What’s More Dangerous – Puppies or Fracking?

Posted on March 28, 2013 · Posted in CEO Corner

PuppiesHumans have a tough time quantifying risk or perceiving proportionality. We tend to overstate some risks while ignoring others based upon a variety of factors…things like “what scares us”, “what motivates us” and “what we DON’T know we don’t know”.

Another reality is that our emotions are largely fed by fear. We tend to act more quickly and instinctively to fear or pain. A person holding his or her hand over a flame will move it away quickly to avoid pain, far faster than someone seeking to touch a fine leather or satin. People trying to sell us stuff know this. Not just people selling us goods and services, but ideals and values. In America, selling ideals and values is a pretty big business in itself…tens of billions of dollars per year. Although fear clearly sells, it rarely buys us something we really want to own. There is no real joy in the state of NOT burning your hand…you just avoid the pain.

As I studied the arguments for and against hydraulic fracturing, or frac’ing for short (fracking if you are an opponent, so that you can use the old f and ck in a word), it struck me how much breathless fear is being used to sell us on the idea that frac’ing is somehow bad. If we only look at costs and discount b, we make benefits to zero, we tend to make bad decisions. When we look at all the “could POSSIBLY be” costs and none of the benefits, we make even worse decisions. All decisions are best made by balancing both costs and the benefits.

I decided to create a fear-based campaign on something OTHER than frac’ing, just to see how easy it would be, using actual data and academic studies, as flawed as they may be. Then I decided to frame frac’ing as a pitch to both a Silicon Valley VC and the Governor of California circa 2005. In a pitch, you focus on the benefits, and minimize the risks, although you have to acknowledge and counter the challenges.

So let’s start with fear. Who here likes puppies? Most of you? Good.

When Adorable Attacks

America is killing its young people. The killer? Vicious young dogs. Predators that prey preferentially on our kids. Dog bites occur every 75 seconds and over 1,000 citizens require emergency care EVERY DAY as a result of this deadly scourge. In 2012 alone, over 37 people, half of them children, were KILLED in vicious young dog attacks, ranking puppies higher than baby snatchers in childhood mortality.

Worse, over 50% were kids under 8 years old. More disturbingly, over 32% of these vicious attacks were on people LIVING with the dogs in question! Our “best friends” are killing us! Worse, these vicious killers tend to attack in packs. 34% of all fatalities last year were caused by gangs of marauding young dogs, and 58% of these killers were “family” dogs. Equally disturbing, your home is no protection. Over 80% of those killed were killed on their own property!

The economic scale of the human carnage wrought by puppies (for the purposes of this campaign, we define “puppies” as young dogs and adult young dogs), attack victims suffer losses of between $1 billion and $2 billion per year. All statistics are from dogsbite.org

These vicious puppies are growing in number every day, and we are now using well over 5% of our croplands to feed these voracious hounds in what some refer to as “protection payoff” in order keep them from attacking us humans as we sleep. New Zealand scientists report that the ecological Footprint of just ONE puppy is nearly TWICE the footprint of an SUV. Not only are these beasts deadly, they are destroying the environment AND our precious water supply with the massive amounts of bacteria-infested fecal waste generated from the some 70 million puppies that ravage our US communities. This does NOT include the over 21,000 leukemia-related deaths per year from people with known, verifiable exposure to these vicious puppies.

Even with regulations in place by over 600 communities, the killings and attacks and suspicious leukemia continue and the filthy waste keeps piling up. Clearly, these regulations are falling far short of protecting us. Nothing less than a total ban on puppies and puppy mills is acceptable in protecting our environment, water, children and elderly.

The Pitch of a Lifetime

Now let’s go with the “opportunity case”…The pitch to a Silicon Valley VC and the Governor of California back in 2005 about a new and sustainable alt energy.

Gentlemen, we are looking at an exciting new energy source based upon the convergence of two proven technologies, one that has been tested and used for close to 70 years, and the other for the last 90 years. Each, on their own, have been niche technologies that generated marginally better economic returns under certain conditions using traditional energy feedstock. The breakthrough came from discovering that when you combine these technologies, we are able to generate not only superior economic margins, but could do so with feedstock that was considered waste in the past. The amount of such waste feedstock is now understood to contain centuries of low cost energy at projected demands, and is completely scalable!

These technologies have been extensively studied over the last 70 and 90 years. They have, in fact, been used separately over 1,000,000 times and have performed at better than 6 Sigma in regards to performance and environment risk exposure. As such, the industrial process defined by combining these two technologies poses negligible risk to the environment, although they may cause remediable problems on a local basis, not unlike or outside the scale of any other highly-tuned industrial processes. Substantive regulatory infrastructure is already in place on a State by State basis, although additional regulatory burden may be placed to prevent pure “Black Swan” events.

In the US alone, we have identified an energy supply potential that exceeds over 100 years along the demand curve thus far from what was previously considered “waste”. By 2012 it will be generating an aggregate of $300 million per day, or $110 billion per year in gross revenues and growing in excess of 10% per year. The US domestic market can consume all we make of this new alt energy up to $300-400 billion per year before we would need to explore exporting the energy. And, unlike nearly all alt energies, we will be able to due to its form, which allows easy transportation and storage as an energy liquid.

Getting this alt energy to market can be done with existing infrastructure, and supplementary infrastructure can be paid for out of cash flow. This infrastructure expansion will have both single purpose AND broad general use that will survive the manufacturing process.

