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Nicole Foss Provides an Education on Nuclear Energy

By Gold Economist: Jay Taylor

Category: Investment, Gold, Mining

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April 4, 2011 ( Mining stocks newswire) The following interview took place just after the earthquake, tsunami and nuclear tragedies occurred in Japan. I found my guest, Nichole Foss to be one of the best interviews I have conducted. She spoke coherently and more importantly she provided a very educated objective view on nuclear energy in terms of its risks and its necessity if humankind is going to avoid freezing to death. I expect to have her on my show again in the very near future to explore the connections between energy and the global economy as well as to discuss the horrible condition our financial markets are in. Here is the transcript of my discussion with Nicole Foss.

Audio Interview Part 1

Audio Interview Part 2

Jay Taylor: Welcome back to Turning Hard Times into Good Times. I am really pleased to have with me Nicole M. Foss.

The first time I heard of Nicole Foss was I think at Christmastime, when I was with my brother Rodger, who happened to hear her on Jim Puplava's Financial Sense Web show; Rodger said, “Jay, you've had a lot of great guests in your show, but here's the one you've got to make sure to get on your show.”

I thought Ms. Foss would provide insights into the financial markets, so I started doing a little bit of research on her and invited her onto the show, not knowing at the time about the events that were going to transpire in Japan, especially regarding nuclear reactors and safety measures, which as it turns out, Nicole has a considerable background in.

She writes under the name Stoneleigh. She and her writing partner have been chronicling and interpreting the ongoing credit crunch. Her site integrates finance, energy, environment, psychology, population, and realpolitik in order to explain why we do find ourselves in the crisis that we are in. Until recently, Ms. Foss ran the AgriEnergy Producers' Association of Ontario with focus on farm-based biogas projects and grid connections for renewable energy, and that also is something I'm somewhat interested in, because in my newsletter we followed a couple of companies in the past that were in that business.

In the United Kingdom, Ms. Foss was a Research Fellow at the Oxford Institute for Energy Studies, specializing in nuclear safety in Eastern Europe, and conducted research into electricity policy at the European Union level. Her academic qualifications include a Bachelors of Science degree in biology from Carleton University in Canada and a post-graduate diploma in air and water pollution control. Welcome, Nicole, to Turning Hard Times into Good Times.

Nicole Foss: Thank you very much, I'm happy to be here.

Jay: It's very, very nice to have you on this show. You're talking to us from where today?

Nicole: Bratislava, Slovakia.

Jay: Okay, very interesting. I understand you do a fair amount of traveling and you're really trying to go around and write and talk to people as much as possible to let them know what your views are. I'm really delighted to have you on this program to help the fairly large number of people who listen to it. We are the Number One show on the VoiceAmerica Business Channel, with numbers that are rather high and I'm very pleased to say so. I can be pretty sure that quite a few people are hearing what you have to say.

So, because it's on everybody's mind right now, let's start with the things that are going on in Japan. How serious do you think this is or is it too early to know yet?

Nicole: It's clearly the second-worst nuclear accident in the history of the world. I think it will probably stay that way, it is my view. It's significantly worse than Three Mile Island, because in Three Mile Island, the containment held; you had a partial meltdown, but no real significant impact in terms of radiation release.

In Chernobyl, you had an unbelievably large radiation release, because you had a completely different accident mode that's possible with an RBMK reactor but is not physically possible with a boiling water reactor of the type that they use at Fukushima.

In Chernobyl, because you have the kind of inherent instability that comes with the potential for a positive feedback loop, what you had was a runaway nuclear reaction that blew the lid off and then introduced air. The graphite moderator caught fire and turned the entire thing into a nuclear volcano, which persisted for days and days, spilling enormous quantities of radiation all over most of Europe, and there's an enormous amount of fallout across the continent in different places.

