Subeconomics Resource Transformation and The Fallacy of Technological Stasis

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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Jonathan Goff

Jonathan Goff

President/CEO at Altius Space Machines
Jonathan Goff is a space technologist, inventor, and serial space entrepreneur who created the Selenian Boondocks blog. Jon was a co-founder of Masten Space Systems, and is the founder and CEO of Altius Space Machines, a space robotics startup in Broomfield, CO. His family includes his wife, Tiffany, and five boys: Jarom (deceased), Jonathan, James, Peter, and Andrew. Jon has a BS in Manufacturing Engineering (1999) and an MS in Mechanical Engineering (2007) from Brigham Young University, and served an LDS proselytizing mission in Olongapo, Philippines from 2000-2002.
Jonathan Goff

Latest posts by Jonathan Goff (see all)

Jonathan Goff

About Jonathan Goff

Jonathan Goff is a space technologist, inventor, and serial space entrepreneur who created the Selenian Boondocks blog. Jon was a co-founder of Masten Space Systems, and is the founder and CEO of Altius Space Machines, a space robotics startup in Broomfield, CO. His family includes his wife, Tiffany, and five boys: Jarom (deceased), Jonathan, James, Peter, and Andrew. Jon has a BS in Manufacturing Engineering (1999) and an MS in Mechanical Engineering (2007) from Brigham Young University, and served an LDS proselytizing mission in Olongapo, Philippines from 2000-2002.
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17 Responses to Subeconomics Resource Transformation and The Fallacy of Technological Stasis

  1. Mark says:

    I agree with every part of the post (since I’ve been patiently pointing out), except for the last sentence. Lunar resources becoming “economic” (to use the phrase) is a process dependent on transportation costs from the Moon becoming low enough to make them so. I cannot see that happening in less than fifteen or twenty years.

  2. Jon Goff says:

    Mark,
    Not only do you seem to not see it happening in less than fifteen to twenty years, but you also seem to believe that when it finally happens, it will only be because NASA has decided to pay for commercial shipments to its lunar base. I don’t think the market is going to sit around and wait that long.

    If NASA was smart, and started engaging private enterprise early on, the transportation costs could come down a lot sooner. Which would benefit both NASA and private enterprise. But you seem to prefer repeating the mistake of ISS, and only bringing the private sector in after the fact to prevent the program from becoming a complete failure, instead of working with them early on to ensure success.

    Lunar COTS is a bandaid. If 20 years from now NASA has to do a COTS program before it can buy commercial cargo and crew deliveries to its base, it will be a crying shame, not something to be celebrated.

    ~Jon

  3. Adrasteia says:

    If the program doesn’t intend to lower transport costs from the outset, it’s a failure. Regardless of whether it puts a few dozen footprints on the moon.

  4. Jon Goff says:

    Adrasteia,
    If the program doesn’t intend to lower transport costs from the outset, it’s a failure. Regardless of whether it puts a few dozen footprints on the moon.

    I agree with the basic sentiment, but I’d be happy if they even just acted as a customer for space launch, or provided funding to develop on-orbit propellant transfer. But yeah, if NASA blows over $100B without doing anything beneficial or enabling for the space transportation industry, it’ll have been a total waste.

    ~Jon

  5. Karl Hallowell says:

    This indirectly brings up some opinions I had on how profitable businesses would emerge in space.

    Perhaps my ideas on creating a business have been warped by the dotcom bubble, but it seems to me that new business in space will be driven by the transition of individual markets from “pre-economic” to “economic” rather than bundles.

    In past discussion threads here we’ve discussed lists of pre-economic possibilities. Some people (especially Bill White, I believe) have indicated that they think it’s possible to run a profitable business by exploiting numerous pre-economic markets at once (eg, tourism coupled with advertising and perhaps sample return, astronaut training, etc IIRC).

