Northern Gas Pipeline Sept 2016

The interconnecting gas pipeline between Tennant Creek and Mt. Isa will be a game changer for the Australian gas market and will support the growing globalization of the LNG market.
It will support the balancing of wet gas from the west with dry gas from the east for both physical and derivative trade in Australia.
The pipeline will also be a source of ethane to supply Sydney when the Cooper basin dries up (now 75% depleted [1] ).
There is also the option of gas going the other way if NSW’s CSG ever begins to flow from the Sydney, Gloucester, and Gunnedah basins in a big way. There would be liquefication trains at Darwin and Gladstone, and maybe Sydney, to choose from for LNG exports.
The “coal” in the coal seams, once depleted of CSG, can be pyrolytically burnt underground to produce syngas – mixture of methane and hydrogen. A small amount of hydrogen gas, useful in renewable electricity systems, can also flow in pipelines.
A slower “bio” / “eco” option is to pump CO2 into depleted coal seams and create conditions for microbes turn it into methane.
After that the only pipeline needed for a fully pan-Australian market would be an inter-connector between Alice Springs and the Telfer Pipeline near Port Hedland, or “Canning Basin Pipeline”. Australia would then command the Pacific and Indian Ocean basins and the Japan/Korea/China markets to the north.
A pan -Australian gas market supports Australian LNG pricing as the international benchmark.
As a small amount of CO2 is allowed in pipelines, it opens up the idea of a pan -Australian physical carbon trading market that includes selective sequestration in depleted fields.

1. Australian Energy Resource Assessment 2014

(This was originally submitted for the Nuclear Fuel Cycle Royal Commission, South Australia on 31 July 2015 and published at http://nuclearrc.sa.gov.au/app/uploads/2016/03/Luke-Gale-31-07-2015.pdf)

July 2015

Luke Gale B.Sc. (U.N.S.W.)

This submission addresses issues contained in Issues Papers Two and Three.

Australia is currently considering the future of submarines and an expansion of nuclear fuel cycles. Nuclear power and submarines are two of the most mutually complimentary technologies. Such submarines can stay deep under water for months or even years and are one of the most stealthily assets a country can have. These subs are vital to protect Australia’s fisheries and LNG industry which will be the envy of the world in the centuries ahead. They are also good for Australia’s security generally. Diesel powered subs have to be at the surface for most of the time because they need atmospheric oxygen to burn the diesel. In an age of commercial satellite imagery this makes them almost pointless. Refueling vessels at sea perhaps more obvious. Any new diesel powered subs, wherever built, will be poor value for money.

Australia, India, and the USA have ca. 50% of the world’s high grade thorium deposits. Again, Australia is the lucky country with 18% of world resources with the best deposits co-located with valuable mineral sand deposits (ref 1) where mines are already operating for other commodities (see map, ref 2). China and the USA also have stockpiles of thorium. Complaints from American companies would say that thorium is currently considered almost a waste product from the rare earths industry with little global demand that amounts to a few tonnes per year for non-nuclear purposes. It is thought that if this thorium had a value as an energy metal then rare earth mines outside China would be more profitable. This might then, in turn, make rare earths more available for the high-tech renewable industries and demote the influence of China’s hold on rare earths. Compare the effect of America’s shale oil with Saudi Arabia’s previous hold on oil.

Natural thorium is essentially isotopically pure 232Th. It doesn’t need enrichment and all ore bodies will result fungible cargoes. It has a half-life of 14 billion years. Thorium oxide is stable if stored in drums under dry conditions. Thorium nitrate is another stable compound that can be warehoused for years. Thorium tetrafluoride is used in the reactor. Fuel fabrication depends on reactor design. Liquid salt designs dominate for their simplicity and safety. They achieve high temperatures at atmospheric pressure and have a plug at the bottom of the reactor that melts in the event that the reactor overheats, meaning no backup power required such as Fukushima.

The chemical toxicity of thorium is low because thorium and its most common compounds (mostly the dioxide) are poorly soluble in water (ref 3).

Historically thorium was overlooked after WWII because the cycle only produces very small quantities of weaponisable isotopes that are difficult and expensive to process (refine) compared to uranium/plutonium cycles. An experimental thorium reactor was operational in America from 1964 to 1969 and the whole idea abandoned in 1973. They had a huge stockpile of nuclear weapons (from uranium/plutonium cycles)at this time as did the Russians. Times have changed.

Burning thorium as a nuclear fuel results in 50% less waste that is 90% less toxic than uranium/plutonium fuel cycles and is safe in 200-300 years of storage. As said thorium fuel cycles are highly resistant to producing isotopes of uranium and plutonium that can be used for weaponisation. Therefore it has political advantage over uranium. Does Australia really want to expand the business of refining weaponisable isotopes of uranium? Australia has been wise to be cautious about nuclear energy. We’re now at a fork in the road – let’s go thorium.