In Fukushima, there is no risk of a runaway nuclear reaction. When the earthquake occurred, the reactors automatically shutdown, as they were designed to do. The issue in Fukushima is station blackout. So what happened is, there's no potential for cooling when you don't have electricity supplies. The electrics were in the basements of the buildings, the backup generators were on the coast. It's not the earthquake that removed that capacity but the tsunami. And then, the battery backups they had lasted maybe a few hours. Without power to the system, it can't cool the reactor. Even when a reactor is shut down, it continues to produce the heat of radioactive decay, in fact total spent-fuel. So anything that had been used in a reactor will continue to produce heat and you have to be able to pump coolant in order to prevent it melting down, and that's what they lost the ability to do.

So what we're seeing is, as of the last time I looked a few hours ago, five explosions at Fukushima, including and at least in some of these places, the containment that is almost certainly breached. It may have simply blown out parts of buildings. There is at least one of the units where the spent-fuel storage is an issue, where the coolant for that is compromised.

Really, the worst-case scenario would be multiple meltdowns that would involve molten core material going through the bottom of the reactor pressure vessel and the containment potentially is far down into the ground water, in which case there would be steaming and explosions. Then it would spray bits of core around the area near where the plants are. I don't see this being the kind of risk that Chernobyl posed, putting enormous quantities of radiation into the area that have traveled long, long distances. I have seen people issue warnings for, say, the U.S. West Coast, saying everyone should be taking potassium iodide. I think that's a complete overreaction. I doubt if we would even really need to do that in Tokyo. They probably do, in the area around the plant—yes, those people should be taking potassium iodide; but I don't see this as being something that will spread enormous amounts of radiation over very long distances, but it probably will create an area that will have to be an exclusion zone for very long time.

Jay: Very interesting. So something between Chernobyl and Three Mile Island, but considered to be more serious than Three Mile Island, I guess obviously.

Nicole: Yes, very much so.

Jay: You know, Nicole, we look at the probability of these kinds of things happening and I would ask you, what do you think the probability of a 9.0 earthquake is? Yes, of course Japan is in a tectonically active part of the world, but what is the probability of that happening, a 9.0, which I guess is what the seismologists have upgraded this to?

Nicole: Well, they originally had set the design base on a maximum 7.9 earthquake, but that would be enough.

Personally, I think if people think that's enough, they should design a bigger safety margin in there, although it's not actually the earthquake that caused the problem, it really was the tsunami. But a tsunami is a predictable follow on to the kind of earthquake that we saw. There are ways of designing a system so that you would be less vulnerable to that. For instance, if you put all the electrics in the basement and you put the backup generators at the ground level facing the coast, then they are vulnerable to a tsunami in a way that they need not have been. I think there are ways they could have relatively easily proofed that plant against the effects of a tsunami, because the plant withstood the earthquake, it just didn't withstand the tsunami.

Jay: I am trying to think not as a scientist as much. You know, we live our daily lives, we start to cross the street, we see a truck coming . . . can we get across without getting hit? And so, because it was most likely a very remote probability in the minds of the engineers that there would be a 9.0 to start with --

Nicole: --Oh, yes. I am very convinced that they thought this was not possible. So, they probably thought they were being reasonably conservative. Personally, I think they probably were not as conservative as they should have been. I think there are clear problems with common mode failure, a clear vulnerability to station blackout that really was unjustifiable and unnecessary, because it could have been addressed relatively easily.

I take your point about when we make risk decisions. The kinds of risks we protect ourselves against inevitably have associative costs; we have to be aware that we cannot protect ourselves against everything that could conceivably happen, not without exponential costs just on the economics of whatever enterprise we were considering from the beginning anyway.

But in this case, I think they should have put more thought into it than they did. And there are a number of other parts of the world where the same argument is true. There are other places in the world where nuclear reactors have been built far too close to fault lines and I think there is a potential for significant consequences of the kind that people perhaps were not taking into account.

For instance, there are two reactors in California that are far too near the San Andreas Fault. People would argue, well, it's not megathrust fault, so you wouldn't get a magnitude 9.0. But nevertheless, we've seen a number of very large earthquakes around the Pacific Ring of Fire in the relatively recent past. I would not rule out the possibility that something might happen on the West Coast of North America.

