Tuesday, December 30, 2014

The best-laid schemes o' mice an' men: Lex Anteinternet: Lex Anteinternet: Lex Anteinternet: $40/barrel?

I've been bumping up this thread from time to time:
Lex Anteinternet: Lex Anteinternet: Lex Anteinternet: $40/barrel?: A couple of weeks ago I posted this: Lex Anteinternet: Lex Anteinternet: $40/barrel? : Lex Anteinternet: $40/barrel? :   Driven by Sau...
Related to this, in yesterday's Tribune there was an article about the county's plans for infrastructure, based upon the (frightening) estimate that the county will gain 30,000 residents over the next 25 years. Well, this brings to mind:
But Mousie, thou art no thy lane,
In proving foresight may be vain:
The best-laid schemes o' mice an' men
Gang aft agley,
An' lea'e us nought but grief an' pain,
For promis'd joy!
Excerpt from Robert Burns,  To a Mouse, on Turning Her Up in Her Nest with the Plough

I was amazed by the prediction, but in reading the article I found one of the knowledgeable folks in it noting that all the planning was done before the current crash in the price of oil.  In other words, the planning basically was done with $100/bbl oil in mind, in perpetuity.  Not oil that's dropping below half that price, and falling.  Indeed, planning aside, this state now faces a decline in oil that represents about 50% of this value six months ago, and its still falling.  Coal in the meantime has been steadily declining in production. Natural Gas prices collapsed some time ago.  And actual demographic information is that the state lost about 1.5 times the number of people that the county plans stated would come into the county each year for 25  years.  Wyoming's population slightly increased last year, but due to births by residents.

Now, I'm not getting after the planners nor the industry, but pointing out that all such planning has some inherent folly to it, as the assumptions that are made are frequently highly invalid.  Looking at the basic industries of the state, all extractive save for tourism and agriculture, what we actually have is an economy based upon the production of three things, gas, coal, and oil, and all three are may be, or might not be, in some long term trouble  Oil is the most stable, sort of, as the consumption of it will go on for some time, but even long term trends there are not comforting for those who would base an economy solely on it.  The old habits of the country which saw fuel consumption dramatically rise every time the price at the pump went down are really over.  People seem now fully committed to accepting rising CAFE standards and ever more fuel efficient cars, and turning away from petroleum entirely seems to be a widely shared goal. During this period, Saudi Arabia, whose economy entirely depends on the sale of petroleum, can afford to keep the price low and keep the money coming in, until it can hope to shift to something else in the future. They seem fully aware of that now and committed to that course.

The irony of that is that, but for the Saudi Arabian gambit, the oil economy did appear to have been fairly stable, which the planners no doubt noted, as consumption will go on, the cyclical nature of prices seemed over, and after the drilling was relatively complete, the infrastructure will of course remain and need to be serviced.  But nobody planned on Saudi Arabia essentially knowing the same thing, and also knowing that it could drop the price and crowed the domestic industry out.  That shows, I suppose, the inherent risks in any sort of long term planning.  You can never really fully account for such things.

Gas, which did create a booming economy in some Wyoming counties, sort of endured a price crash awhile back which was more predictable, but also seemed to take people off guard. The reason for that is that the new gas pockets were, in some areas, easy to exploit, but once the infrastructure came on line, which was regional in extent, it put a lot of gas on the market.  Gas used to be basically consumed here locally, as that's all the infrastructure that there was, and the thought, reasonable enough, was that once our gas was put into a national infrastructure, the price would rise.  It did, but then all the regional gas including the Canadian price came into the system too, and then the price at the wellhead fell.

Coal's problems are much deeper, but without going into them, here we can say that everyone has been pretty good in deducing that and essentially planning for decline.  That's a good thing in that while the decline is perhaps at least somewhat inevitable, it hasn't really caught anyone by surprise too much.  It's a huge problem for State government, however, in that much of the state's revenue comes from coal.

At any rate, what that now means is that all the local planning may be really out the window.  That would suggest, in my view, the planning was too early, and much too unimaginative in its nature.  The risk now is that we'll go on for some time with plans that have every appearance of being obsolete, and that perhaps we ought to plan for a period of decline, or perhaps we should have been planning for that possibility all along.  What if prices stay this low, or lower, for a decade?  That's something we better start planning for. The industry itself likely is, as it's good at planning for such things as a rule, and has learned from the shocks of the past.

Also, while it places me in the camp that some regard as radical, in doing the planning, there's nothing wrong with trying to keep a lid on some aspects and byproducts of growth as well, which isn't the planning we've always been doing.  We always seem to believe we can have everything we want, but we can't, or that everything is simply inevitable and capable only of some direction.  By this point in time, we should be aware of that and strive to keep the things that make any one place nice in some ways and control things in a planning sense to our advantage, when we can, which in part might build in an element of delay that would allow for a cushion should plans go awry..  Nearly every place that people seek to escape in the US today got that way as the only plan was to encourage things to come in, or just assume that was inevitable, and they did, until people weren't happy about what had developed but could do nothing about it.  Some forethought of that type should be made, even thought that means not building all those roads, etc., or at least not doing it right away  We can afford to be smarter than we usually are when times are good and plan accordingly, and when things go badly, the motivation for effective planning usually goes out the window with the economy.

Of course, the folly of planning is that its very difficult to really make a rational plan of this type more than ten years out, if event that long.  Early predictions for the state held that the population of the state would be double its current population early in the 20th Century, which obviously were incorrect, but which were built on the assumption that Wyoming's economy would mirror Pennsylvania's then industrial economy.  A plan made 25 years ago would still be somewhat valid, if wisely done now, as not that much has changed in spite of the fact that we think it has. But would a plan drafted in 1925 have been valid for 1950?  Probably not.  Or a plan in 1950, in 1975?  Planning is a must, but not accepting that generally most plans go out the window and planning itself is more valuable than the plan is something that should always be taken into account.

No comments: