOF, an ethanol producer, that essentially was a bad play. Biofuels however have a potentially brighter future than this failure might indicate. Forget ethanol, the BIOF product, ethanol is a technology that is going nowhere. Rather, consider “Drop In Fuels” Drop-in-fuels are hydrocarbons grown by bacteria, fed on sugar. Drop-in-fuels can critically fuel jets. Ethanol never could be used for Jet fuel, and electric motors could never power jets: the world can’t and won’t need to give up jets.

The electric car has every possibility of actually taking off this time round. If they do, they still need the power to be supplied from electric generation powered from, drop-in-fuels. So either way, drop-in-fuels have a market, either to fuel cars running petrol/diesel motors, or running power stations to generate the electricity. Jets will be reliant on jet-fuel manufactured in this manner.

The US may, or may not, after the nuclear disaster in Japan, proceed with nuclear reactors on mainland US sites. Even if they do, there will be room enough for drop-in-fuel generators to provide electricity for business and domestic demand. The key is that energy has to become, as it was in the early 1900’s, cheap, abundant and [relatively] clean. The US also wants energy independence. The Arabs and Middle East debacles, military bases, can all be mitigated, pulling away from Imperialistic US foreign policy.

So who makes it, does it actually work, and more importantly, is there a stock that I can speculate in?

Dr Shaw is your man. Based in Redwood City California, Alan Shaw is the boss of Codexis which makes specialised enzymes that perform the chemical conversions. Who backs him? Shell and Cosan. Shell needs no introduction. Cosan is Brazil’s third largest sugar producer. Together, they are going to scale-up: building a factory that can produce 2.5M barrels.

The stock trades on the NASDAQ as ticker CDXS