Now, it may be more likely to happen in the megathrust area of the Pacific Northwest than at the San Andreas, but nevertheless I think the seismic risk at the San Andreas is significant. There are other places in the world as well; for instance, the Metsamor plant in Armenia is right in an area where they had a massive earthquake of a comparable size, not quite as big as the Japanese one, but a very significant earthquake in 1988. I think reactors and fault lines simply don't go together, whereas there are other areas where you can arguably operate a plant very much more safely.

Jay: Sure; so you had this highly unlikely 9.0, then you had the right kind of an earthquake. As I understand it, if you had a tectonic movement where both plates are moving, scraping against each other, that's one thing, but in this case, I understand that one plate dropped significantly and then disturbed the water and caused the tsunami. Thus you've got another probability there. What I'm getting at is, it seems highly unlikely that this event would have happened, if you were considering it years ago, as you were saying; they didn't think it was likely that there would be a 9.0, so they designed the system to withstand a 7.9. On top of that, you've got not just any kind of earthquake, but a particular type of earthquake to cause a tsunami, right?

Nicole: But if you have fault lines, that suggests that kind of earthquake is possible, and then you really need to take that into account; the San Andreas for instance is where plates slide relative to each other. So, you would expect lesser magnitude earthquakes in Southern California, for instance, than you would have expected in Japan or in the Pacific Northwest.

Jay: Well, it's certainly difficult to know these things, although these plants were built about 40 years ago or something like that?

Nicole: Yes, the six units at Fukushima-I are of that sort of age. There are all sorts of potential for involvement in this accident of four units at Fukushima-II and also three units at Onagawa. Onagawa is actually closest to the epicenter.

There is a state of nuclear emergency in several other reactors, but it would appear at this point that they have not had a station blackout in those other plants. So, they are at the moment able to at least maintain some cooling, although they are venting radioactive steam, so there is a rise in temperature at both of those other plants. We'll suggest that they're not out of the woods yet, but at the moment they seem to be maintaining a greater degree of control than they managed at Fukushima-I.

Jay: I think you certainly hit the nail on the head, Nicole, when you referred a moment ago to the cost benefits; if you're going to design something so that there is no chance at all of anything going wrong, the cost will be so prohibitive that you wouldn't even begin to do it. I like your attitude about that. I'm involved a lot in the mining industry, and the Canadian mining companies I work with are realizing all the time that they're trying to avoid problems that occur, environmental requirements, and so forth. And sometimes it seems as though things tip in one direction or the other too far.

We had Three Mile Island and then Chernobyl and that meant that the nuclear industry was basically off the limits in terms of expansion and growing the industry. Again, Chernobyl certainly scared the daylights out of most everybody, even the most conservative people who would be inclined to build plants. Where do you think this is going to go now? Is this going to stop the growth of nuclear energy because now even environmentalists have sort of come around and believe that maybe this is a better way to reduce our carbon footprint? Except for a couple of these extreme cases, nuclear has had a pretty good track record, hasn't it?

Nicole: Well, in terms of not too many fatalities, yes, we have a lot more fatalities in the coal mining industry for instance than in nuclear power.

In terms of reducing CO 2 emissions, I think if you look at the whole lifecycle of everything that goes into nuclear power, from the mining to the construction through to the decommissioning, you probably find that the benefits in terms of CO 2 were really not that significant in any way. So I'm not looking at that as being any kind of major antidote to global warming for instance.

Yes, the fatality rate has been lower, but the risks are significant and we do have to be aware that some of these risks are not high probability; but if the risk, despite the fact it's not high probability is nevertheless catastrophic, then I think this is something we should not do. I think that certainly applies to all RBMK reactors that are Chernobyl-type reactors. I think the risks that you run from a plant like that are simply unacceptable and they should all be shut down. I believe there are still some operating in Russia, there still were some certainly, in the world, when I was doing the research I was doing.

Other designs, if they already exist, I wouldn't necessarily close down. I think the alternative of having much less energy might be a lot less acceptable to people in certain areas than keeping the plant that they already have. But I also think there will be a major impact on the nuclear industry and its plans for expansion—not just its plans for expansion but its plans for extending the life of the existing plants. For instance, in Germany today they issued a decision that they weren't going to change their minds about extending the life of nuclear plants there.