Australia has all its ducks in row to develop both thorium processing and reactor technology generally for electricity generation and thorium powered submarines at a secret purpose built facility on the isolated coast of South Australia. Small reactors suit distributed electricity generation on land and provide some base load to compliment intermittent renewable power such as wind and solar, and peak shaving gas turbines. This technology and the thorium itself could be exported to further Australia economically. We would be adding information to the thorium exports and diversifying the economy towards knowledge and service sectors. It would take billions and decades but would be a good earner for Australia in the centuries ahead, and the intellectual property, prestige, and projection of power would be Australian. The interest in land based nuclear energy may wax and wane, but the demand for nuclear powered subs will always be there for countries with vast coastal territories. Suggest Bechtel Corp, Westinghouse, or GE gets the contract. (I don’t own any shares in these companies)

Regards.

Luke Gale

References.

1. “All of Australia’s thorium resources occur in multi-commodity deposits, dominantly the heavymineral sands and rare earth deposits where the extraction cost would be shared with, if not totally supported by, the other commodities in the deposit.” p.23, “A Review of the Geochemical Processes Controlling the Distribution of Thorium In The Earth’s Crust and Australia’s Thorium Resources”, Terrence P. Mernagh and Yanis Miezitis, GEOSCIENCE AUSTRALIA 2010.

http://www.academia.edu/68582/A_Review_of_the_Geochemical_Processes_Controlling_the Distribution_of Thorium_In the_Earth’s_Crust_and_Australias_Thorium_Resources accessed July 2015

2. ibid, p.24
3. Untersuchungen zur radiologischen Emission des Uran-Tailings Schneckenstein, 1998 (PDF; 4 MB), TU Bergakademie Freiberg and TU Dresden. B. Merkel, G. Dudel et al.: accessed july 2015.

September 2015

Luke F. Gale

Background

After the first Gulf War started in 1990, sanctions were imposed on the Hussein government. These included the importation of official paper currency notes that were printed in the U.K. using Swiss-engraved plates. This created a problem because there was no way to replace worn out or torn notes.

The response of the Hussein government was to decry the former notes and print their own “Saddam” dinars. The problem was that the security features of these new notes were of poor quality and counterfeiters were rampant. These new notes were also subject to the risks that all fiat currencies face – namely depreciation caused by the arbitrary decisions of central banks to print money, currently called “quantitative easing”.

The collective decision of the Iraqi Kurds in the northern Iraq region was to retain and continue to use the old “Iraqi Swiss Dinars” as they became to be known, despite the risk that these notes would become unusable because of deterioration that ultimately happens to paper notes. An example of an unplanned synthetic commodity currency. (Selgin 2013)

That the Iraqi Kurdish population made this decision is the basis for this proposal. This proposal relates to the current interest in digital currencies such as Bitcoin – also characterised as a synthetic commodity currency by Selgin (2013). I propose that an attempt at a denationalised cryptocurrency for Iraqi Kurdistan is likely to succeed.

Was it that they were resolutely independent thinkers? Or was it something more like the Austrian School’s notion of subjective value? Was it forced on them by Saddam? It implies a sophisticated understanding of economic theory. The decision was highly successful and prescient as the exchange rate of the Iraqi Swiss Dinar to the new ‘Saddam’ Dinars rose to as much as 300 to 1 for the period 1990 – 2003, avoiding an inflationary spiral.

Iraqi Kurdistan is perhaps a natural candidate for a population that may one day adopt a cryptocurrency as its “official” currency, although as Selgin points out, no government can make a cryptocurrency official. Indeed at no stage did the KRG make the Iraqi Swiss Dinar official.

The advantages would be that the infrastructure of such a currency would be beyond the seizure and control of despotic regimes such as Isis or Saddam’s Iraq. Thugs could of course coerce private keys out of people, but as the possessors of these coins would have pseudo-anonymity (at least) it would make this difficult. The best way to keep a secret is for no one to know you have a secret. Oil majors also like to keep the terms of their contracts opaque to the marketplace.

The currency would be underpinned by the region possessing the 6th largest oil and gas reserves. Conventional (cheap to extract) and associated gas reserves are estimated at 100 tcf – a very big number for a relatively small geography and population (although much associated gas is currently flared due to lack of gas pipelines).

Indeed, international oil companies may prefer a KurdCoin as a unit of account, store of value, and medium of exchange. It could be used to pay oil and gas companies their share of return on investment, and used by oil and gas companies to pay taxes and petroleum rents to the semi-autonomous state also known as the KRG.

It may also be used between oil majors as they often trade interests between themselves.

Refinery and oil well workers can be paid in KurdCoin.

If the coin appreciates substantially in value in step with the developement of its petroleum economy it would also be a form of foreign investment. A very efficient form of accessing capital and (investment) merit. Such capital could fund important infrastructure such as natural gas pipelines. This infrastructure is more expensive and difficult to finance because gas has less energy density than crude oil and returns on investment take longer.

It may also indirectly encourage the rule of law, especially in relation to contracts, as KRG courts, and legislators, would have a greater incentive to maintain the value of the coin rather than ‘cheat’ international oil companies and other investors with unjust decisions, short-term capricious policy changes, nationalisation of assets (compare Venezuela), and other strategies that come under the heading of sovereign risk including inflation – a subtle form of theft. A country can reduce the debt she owes to foreigners by devaluing its currency.

