Wednesday, August 06, 2008


Henry Ford changed your life and mine when he came up with the simple idea of standardized auto parts in 1908. Prior to 1908, cars were built one at a time. In 1914, Ford changed the world again, when he invented the assembly line. Suddenly, cars were affordable to the middle class.

For almost 60 years, nuclear power plants have been built one at a time. The ones built 50 plus years ago are analogous to the internal combustion engines built by Pietro Benini in and after 1856. Benini's best engine was able to produce 5 horse power, but he could not have succeeded without standing on the shoulders of many smart people. The invention of the crankshaft, by Al-Jazari around 1240, the use of gunpowder, by Samuel Morland, around 1670, to produce a "vacuum engine" and the "invention of the first working internal combustion engine" by Barsanti and Maatteucci in 1854 were among the many who were necessary to Benini's success.

It was 54 years between the first internal combustion engine and the mass production of them. In hind sight, it is surprising that the standardization of nuclear power has taken about the same amount of time. China has 100 of the Westinghouse Pebble Bed nuclear reactors on order. To speed the construction, a factory has been set up to build the nuclear plant housings on an assembly line. Construction time will be reduced from 4 years to 2. The wholesale cost of nuclear energy produced should quickly fall from 4 cents to 2 cents and, after the kinks are worked out, to 1.5 cents per kilowatt. (A hat tip to Next Big Future).

At such prices, it is economical to use electrolysis to make hydrogen. Such prices are more economical than deep water oil wells; more economical than clean coal; the equivalent of oil at about $25 per barrel. Who needs oil? Who needs $25 oil (the price it will reach if nuclear is substituted until marginal costs are reconciled).


It was an oil sheik who once famously said that the stone age did not end because the world ran out of stones. Swords are still made but not nearly as many. They proved to be present no challenge to automatic guns. The world will never run out of oil for two reasons. One is because it is still being constantly manufactured deep in the bowels of the earth and two because low cost substitutes will be found. The day will come when drilling for oil will be an uneconomical proposition, not because the cost is so high but because the costs of substitutes are so low. We do not make our housing walls out of wood because we ran out of trees but because sheet rock (gypsum) is abundant and cheap.


Last week, a settlement was reached between the USA and Libya in regard to past terrorist attacks sponsored by Libya. The total owed by Libya was about a billion less than some had projected. This week, Kadhafi has joined the rest of the world in trying to convince Amadenijhad to negotiate a peace treaty with the UN. One must wonder if the deal did not include a "buy out of loyalty". A week or two ago, I wrote about how Iran has the backing of only a few "friends". In the Israeli -- Syria negotiations, Syria has been asked to "back away" from its support of Iran. The three remaining "powers" on Iran's side were Libya, Venezuela and Cuba . Yesterday, Kadhafi said that Iran was being "arrogant" and Iran's leaders had better watch out or they will be "militarily humiliated" by the USA. Kadhafi compared the former military strength of Iraq to Iran in order to point out that Iran stands no chance in a war with the USA.

The interesting "shuttle diplomacy" taking place now is between Assad of Syria, Erdogan of Turkey and Amadenijhad of Iran. The three are visiting one another as they try to work out an "alternative track". Never-the-less, the 5+1 will hold a teleconference today to discuss what the next round of sanctions will include. Among the things Iran would very much like to import, civilian airplane parts. My brother wants to know why these sanctions will work when others have failed so badly. The difference is that almost every country is on board. Country after country has been shown that it is in their own economic interest to abide by the sanctions and the new and improved US intelligence has been quick to catch cheaters. The meanest bully in the school yard gets away with much until the crowd unites against him or until the information is sent to his parents.


Obama continues to imply that he would be able sit down to talk with Amadenijhad, make friends and talk him out of nuclear fission. Obama must have missed the negotiation class at Harvard. One should always negotiate from strength. One does not run off to fight Afghanistan when the key to peace in the Middle East is Iran. It does not matter if the US is willing to go to war to stop Iran from acquiring nuclear weapons or not, the US must maintain its airbases in Iraq until a deal with Iran can be reached. It takes both carrots and sticks to turn a country around. The US is now selling sophisticated arms to Iraq. If there is another Iraq-Iran war, Iraq should have the upper hand. Libya did not turn until after Ronald Reagan dropped a laser guided bomb in Kadhafi's bedroom. Iran is a tougher nut than Libya so it must at least appear that the US is waiting to decide if Iran is next in line after Libya, Afghanistan and Iraq.