So, I think we're seeing a very rapid backlash and it's not like Germany is a seismic zone, and arguably they could have operated those plants relatively safely for longer. They could have extended the life. Canada extended the life of a number of plants, but the design there is a bit more problematic . . . I'm not really a fan of Candu reactors.

In some places it arguably makes sense to keep ones that we already have. Whether we want to build any more is a bit of question, because I think we really have not come up with answers to very significant issues; for one thing, the fuel that we're going to use is not particularly clear. The uranium ores that we rely on are reducing in quality. There is not an enormous amount of the high-grade ores; that means that the net energy involved in mining these lower-grade ores gets worse, so for the amount of energy surplus that you produce, the energy returned on energy invested gets worse as the ore grade falls. We haven't come up with any kind of realistic solution for using any other kind of fuel.

I can't really see sodium reactors being viable. For instance, they haven't been developed yet. Breeder reactors have been tried, but have been shut down almost everywhere they were introduced, places like Monju in Japan or Superphénix in France. These have experienced significant operating problems. They also have higher risks in a way; they use liquid sodium for a coolant, for instance, typically. Then, if you have an accident and you're dealing with a liquid sodium spill, the potential for fires and explosions is considerably higher.

So, I don't think we have solved where the fuel is going to come from, nor have we come close to solving what we're going to do with the spent fuel, with the nuclear waste, and we have not dealt with decommissioning issues. So in terms of the fuel, all the nuclear fuel that has ever been used in the reactor is sitting in what amounts to a swimming pool somewhere probably near the reactor that created it.

Not one country has implemented a long-term solution for nuclear waste. And in fact, you have to keep this stuff cool for decades before you can even really dispose it in any kind of a long-term way, only the Finnish are actually building a nuclear waste storage facility.

In America, they consider Yucca Mountain, but that was crushed and now they are trying to revive it, but there has been no really realistic proposal in America. No other country has come up with anything either.

Some of them have thought about reprocessing, which means breeder reactors, but reprocessing creates enormous amounts of high-level nuclear waste in its own light and creates significant risk too. In Britain, the one reprocessing plant they introduced, the Thor plant, was shut down after only a very few years, because of malfunctions.

The other thing we haven't dealt with is decommissioning. You have to leave these plants to cool down and maintain them and cool them for a long period of time before you can actually dismantle them and look at disposing, but it will be a very radioactive set of remains. And we haven't looked at how you would deal with the cost of that, because who is going to be able to put aside the money during the operating phase? Who is going to be putting aside the money for decades from now to cover the cost of decommissioning? That simply doesn't happen. So that means the cost of decommissioning is being imposed on future generations that will not have an income stream to pay for it at that time.

Jay: Yeah.

Nicole: So I think that the question marks over the future of nuclear power are enormous and some of them are to do with safety, others are simply to do with cost, and others are to do with net energy and whether in fact you actually achieved the benefit in terms of CO 2 emissions. Whether the net energy available from this is actually higher than the minimum required for civilization, I am not convinced on any of those points.

Jay: Then it sounds like, if there is any easy solution to our energy demands, energy consumption seems to go along with prosperity to a great extent, and the West has enjoyed a standard of living that's nonpareil in the history of man. There are people, of course, aspiring to have the sort of living standards that we've enjoyed in the United States, Canada, Western Europe, and so forth, in China, in India, and far more populous areas than we have, than I live in, here in the U.S.

How is this all going to shake out, Nicole, because there are no easy answers; “Not in my backyard,” everybody says. No, we don't to want to spend. We want to enjoy things today, but we don't want to worry about the costs that are passed on to the future generations. It seems to me to be a self-centered human characteristic. We don't want to worry about the death that we are throwing on our children in the future as well.

In terms of the cost of Chernobyl, I don't know how you can appraise the cost—how do you put a cost on human life when people die due to nuclear accidents? But do we have any sense at all of what the cost of that tragedy was, this Chernobyl tragedy?