    Synergy between multiple markets might indeed sustain a business, but my take is that a single profitable niche is much more likely to spur a new business than a web of markets that happens to be collectively profitable. IMHO it’s much harder, especially if the business is small, to devote enough attention to several different markets in order to be collectively profitable.

  6. Bill White says:

    As was stated at the Cynics, it would appear that the numbers for a fuel depot do not work out unless something like Elon’s Falcon 9 actually flies.

    Using EELV for a fuel depot is just too expensive. MORE expensive that ESAS.

    And why Ares? To preserve the Thiokol SRBs for Mars. If Musk fails and the heavy lift industrial infrastructure is gutted, Mars is off the table. With Ares V or DIRECT, MarsDirect remains a possibility.

    Nasaspaceflight has had a marvelous set of threads on how the 4 segment SRBs and SSMEs hit a real sweet spot for launching a rocket. If Musk fails, NASA can still accomplish its mission.

    Kerosene/LOX strap-ons might work better but those do not exist today (excluding Zenit) and that means development costs and time.

    = = =

    It also appears that the Ross Tierney DIRECT project may be getting some traction. DIRECT really does solve a whole lot of problems (engineering and political) and gets us to the moon even if SpaceX fails to perform.

  7. mwhittingt says:

    Jon, I’m just following history. Private efforts to put people into LEO were essentially moribund until COTS was started. I see no reason why the same will not be true of the Moon.

  8. Bill White says:

    Karl writes:

    In past discussion threads here we’ve discussed lists of pre-economic possibilities. Some people (especially Bill White, I believe) have indicated that they think it’s possible to run a profitable business by exploiting numerous pre-economic markets at once (eg, tourism coupled with advertising and perhaps sample return, astronaut training, etc IIRC). Synergy between multiple markets might indeed sustain a business, but my take is that a single profitable niche is much more likely to spur a new business than a web of markets that happens to be collectively profitable.

    Try this thought experiment:

    Visualize whatever “killer app” you believe will become economic first. Then visualize scenario A where a company follows that plan and makes money but also contracts with Nike to plaster some logos on the spacesuits. In scenario B there are no logos.

    Both Company A and Company B may close their business cases but with Nike, Company A makes more money.

    Truth be told, I agree with Jon Goff — ubiquitous marketing is tacky and offensive. But it makes money.

  9. Jon Goff says:

    Karl,
    Yeah, the more different simultaneous revenue sources you try to pursue, the harder it will be to pull off a given mission. Not to mention that investors don’t want to see you focusing on too many markets at the same time. They’d rather see you focus on just one or two and do them well than to spread yourself too thin.

    I think we’re on the same page there.

    ~Jon

  10. Jon Goff says:

    Mark,
    That’s the basis for your logic? I think the timing is more coincidental than you think. Had it not been for COTS, I think Bigelow still would’ve announced Sundancer/Nautilus when they did, and those are the bigger markets anyway. SpaceX was working on Dragon pre-COTS.

    You have to remember that personal orbital spaceflight had just barely started to be taken seriously in the past few years. COTS is a good deal, but imagining that without COTS nothing would be happening is naive at best.

    And assuming that commercial manned lunar missions won’t start until NASA funds a Lunar COTS program sometime 20-30 years from now is equally naive.

    ~Jon

  11. Jon Goff says:

    Bill,
    I touched on this a little in my reply to your similar comment on the Pay As You Go post, but I figured I’d add some more detail.

    As was stated at the Cynics, it would appear that the numbers for a fuel depot do not work out unless something like Elon’s Falcon 9 actually flies.

    Well, I’ve got at least one idea (other than the ones I mentioned on the other thread) that if right would disprove that. But that’s for another post (I know, I know, I still haven’t gotten to it yet).

    Using EELV for a fuel depot is just too expensive. MORE expensive that ESAS.

