Natural Gas Price “Spike”

Recent news reports heralding higher natural gas prices at 19-month highs (Bloomberg) due to cold weather (Reuters) and diminished inventories (even reports of the shale boom ending CSM) piqued my interest. There is hope that natural gas futures are bright (Forth Worth Star Telegram).  I wanted to check these narratives against some of my models.

Estimating the marginal utility of money plagues my understanding of economics and greatly affects my ability to model it. However, I developed an alternative deflator called the Energy Price Index (EPI). I took historical Energy Information Agency (EIA) data and performed a regression of the data against the price of oil and natural gas for each fuel source, and then aggregated them based on fraction of total primary energy consumption to get the average price of primary energy delivered to the economy. I tied this model then to the daily WTI crude oil prices and the Henry Hub spot market. Here is an early attempt trying to describe this Economics for Engineers.  This model has several problems first it ignores technological change in the conversion of energy to useful work, it assumes that the distribution between energy and non energy feedstocks is fixed, and it uses an adiabatic model of the US economy. The last assumption only affects the estimation of wealth, I perform a more rigorous derivation of the price and money relationships in The Effect of Price in Macroeconomics and have not had time to rebuild my models based on this work.  The other two assumptions are a function of my own ignorance. Ayers and Warr estimate the necessary information to fix this error. Continue reading

The Second Law: The limited potential of wind energy

Cal Abel
23 March 2013

After watching An Inconvenient Truth and becoming aware of the push for renewable energy, I questioned the efficacy of renewable energy sources meeting global energy needs. I thought thermodynamics held the key in being able to understand this. Thus my quest began in January 2007. Today, I can report meaningful progress on this subject.

To build the appropriate model, I started with some publicly available fine grain data from the Bonneville Power Administration. I used data from January 1, 2007 00:00 to February 28, 2011 12:05 PST. The data is segregated into 5 minute blocks of the average power within that 5 minute period. Here is the excel file of the BPA wind power/capacity and grid load. You can verify this data by comparing the previous links. The date format is from Mathematica and is in “Absolute Time” : each full integer is 1 second. As a reference, 3376598400 is January 1, 2007 00:00:00 PST. The data is posted here in a parsed format only for your convenience and to aid in your analysis as the entirety of the modeling can readily be done in Excel if so desired. Continue reading

Rational Sustainability

Two years ago as part of a class, philosophical issues of sustainability, I wrote a term paper called Rational Sustainability. At the time, I had just finished my derivation of statistical economics while being frustrated at the lack of rigor in microeconomic/macroeconomic theory, I was taking a graduate micro-econ course at the time. I had not yet discovered Austrian economic theory, and as part of my work in deriving statistical economics found Austrian economics and have since come to appreciate it.

The sustainability philosophy class was eye opening for me.  The professor on the second day said that he thought we should abandon methodological individualism, MI. His reasoning here was I think due to his need to advance his concept of sustainability, and that by holding on to MI we could not achieve his vision sustainability. It took me a good solid minute to extract my jaw from my desk and to look around the class. I was the only one who was shocked and who saw this as a terrible course of action to seriously consider.  I saw it as an abandonment of reason. I see it now as the guarantee of a Malthusian future. My survey of the class has since jaded my outlook on the future of higher education in this country. Continue reading

Pre-alpha Release of “Elementary Principles in Statistical Economics”

I just published the theoretical framework of statistical economics, warts and all, which is why it is in a pre-alpha state…  Please look over. Any feedback changes, critiques will be greatly appreciated.

The theoretical framework shows where traditional macro economic techniques ignore the action of individuals. This carries some significant philosophical and practical implications that will have to be covered later.

Here is the link to the post: Elementary Principles of Statistical Economics

Pre-alpha Release 0.1a of “The Effect of Price in Macroeconomics”

Motivated by the debate over raising minimum wage and over the energy policy decisions of Germany and Japan with limiting nuclear energy, I wrote a paper using the thermodynamic analogy to show how price impacts the macro economy. I did not expect that it would take me this long to write as it introduced an unexpected need for developing some concepts such as the ideal arbitrage cycle.

Along the way, I found a different mathematical justification of the Black-Schoels equation that does not make the efficient markets assumption, but instead clarifies the concept of an efficient market as one that maximizes the system’s entropy. Such a MAXENT approach, has significant implications and can even be generalized to non-equilibrium conditions.

Here is the link to the release, The Effect of Price in Macroeconomics.

I look forward to your feedback.