Nicole: Really we don't. I mean, there are certain things that are quantifiable, the building of the sarcophagus, which in fact has to be replaced. So that will be hundreds of millions of dollars and that's replaced out of other income, because of course it's not generating an income to deal with the cost. I think the cost in terms of human life I would regard as enormous. If you look at the official statistics, they would still say that the number of deaths was very low, but I find it absolutely incredible to think that the liquidators, the thousands of liquidators who worked at this plant with no protective equipment to generally clean up the place, did not die in droves.

So, I think there is a lot of mortality and morbidity that happened as a result of Chernobyl that simply has never been made public in any official figures. So, it is very difficult to quantify the impact that would have had, but it really has had a staggering impact in terms of cost and health.

Jay: Well, you certainly had a lot of agriculture, I guess; was it taken out of the economy as a result of that too, in addition to the lives lost.

Nicole: Yes, I mean there is a 30-kilometer exclusion zone where people are not supposed to live, but of course they do, because they don't necessarily have a whole lot of choice; and some people who are really poor, really have no choice at all. And if they're elderly, it probably doesn't matter, because “cancer might kill you in 30 years, but you're already 70 years old, so that's not really something you have to worry about.” I certainly wouldn't want to raise children in an area like that.

And in terms of the impact on agriculture, there were impacts, quite widespread impacts. For instance, there are so many people in the north of Finland who were told that they were not allowed to eat the reindeer that they raise, because the reindeer feed on lichen that preferentially absorbed radioactive isotopes from Chernobyl. So the impact on the food systems was quite widespread and there was more radiation—for instance, in the northwest of England from Chernobyl, then from the Windscale accident, even though the Windscale is in the northeast of England and Chernobyl is so far away. So the kind of radiation and the fallout that resulted from Chernobyl was absolutely staggering and it made a significant impact across Europe. It depends where rainfall patterns were as to where the fallout really ended up, and it was not evenly spread by any means, but clearly the impact was enormous.

Jay: It's really difficult to put cost figures on this, but what you were saying earlier is that you believe that the kind of reactors they used in Chernobyl should absolutely be shut down?

Nicole: Yes, they should. Some of them have been the ones in the Ukraine and it took them a while to even shut down Chernobyl 3, which was right next to the reactor that blew up. They did shut down the plants in Lithuania as a condition of Lithuania being part of the BEU.

So, those were the largest RBMK reactors in the world and the others are all within Russia itself, and there were 16 of them the last time I looked. They really do need to be closed down I think. Not just as to the question of the accident potential, but also they had no containment. They were operated with no safety culture either. I think ultimately, it's the human factor that makes the biggest impact on whether something can be operated safely.

If you have something that is technologically a bit dodgy, but it is run by people who have safety uppermost in their minds at all times, they can probably run it safely; whereas if you take something that has the latest greatest everything technologically and you have it run by a bunch of cowboys who have no sense that anything they could do might have consequences, you're far more likely to have an accident in a place like that. There really was no safety culture in the Soviet Union and that was a major part of the problem.

Even the people who ran these plants were not trained to think in terms of accidents and they were forced to comply with five-year plan limits so that they would be told that they had to commission a plant by a particular date, and all their bonuses would hinge on whether they did that. So for instance, Chernobyl 4 was commissioned a good two years before the safety systems that were related to it. They brought it online despite the fact that it was unbelievably vulnerable to station blackout for that entire time, and the accident actually happened when they were trying to commission the safety systems after the fact, and they switched off a number of factors that would have made a difference.

So it was the interaction of gross human error with the design flaws of the reactor that really led to the horrendous accident at Chernobyl, and that potential, at least aspects of it, could have been there for other RBMKs as well. Thus I would argue that that design should simply not exist. There are many other designs that are safer.

People have been looking at small modular systems and passive safety systems and there may be ways in which we could use nuclear power that would reduce some of the risks, but nevertheless the cost factors we discussed are still an issue: where is the fuel coming from; who is going to pay for decommissioning that may not occur for two generations; how are we going to deal with spent fuel? None of those issues is addressed, regardless of what nuclear technology chooses to employ.

