I just read a very interesting article on the Ludwig von Mises Insitute website, that got me thinking a bit about how to better explain my thoughts about how I think lunar markets will pan out. There are a lot of good points made in this article and I’m not sure I’ll get a chance to go into all of them today, but I wanted to start off discussing one interesting idea that the author, Curran Kemp, presents:
Antarctic resources have been speculated for over a hundred years, but so far, most of the resources found have proven to be subeconomic. The economic model is based upon current prices, distances to market, and current technology. If the technology changes, then it becomes economic.
In other words, a resource is “subeconomic” if the cost at this point in time of bringing it all the way to market is high enough that it wouldn’t be profitable to extract. A resource could be subeconomic for a variety of reasons. It could be found in too low of a concentration, or in an inconvenient form, or in an area that is expensive to access, or it could require technology development that would cost too much at this point to be worthwhile. Or there could be a lot of lower-cost sources or competitors on the market driving the price down, or the resource might require some technology or infrastructure development to become useable. You see many of these situations with oil for instance. There are places in the world that have oil in one form or another that would cost more to develop at this instant than you could probably sell them for, or which would be marginal enough compared to other investments that nobody would put money into them.
The important point to remember though about subeconomic resources is found in the last sentance of the quote above. The “subeconomic” resource of today may very well become an “economic” resource tomorrow. Technology does not stand still. As new technologies come into existance (some from within the industry, but many from other industries), the cost associated with harvesting a given resource will go down. Also as a resource becomes more scarce (or more highly demanded), prices go up, making some subeconomic resources become economically feasible. As other technologies come into existance, they create new demand for a given resource driving the price up. Crude oil today is worth a whole lot more than it was worth before Ford built the Model T for instance. The rise of the automobile has made many previously subeconomic resources of oil quite economic.
For an example of the transformation of a subeconomic resource to an economic one, imagine trying to make a business case for extracting oil from the North Slope of Alaska back in the ’20s. People would’ve laughed you to scorn. “There’s no way”, they’d have said, “that could ever become economical”. They might bring up the fact that there’s no way you could extract and ship the stuff for even a fraction of what oil cost on the world market at that point. They might go into how difficult the environment to work in is or how the deep cold is more difficult than almost any other environment that’s ever been worked in. They’d have been right. Artic Oil was subeconomic in 1920. However, in 2006, the situation is obviously no longer the same. Artic oil is definitely an economic resource now even though it wasn’t previously.
Lets now look at a lunar example. Let’s take the example of lunar Platinum Group Metals. In order to mine PGMs on the moon, you’re probably going to need humans present, you’re going to need to know where they are, and you’re going to need lots of custom designed mining equipment. In order to get humans there starting from where we are, right this instant, you’ll need a launcher, some sort of passenger vehicle/capsule, a lunar transfer vehicle, and a lander. With platinum running about $16k/lb here on earth, and about a 10:1 IMLEO to return payload ratio, you’re also going to need to include development costs for a high-flight-rate RLV to get the transportation costs low enough to even have a chance. Factor in all the uncertainties, risks, time involved, etc, and it all adds up to Lunar PGMs being currently subeconomic. The total cost of developing all the hardware necessary and operating the system is currently more than the expected future profits, especially when you start factoring the time-value of money in.
However, reevaluate things 5 years from now. Bigelow flies Genesis 2 in a few months, decides to play it safe and do one more iteration before Sundancer, but Sundancer is in orbit by 2010, with Nautilus just getting there in early 2011. At least one of the three main vieing human orbital spaceflight providers (LM with Human-Rated Atlas, or the two COTS winners, SpaceX with Falcon IX/Dragon, and Kistler with K-1) is now flying people to orbit, with the total expected demand for flights between ISS and Bigelow being over 20 flights to LEO per year at a ticket price of about $10M per person. Lockheed has found a customer that wanted to use the Lunar Mission Centaur to put a much bigger payload in lunar orbit than could’ve been done otherwise, proving out the technology. Boeing has flown a lunar lander and rover as part of the Lunar Precursor and Robotic Program. LRO has flown as has the Indian probe, and the Chinese one. Using some clever techniques, a company thinks they’ve found good evidence between mascons and radar/IR data for a potentially large Ni-Fe meteorite impact site on the Moon with a large intact core.
If you reevaluate the costs at this point, there are now many of the items you would’ve needed that are either off-the-shelf, or at least you have some proven hardware that you can base your designs on. That slashes the development costs and timeframe substantially. Now you only need to fund development for a manned lander, the RLV, on-orbit propellant transfer, and all the lunar surface equipment. The risks are much lower, the timeframe closer, but the up-front costs are still high. Probably still subeconomic.
Take a look 5 more years down the road. Some commercial company has developed a business selling translunar flights using orbitally refueled Lunar Mission Centaur stages as the transfer system. Between demand for translunar tourism, and increased demand for Bigelow’s second Nautilus station, some enterprising company is able to raise enough money to build a smaller, higher flight rate RLV for fueling, personel launch, and light cargo. Another company is in final development with Boeing or Lockheed on a manned lunar lander that they’re planning on selling lunar tourism flights with. Bigelow announces that he’s going to be putting a Sundancer station in at Earth-Moon L2 to support the various commercial and public lunar programs that are coming on-line in the near future.
Reevaluate costs then. Now the situation has changed enough that the lunar platinum may very well be nearing “economic”. Some initial speculative money for follow-up, “ground truth” prospecting missions might now make sense.
Anyhow, ignore the specific timelines mentioned here. They’re 100% speculative, and I can gaurantee that the future will not look exactly like what I’m talking about. I don’t have a crystal ball anymore than the next guy. My point though is that resources that are entirely subeconomic now will not always be so. And that more importantly as technology and other business ventures progress, little by little new ventures will become economically feasible, and eventually those “completely economically unrealistic markets” may very well cease to be unrealistic at all.
Another important conclusion to draw is that lunar markets are going to develop organically if they develop at all. Communist style 5 or 20-year plans that try to determine all the things that need to happen for a market and then make them so are doomed to failure. The first bar of lunar platinum that gets sold on earth is going to be excavated by a different company than built the lander, which will have been built for a different market entirely, flown on a launcher provided by someone else and developed for something else, etc. You can’t “plan” this stuff that far ahead. What you can do is try and figure out what the next steps are for a given project, and try and guage the market for when the right time to jump in is. It’s business, it’s risky, it’s uncertain, it’s messy, but that’s how entrepreneurism works.
And it’ll still probably get us back to the moon before our Glorious National Space Program does.
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