This notion of incentive has been described in relation to cryptocurrencies by Nakamoto (2009) but the idea could extend beyond. Remember, cryptocurrencies are international and the marketplace might respond to such decisions by selling off the coin as suggested by Hayek (1976 -1994). The informed wisdom of the distributed international marketplace will always be greater than local ‘captured’ politicians. (Hayek, p.103). Compare the antagonism between the Shia and Sunni populations in Iraq and the ridiculous failure of politicians to balance their policies.

Note, the KRG would be able to buy KurdCoin to support it, and sell it to take profits if exports become uncompetitive due to currency appreciation. It is reasonable to expect the KRG together with private Kurds to have a significant holding in the coin. Some percentage of the total, but it’s not clear what that would be. For KurdCoin to succeed it would have to be a “people’s currency” where every man and woman is considered equal. Where trust in one’s family is given priority over 3rd parties such as banks. Fractional reserve banking not necessary.

Cryptocurrencies are multi-disciplinary in nature including studies in mathematics, engineering, and economics. Subjects that Muslim societies excelled in many centuries ago.

But its success would not be guaranteed as a similar cryptocurrency, AuroraCoin, in Iceland has not been overly successful. As the cryptocurrency space shifts almost every day, including debates over proof-of-work vs proof-of-stake, rewards vs fees, blocksize, blocktime, etc, it would be premature to consider cryptocurrency theory settled. It maybe many years, even decades, before such a proposed currency emerges.

References.

Hayek, F. A. “Denationalisation of Money, The Argument Refined” (1976 – 1994) https://mises.org/library/denationalisation-money-argument-refined accessed sept. 2015.

Ibid, p.103; “Once governments are given the power to benefit particular groups or sections of the population, the mechanism of majority government forces them to use it to gain the support of a sufficient number of them to command a majority. The constant temptation to meet local or sectional dissatisfaction by manipulating the quantity of money so that more can be spent on services for those clamouring for assistance will often be irresistible. Such expenditure is not an appropriate remedy but necessarily upsets the proper functioning of the market. ”

Nakamoto, Satoshi; “Bitcoin: A Peer-to-Peer Electronic Cash System” , (24 May 2009), page 4, “The incentive may help encourage nodes to stay honest. If a greedy attacker is able to assemble more CPU power than all the honest nodes, he would have to choose between using it to defraud people by stealing back his payments, or using it to generate new coins. He ought to find it more profitable to play by the rules, such rules that favour him with more new coins than everyone else combined, than to undermine the system and the validity of his own wealth.” (my emphasis) https://bitcoin.org/bitcoin.pdf accessed sept. 2015

Selgin, George; “Synthetic Commodity Money” (2013) , Department of Economics University of Georgia Athens, GA 30602 Selgin@uga.edu Revised April 10, 2013 accessed sept 2015. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2000118

Luke F. Gale

Sept 2015

The UK Parliament has considered the linking of disparate emission trading schemes and the idea will be considered at the upcoming climate summit in Paris.

Part of the problem with CO2 pricing is that oranges need to be compared with oranges. It’s difficult to compare CO2 pricing when it is denominated in local fiat currency. Fiat money is a form of sovereign risk, an IOU of a country’s central bank. Countries can reduce their debts to foreigners by devaluing their currencies. Denominating in US dollars or the Euro creates a distortion and introduces political risk if one considers that China has aspirations for its currency to be a global player. China is the greatest emitter of CO2.

For any linked global ETS all it takes is one province or state to set the lowest price first to get the thing rolling. This may be very low, say a few US cents or yuan per tonne of CO2. This will be a ‘critical mass’ moment. Where it goes from there – who knows?

Market forces should set the price from there.

Governments have to initially set this price because CO2 is a negative externality. It’s a lot easier, and less risky, for a government to do this, alone, if the price is very low. Everyone else will follow, in theory. But they have to do this with confidence.

The trick is for some global instrument to be invented that all countries feel is fair and just. It has to be beyond sovereign risk in a world where sovereignty matters. Each tribe has their own table of values. No one wants a “global E.U.”.

It has to operate separately from free trade agreements and tariffs.

It has to include all nations, however small, not just the biggest emitters.

It has to be efficient where trades are irreversible where no resort to any supra-national body or international court is possible. I fear that the mindset at the Paris summit is going in this direction.

It has to be beyond litigation, disputes, and even sanctions. The obvious reason for this is that the atmosphere is beyond sovereignty.

The number of instrumental units should have a cap.

There has to be some simple rule that instantly creates consensus, where every country instantly gets it. It might be that, like all of the best innovations, this instrument comes from the private sector, perhaps from left of field. The reason being that innovators have the motivation that they will be compensated for their intellectual property. The mechanism for this compensation can be built into the instrument. The task for the inventor is to maximise his compensation but only to the point that the market will bear – not more or less.

The instrument has to last for centuries rather than decades.