Jay: So, we're always looking to pass the cost down to the future and probably push it under the rug. You were talking about bonuses at Chernobyl and then for building the plant and all that . . . I was thinking about bonuses that were going to Wall Street during the housing boom, but that's another issue that we won't have time to talk about today, because what I want to do mostly today is focus on these energy issues. They of course have profound financial impacts and we've been talking a little bit about the financial considerations that go into these decisions.

But let's just look at a couple of the different sources of energy: of course we've been relying on oil and petroleum, much of which still comes out of the Middle East and we are seeing increased political tensions in the Middle East. What's your sense in terms of the reliability of our traditional sources of energy from, say, petroleum?

Nicole: Well, I think we are looking at a period of great instability certainly in the Middle East. And there are other sources that America has relied on, but do not come from the Middle East, but nevertheless have significant question marks; I mean Venezuela, Mexico, Canada. These are major suppliers of petroleum to the United States.

  • The Mexican State is on the verge of being a failed state. The main oilfield that they've used at Cantarell is watering out at an incredibly rapid rate. Mexico is not going to be able to deliver the supplies it has delivered.
  • Venezuela has a lot of very heavy oil, but is moving into depletion as well.
  • The United States wants five million barrels a day from the Canadian tar sands, but that is simply inconceivable, because Canadian tar sands is really just an arbitrage between natural gas and synthetic crude. It's not really much of a source of energy. The net energy, the energy returned, and energy invested is very, very low for tar sands, if you look at the whole life cycle. I've heard it described as using one-hundred-dollar bills to light candles, in the sense that the natural gas is likely to be far more valuable ultimately than the syn crude that it's produced. And the environmental cost of producing the syn crude is staggering and they move vast swaps of Northern Alberta. And it's really not even an energy source, because the net energy is so low. So we're not going to be sending five million barrels of oil a day from Canada to the States ever, not even not soon, but not ever.

Then we look at the geopolitical situation in the Middle East and there are number of regimes that have been ripe for enormous upheaval for a long time. If you look at Saudi Arabia, half the population is below age 15. They are living in the desert. There has been an enormous expansion of population in a short space of time. It's difficult to provide enough supplies of water—desalinated water and electricity. This is a country run by a very corrupt ruling class that the entire population understands is not following the standards that are imposed on everybody else.

So you have a population of extreme radicalized young people who know perfectly well that their own leadership violates all the standards that they live by. So, they despise their own leadership. This is an octogenarian group of princes, who enjoy unbelievable wealth and privilege and do not follow any of the standards the rest of the population is required to follow. This is a recipe for revolution if ever there was one.

You have a lot of infrastructure that is vulnerable to sabotage and there are many people who are motivated to do that, so I think we really have to regard Saudi Arabia as acutely vulnerable. At the moment, we haven't seen mass movements in Saudi Arabia, but we are seeing many popular uprisings in countries around that area and I think there will be a lot more of that sort of thing in the future. I think it's only a matter of time for Saudi Arabia, but the potential for a geopolitical influence to have tremendous aboveground effect is absolutely huge—not just in that area, but all the resource-rich regions of the world if they become centers of conflict where effectively the great powers are staging proxy wars, like in the cold war era, where the great powers choose client states and resource-rich regions, pump them full of guns, and then you end up with a potential for a regional conflagration, because of all the divisions that go back so far in these areas.

You could find the resource-rich regions. Those resources become an outright curse for the people who live there because of the level of the conflict that could happen in those areas as a result of those resources.

So the Middle East, the Caucasus, maybe the area around the South China Sea . . . there are so many areas where the availability of the resources could be a major problem rather than a benefit to the people involved.

Jay: Well, certainly you talk about Saudi Arabia. The leadership there is definitely concerned. They do seem to sense that they are in some trouble. I believe they were handing out candy to the children or, let's say, they were paying out of billions of dollars to the people to try to pacify them, but how long can that work, I wonder?