After the US invaded Iraq in 2003, Iran suspended its refinement of uranium for more than a year. When agreement could not be reached on a "package peace agreement", Iran restarted the centrifuges. It has not been the UN/USA goal to get just one country to stop supporting terror but for all countries to stop. A couple of days ago, a regional leader of al-Qaeda was barely missed by a missile strike in Kenya. Yesterday, al-Qaeda took credit for a huge truck bomb explosion in Algiers. Sending our soldiers into 1,000 foot deep caves throughout the mountains of Pakistan to kill Osam bin Laden will not stop terrorism. An agreement with Iran will go a very long way.


Developed countries, do not rely on one resource for their livelihood. Countries that become wealthy due to the discovery of resources tend to suffer from the "disease of plenty" or "Dutch disease". Sufferers feel no need to build industry or to work when they can pump a few more barrels instead. Nuclear power represents a major threat to an oil rich nation. Nuclear power at 2 cents per kilowatt makes oil obsolete. It behooves the oil rich to invest in nuclear. On the other hand, it makes no sense for every country to have the capacity to build nuclear bombs. The Global Nuclear Energy Partnership has been developing as the way to achieve the efficiency sought by Henry Ford and the security sought by all.

A few large scale refineries will dramatically lower the cost of energy to the world. Standardizing the process will include the elimination of almost all waste fuel. There will be no long term storage problem. Indeed, all the waste fuel currently stored will be valued as new fuel for certain types of reactors. Over the past 5 years, many tons of bomb warhead plutonium have been burned in US reactors. Convincing India, Pakistan, Russia or the USA to destroy all of our bombs is not likely but we should go the extra mile to discourage other nations from building bombs.

Israel, which has taken out nuclear sites in Iraq and Syria, is capable of taking out the sites in Iran. Bush, Obama and McCain are all on record for doing "what it takes" to prevent Iran from building nuclear bombs. I strongly believe a settlement will be reached. Peaceful nuclear technology is available to all nations. The countries that do not adopt nuclear power at below 4 cents per kilowatt will be at a competitive disadvantage. The real threat to wealth in the Middle East is low cost nuclear power.

McCain correctly says that we should drill now as a bridge to low cost alternative fuels. One of Nancy's reasons not to drill is because the discovered oil might be sold to China. The good news is that the 36 nuclear plants already under construction in the rest of the world are going to impact the price Americans have to pay for oil and for manufactured products. The bad news is that it will take 10 years before the nuclear reactors are being turned out at the rate of 2 per week.


By the way, nuclear power is not the only industry in the middle of a paradigm shift. The world of computing is undergoing a major restructuring. AT&T has joined the list of companies which offer cloud computing services, similar to those offered by Amazon. Historically, corporations have built large data centers to more than satisfy peak loads. The rest of the time, these data centers are underutilized. Billions of dollars worth of computers sit idle much of the time.

One of the ways the new clouds dramatically lower total costs is by dramatically lowering down time. Google is in the process of cost accounting its cloud services. To offer the lowest possible price, it needs to know what it cost to transfer whole systems from one data center to the next. This is where the power of the cloud shows its stuff. If a Google data center is over burdened or if it should go down, work can be shifted to the other side of the globe where users sleep. By fully determining the cost of all operations, Google will be in the position of offering huge savings to thousands of businesses. Another way clouds lower cost is through lower energy costs. Google has helped bring about lower costs servers and Google negotiates for extra low cost electricity. The costs per transaction at Google are cheap but a privately held secret.

The summary to all of the above is that costs are falling here and there and everywhere. As China cranks up 2 cent power, the cost of imported goods from China will fall again. The days of lower prices at Wal-Mart will continue for years to come. Lower costs tend to show up as profits first and lower cost of living next. Bright days are ahead. Sure a lot of people are stuck with a truck right now. They own a vehicle worth a small fraction of what they paid, it is obsolete. Consumers have stopped buying gas guzzling trucks, yet another paradigm shift. It will take 50 years before oil is obsolete but during that time, the average person will spend a lower and lower percentage of his income on food and energy (it takes large amounts of energy to grow food). During these years, those who take advantage of falling inflation will become very wealthy indeed.