This industrial process is “shovel ready” and it will initially require the use of between 1.5% and 3.2% of the freshwater available when operating at peak, which we will buy at full market price. A hidden benefit of the market pricing mechanism for fresh water will be the ancillary efforts in research and development to reduce the cost of treating wastewater by 50% or more from existing technologies, resulting in several novel breakthroughs that will transcend our industry.

One of the waste streams of our alt energy process is Natural Gas and it will drive the cost of this important portion of our domestic energy mix by 75% for the foreseeable future. It will help drive what bankers will call “an industrial renaissance” in the US in less than ten years. It will directly employ several hundred thousand domestic workers and nearly 2 million overall domestic workers during that time frame. Additionally, this renaissance is predicted to create 2-3 million more manufacturing jobs. It will also lower the cost of moving goods to market in the US by 40% or more. On a combined basis, it will keep inflation in check for US goods and make them competitive in the world markets again. If that isn’t enough, it will also reduce US greenhouse gas emissions by 13% over the same period, allowing the US to become a world leader in reducing greenhouse gas emissions.

The principal product we manufacture will single-handedly and directly cut the US trade deficit by more than 12% from what it would otherwise be for 2012. It also makes us less strategically vulnerable to the politics of the Middle East. As for good corporate citizenry, our output is taxed, all totaled (Federal, State and Local), at over 44% higher than nearly any other industrial good. Not only that, but we will manufacture our product throughout great swatches of the US and our feedstock value will go up. This will result in one time transfer payments to US citizens, mostly rural, of hundreds of billions of dollars. It will create ongoing royalty streams of $20-30 billion per year to many millions of individual citizens across every voting district in the country.

We will make the US energy infrastructure the envy of the rest of the world.

Other countries around the globe will find substantive hurdles to cross in order to compete with the US in this arena thanks to the maturity of pre-existing infrastructure that provides investors substantive first revenues quickly. Investors will also experience a superior return on exposed capital that can’t be met in the less mature areas of the world, as well as the NIMBY resistance and political delays due to the differences between how the US and the rest of their world administer and hold their feedstock.

This might be the most compelling pitch EVER in the history of business. What’s even more compelling? It’s really not a lie.

In fact, NEITHER of these cases are lies (except that the New Zealand university ecologic impact study has been thoroughly refuted on a number of issues).

To the Moon, Alice

One is presented specifically to scare us, while the other celebrates the opportunity.

Mankind is driven to create and innovate, not sit on his or her thumbs in caves. We were not scared to go out because of dangerous animals and we were not scared to create a fire because it might suffocate us.

John F. Kennedy, in a famous speech at my alma mater, Rice University, in September 1962, said, “Why go to the moon? … Why does Rice play Texas? … Because we choose to.”

What he DIDN’T say was, “It is very dangerous and carries a lot of risks and we don’t know how. Therefore, I propose we put a complete ban on going to the moon”.

JFK made a call to action for a noble, some might say quixotic goal that could be undertaken by our government. Similarly, I don’t oppose an effort on our nation’s part to find cheap, inexhaustible energy. In fact, according to NASA, we spent roughly $150 billion on 2011 dollars (roughly $24 billion in 1969 dollars) to send a man to the Moon. According the Brookings Institute, the US will have spent roughly $150 billion between 2009 and 2014 in Green Energy programs. The projects break down as $100 billion for renewable supply, $15 billion in conservation research, $10 billion in electric cars research and subsidy, $10 billion in high speed rail research and subsidy, $6 billion in “smart grid” research and $6 billion in nuclear power research and subsidy.

The difference? The government has competition for making energy available and low cost. The people of the US oil and gas industry stood up and took on the kind of challenge that President Kennedy laid down. In the last decade, they have raised the bar for what success looks like. The benefits are myriad, although they sadly seem to be lost on musicians, entertainers and armchair epidemiologists of various stripes.

Having said all that, let’s take a step back and look at a thorough cost/benefit analysis.

Costs Puppies Hydraulic Frac’ing
Deaths per year 37 0
Deaths per year (sensational) 21k 5k
Ecological Impact (acres) 20 million 100 thousand
Global Warming (real alternatives) Net + Net –
Aquifer Contamination Negligible Negligible
Benefits
Decreasing OPEC Dependency None Very Positive
Likelihood of War None Decreases
Trade Balance None (1) 12% and growing to US favor
GDP $10 billion $110 billion
Annual Tax rate 0-8% 44%
Spark Manufacturing Renaissance No(2) Yes

(1) Unless we could sell puppies to Northeastern and Southern China. I heard somewhere that they prefer white puppies.

(2) Puppy mills? Sounds kind of manufacturer-y.

Clearly hydraulic frac’ing is the American energy dream come true. And we don’t even have to board the workforce when we go on vacation…though I’ve met a few roughnecks that I might not let stay in the house.

What do you think? How would you pitch today’s American energy revolution if you could go back in time? Please leave a comment below.

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Allen Gilmer

Allen Gilmer is the Co-founder, Chairman and CEO of Drillinginfo. Allen is active in all aspects of Drillinginfo’s new product development and is widely recognized for his industry leadership and vision. He holds several patents in the field of multi-component seismology. He received his Bachelor of Arts in Geology from Rice University and his Master of Science in Geology from The University of Texas at El Paso. Follow him on Twitter @allengilmer.