Nicole: I doubt if it may work for all that long. I think we are going to see much more, in a way, in geopolitical upheaval. It might work for a while, but I think all it does is buy them time and I think they probably know that.

So I think they realized that they are just putting off the day when they are going to have to face a state of reckoning. And there are many issues in Saudi Arabia, but the infrastructure is not in a wonderful state of repair. A lot of it would need major amounts of investment.

A lot of the fields they are trying to develop are problematic for one reason or another. I think Saudi Arabia has a major day of reckoning coming and their leadership has been propped up by the states for a very long time. There has been, kind of a mutual “You scratch my back, I'll scratch yours” arrangement that has kept the princes in power. I'm not convinced that that will necessarily last for all that much longer.

Jay: Right. Well, certainly it's United States military, and the United States spends more money on military, I think I have heard it said recently, on wars, and on its military industrial complex more than all the other countries combined. So what happens to the U.S. if Saudi Arabia falls and that whole region falls? Do you see countries like China and Russia for example trying to gain some influence in that part of the world and push the U.S. aside.

Nicole: Well, very much so. I think we are looking at a tri-polar situation wherein you have the U.S., Russia, and China that are all right now competing for access to energy reserves in different parts of the world. All of them know perfectly well that oil is essentially liquid hegemonic power. So he who secures access to oil supplies secures an enormous advantage in comparison to his rivals. So they are picking different parts of the resource-rich world as the areas that they choose to buy for, but nevertheless I think we are going to see a replay of what was called, in the 19th century, the “great game,” which was competition for resources between major powers.

I think that's very much in the cards. China is arguably the empire in the ascendancy. So, I think it in the future will be larger than it is now. The United States is going to be facing a lot of problems and so is Russia quite frankly. The United States and Russia are probably about equally depleted in terms of oil reserves, probably in excess of 85% depleted; that doesn't mean that you can't produce any more oil in these places, but you're doing it on a much smaller scale.

I think if the U.S. loses its ability to import supplies from various other places, if it had to use only what it produces itself, it would maybe have a third of the oil that it has now, and that would have a serious impact on the way American society would be physically capable of functioning.

Jay: Standard of living would be decreased very dramatically, I would guess.

Nicole: Oh yes.

Jay: Well, this brings us up to the topic about peak oil theory. Even people like Matt Simmons, who passed away now, and other peak oil theorists weren't saying it, but you are not going to produce any oil; it's just that the cost of producing the next barrel is going to be so prohibitively high that you are going to see your standard of living decline very dramatically. Isn't that what peak oil is all about?

Nicole: Yes, basically, because energy in physic terms is the capacity to do work. If you have a much lower supply of energy, you cannot maintain the level of social economic complexity that we have built, because that level of social economic complexity has been raised by access to cheap energy.

So we have enabled our societies to develop in a way that we cannot now sustain, and I think we are going to see a tremendous effect going forward. We are still dependent for 90% of our oil supplies on the major fields, the super giant fields that we were discovering in the 1960s.

What we've discovered these days are tiny fields compared to the giant fields of the past. And it is not that we haven't looked for more super giant fields; we have. We are now looking at an extremely challenging environment where the net energy would be very low, the physical and financial risks will be very high; in places like the arctic and deep offshore, tertiary recovery techniques in some of the places where it was once easy to produce oil, now we are trying to get the last dregs out at great cost and having to put enormous amount of energy back into the system.

Essentially, we are looking at a decline in production but not only a decline in production, but a much sharper decline in terms of available net energy, because it is actually vital to take account of the energy we are having to put back into the system to produce more energy.

So it's not just how much energy you produce, but how much of that of what you produce is in surplus. Is it available for society purposes versus how much are you having to immediately plough back into the system to produce more?

Jay: Sure.

Nicole: The decline in net energy terms is very, very much sharper. There may be a long tale, maybe a couple of hundred years, but at a very, very low level in comparison to what we have access to now.

Jay: Certainly, it means the living standards are going to have to decline in one way or another, whether we want to recognize it or not. We only have about four or five minutes left and there is so much more to talk about, but I guess I have to ask you about coal.