    Nope. Not if you count the full cost of launching something via ESAS. Ares-I is over twice as expensive per pound all things considered than EELVs, and Ares-V isn’t cost competitive either. Remember to be fair you have to count at least fixed costs for the Ares launchers, and you have to consider bulk-buy effects for EELVs. When you do that, that comment falls flat.

    And why Ares? To preserve the Thiokol SRBs for Mars. If Musk fails and the heavy lift industrial infrastructure is gutted, Mars is off the table. With Ares V or DIRECT, MarsDirect remains a possibility.

    Not true either. You can do Mars Direct better without SRBs than you can do with them. Remember–for a Mars mission over 80-90% of the mass on orbit needed is propellants. If you have orbital propellant depots, you don’t need HLVs.

    Nasaspaceflight has had a marvelous set of threads on how the 4 segment SRBs and SSMEs hit a real sweet spot for launching a rocket. If Musk fails, NASA can still accomplish its mission.

    NASA could still accomplish its mission better than ESAS with on-orbit propellant depots, even if Musk fails.

    It also appears that the Ross Tierney DIRECT project may be getting some traction. DIRECT really does solve a whole lot of problems (engineering and political) and gets us to the moon even if SpaceX fails to perform.

    More to the point, it also frees up enough money that NASA could afford to spend some money on actually retiring some of the risks for orbital propellant depots and other high-payoff technologies. If you have to insist on using a Shuttle Derived vehicle, DIRECT is by far the least sucky.

    ~Jon

  12. Rand Simberg says:

    Mark has to believe (despite the evidence) that COTS is critical to private human spaceflight, lest it shatter his worldview that nothing can move forward in space sans the beneficent hand of our central planners.

  13. Kelly says:

    Technology does not stand still is right. I hope that translates into someone somewhere developing a new propulsion system that greatly outperforms today’s checmical rockets.

    I have no idea what it would be (though Parkin’s microwave launcher looks promising) but the existence of a commercially available high thrust engine with an Isp in the 800+ range would drastically reduce the infrastructure required and move lunar resources into the economic range much sooner.

  14. Rick Boozer says:

    Mark,

    Jon hit it on the head. Elon had already spent a hundred million dollars on Falcon cum Dragon before COTS was even a gleam in NASA’s eye. Remember he had already committed himself to reaching the Bigelow space station. And that aforementioned hundred million dollars is just a fraction of his personal fortune. Furthermore, he has said from the beginning that he will spend as much of his money as it takes – or in his own words to “turn a large fortune into a small fortune”. Obviously, all COTS is going to do for Musk is to allow him to recoup the money he has spent faster and to use the NASA award to accomplish his very long range goal of getting to Mars in a shorter time frame. But COTS or no COTS, SpaceX was already in an “Orbit or bust!” mode and has always had immense money reserves on hand to recover even from fairly catastrophic setbacks along the way.

  15. Jon Goff says:

    Kelly,
    While a higher performance rocket engine could really change things a lot, it’s not entirely necessary for many of the lunar markets to transition over into the “economic” realm. There are some markets that are so close to economic viability, that even at current launch costs they’re only waiting for someone to put some of the technology on the table, such as on-orbit propellant transfer.

    That isn’t to say that people who think they’ve got a good idea for higher performance propulsion shouldn’t follow through with them, but just pointing out that it’s one of many routes to opening up the moon for economic development. I do agree that Kevin’s work is interesting, if for no other reason than that it’s one of the only non-nuclear high-thrust, higher-Isp ideas out there. But they’ve still got a long way to go on that, including a whole lot of infrastructure that would need to be built.

    ~Jon

  16. Jon Goff says:

    Rich,
    Yeah, COTS is a very good thing for the industry, and will definitely speed up what was already happening slowly. That’s how I feel about getting the government involved in other ways such as paying for technology risk reduction demonstrators. The private sector would’ve eventually figured all of that out, but paying for it sooner rather than later allows a lot of those subeconomic plans to start transitioning into economic ones a lot sooner.

    ~Jon

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