Are there some technologies that could make coal more environmentally friendly or should we just forget coal? What should we do, Nicole? I'll leave those two questions with you because we are just running out of time and I am hoping that I'll get you back sometime, because you do have so much more to say—my brother was right about you.

Nicole: Thank you. I don't think we can really make coal realistically anymore environmentally friendly than it is, but nevertheless I think we will rely on it a lot more in the future because it is there, because it's available. As oil depletes, I think more of the energy demands will be shifted onto coal and that will have an inevitable environmental knock-ons in terms of local pollution environmental externality and then also effects on emissions of carbon dioxide.

We are going to be making a Faustian bargain another short-term decision, but the cost of not doing it could potentially be freezing in the dark in a number of places. I would argue, if we are going to make these kinds of decisions whatever the long-term impact, because the people who make the decisions are concerned about the short-term impact rather than the long term.

In the short-term, it means they will have access to energy when otherwise they wouldn't.

Jay: Sure. Well, I mean it's hardly fair to blame the policymakers for choosing not to freeze in the dark for the sake of clean environment; it is very difficult to ask them to make that choice, would it not be?

Nicole: It is, but it's not just the question of clean environment, their children and grandchildren's future and things like that. It is a broader, more complex question than simply whether or not the area is clean. So we do need to look at balancing the long term and short term, I would argue. And we are not good at that as a species.

We really only have the capacity for somewhat short-term thinking and when we move into periods of instability, that short-termism actually increases enormously. So just at the point where long-term management would be the most useful, we tend to forget all about it and just worry about where our next meal is coming from.

Jay: Right, and it is understandable certainly. I mean, I think that way for sure and I am not as bad off as some people are in this world certainly, physically and financially and so forth. I see my engineer telling me I have a minute left to go. Tell me just a little bit about biogas; is that an area that might have some promise?

Nicole: It's a very great technology. It's not an energy source, I would say. It's a way of reclaiming energy from waste, so that you don't have high energy throughout.

So, it can make a difference. I would argue it's too often used at a very large scale for the purposes of earning a lot of money through the entire contract. I think if it was done more at the farm scale, then there would be a greater potential to actually keep the agricultural section going for longer, which would be a wonderful thing. Biogas is a great technology. There are many other renewables that are really useful, but they are limited in what they can do for us.

The net energy is not high. With the intermittent energy sources often there is an inbuilt fossil fuel dependence and a great capacity dependence, so it's not as simple as to say we could simply run the world on renewable energy. We really can't, not with the infrastructure we currently have and at the levels of demand we currently have.

So we need to look carefully at what renewable energy can realistically be for us and what it can't.

Jay: Well, Nicole, I want to thank you so much for being with us today. You have so much to say, so much more that I wanted to talk to you about. I wanted to get to the financial markets; I wanted to talk you about that.

All of this is interrelated and I think one of the very interesting things you are doing is pulling together various disciplines and seeing the interrelationship; that's very, very important. It is important as an investor to be able to see the interconnectedness of these different issues and these different problems that we're facing around the world.

So I really hope I can get you back sometime in the near future, would you agree to do that?

Nicole: I would be happy to.

Jay: Wonderful. Thank you so much for being on the show.

Jay Taylor

Mr. Taylor is editor of J Taylor's Gold, Energy & Techn Stocks newsletter. A native of Ohio, he has resided in New York since 1973 when he began working there for Barlcay's Bank International. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares.

In 1981 he began publishing North American Gold Mining Stocks, which preceded his current newsletter. His continuing interest in gold mining prompted him to study geology at Hunter College in New York City, supplementing his MBA in Finance & Investments. Throughout his career Mr. Taylor worked as a commercial, then as an investment banker. Most recently, he worked in the mining and metals group of ING Barings in New York. Prior to that he was involved in the first gold loan made in modern times in the U.S. to Amax Minerals, a 250,000 oz. loan facility led by Citicorp. 

In 1997 he resigned from ING Barings to devote himself full time to researching mining & technology stocks, writing his newsletter and assisting companies in raising venture capital.

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