History is about people, and personal connections always add interest. On hearing we’d be visiting Charleston, SC a good friend, Austin Sayre, suggested we stop by his family’s ancestral home. The Colonel John Stuart House is in Charleston’s historic district, where many of the homes have a plaque describing their former owner’s significance. Colonel Stuart is one of Austin’s ancestors.

The plaque and Wikipedia together describe Colonel John Stuart, a Scottish rebel who later represented the British government in dealing with Native Americans. Born in 1718 in Inverness, he arrived in Charleston in 1748. During the Revolution, his loyalty to the British crown meant he had to flee Charleston, and his house was confiscated. Stuart died in Pensacola, FL in 1779. The British Commander-in-Chief in North America, General Sir Henry Clinton, lamented, “The loss of so faithful and useful a servant to His Majesty.”

Charleston is a beautiful old city. Dozens of fine homes in the historic district have been restored, and it’s absorbing to stroll among them while reading about the lives of former residents. The water front is picturesque, and is best experienced on foot wandering down the narrow streets. The city also provided our first meal out in three months (see Having a Better Pandemic in Charleston, SC).

There’s more to the story. John Stuart didn’t just sail for the new world in search of opportunity. He was fleeing for his life. In 1745 Charles Edward Stuart (“Bonnie Prince Charlie”) led the Jacobite rebellion, which sought to overthrow King George II in favor of Bonnie Prince Charlie’s father, who was waiting in France. John Stuart, clearly of the same clan and therefore related, joined the uprising. It was put down at the Battle of Culloden in 1746, where the English won a decisive victory.

What remained of the Scottish army returned to their homes in the Scottish highlands. But King George II sought revenge against the treasonous officers who had led the uprising. John Stuart was wanted, and likely faced execution if caught. He and his brother Francis left Britain, on a ship that brought them to Charleston. There, John Stuart eventually built the house we had visited, and his descendants ultimately included Austin Sayre.

Incidentally, the TV series Outlander portrays the events around Culloden, including the battle, in a number of gripping episodes.

I contemplated this historical vignette and my connection with it. Part of it didn’t add up. John Stuart had gone to war against the British Crown in 1746, following which he had fled the country. Just 14 years after Culloden, we find Captain John Stuart in the local militia fighting the Cherokee Indians.  He was captured, but later released in exchange for a ransom.  In 1762, Stuart’s familiarity with Native Americans led the British to appoint him Crown Superintendent for Indian Affairs in the South.

During the Revolution, John Stuart’s loyalty to the Crown forced him to flee again, this time from Charleston. Why did this former rebel later pledge fealty to the king?

I asked Austin, who shared the story passed down to him through his family. King George II died in 1760. He was succeeded by his grandson, George III, whose father, Frederick, Prince of Wales, had died in 1751 of a lung injury. Sometime after George III’s accession, John Stuart and his brother Francis sought a royal pardon from the new king. George III was looking for friends in the colonies, and was perhaps also influenced by John Stuart’s service in the 1759-61 Anglo-Cherokee war.  Both brothers were pardoned. This is why the Scottish rebel spent his later years as a loyal subject. What a fascinating twist!

Francis subsequently returned to Britain, but John remained in Charleston until the Revolution. He built his house between 1767 and 1772, by which time he was Colonel John Stuart.

It’s an obscure piece of history. The story was made real for us through visiting the home once owned by our friend’s ancestor, and supplemented with additional information. Charleston felt closer to Britain than does everyday life in New Jersey, because its early history is so vividly British. Our shared histories are why, for this Brit, America has so easily been home for 38 years and will be for the rest of my life.

I am descended overwhelmingly from English stock – my ancestors might even have been on the opposing side at Culloden, although Austin Sayre is too much of a gentleman to retain a grudge. Colonel John Stuart no doubt lamented the 1776 Declaration of Independence, but Austin and I agree that Britain’s loss was the world’s gain. We are a great country navigating a tough patch. We’ll make it to the other side. We always do.

Covid-19 cases are rising, especially in the south. Three weeks ago, my wife and I headed to South Carolina and beyond, where restrictions were limited and nobody we met knew anyone who had gotten sick (see Having a Better Pandemic in Charleston, SC). Masks were scarce, inside dining was permitted and it seemed like the old days. It was a glorious break from New Jersey with its opaque lockdown process and intermittent minor relaxations. However, rising infections in the south are causing some to suggest that people have been too relaxed in their efforts to avoid infection.

Covid-19 has become a political issue, so voting affiliation tends to color people’s attitudes. The New York Times recently posted two graphs that can be harnessed by each end of the political spectrum. The Liberal narrative focuses on the early under-counting of deaths because of insufficient testing (noted below the charts) and the uptick in infections. Covid-19 has killed even more people than we thought, and is spreading.

The Conservative perspective looks at the earlier understated number of deaths, which are now being more accurately counted because of more widespread testing, and sees an even faster decline in fatalities. Moreover, the increase in infections doesn’t seem to be arresting the decline. This suggests that we’re simply finding more infected people, because we’re testing more, and not that it’s getting worse. Treatments are improving too, leading to better outcomes.

Since it’s become a political issue, both sides can use the data to argue their case.

The median age of those testing positive is trending younger. In some counties in Texas, the majority of the positive tests are now people below thirty. Dr. David Persse, public health authority for the Houston Health Department, said, “It is my current theory that elder persons have become more vigilant in taking precautions,”

This sounds plausible, since older people are far more vulnerable to suffering serious illness or death from the virus. And the rising rate of infections among young people could reflect their confidence that, even if they contract the virus, their symptoms will most likely be mild or even non-existent (asymptomatic). We’re all growing weary of social distancing with its myriad restrictions on life as we knew it. Younger people seem to be increasingly willing to risk infection, since any negative consequences are likely to be mild.

This highlights the problem with requiring low-risk people to follow behavioral rules that protect others that are more vulnerable. It doesn’t seem much to ask in theory, but drinks at a bar with friends can easily seem a long overdue and justified proposition.

San Antonio mayor Ron Nirenberg also believes social distancing is being harmfully ignored, “While they may survive an illness, younger people are going to be stuck with a pretty hefty medical bill at the end of it.” That doesn’t sound like a compelling incentive – hence states like Texas are forced to reconsider how they impose social distancing.

But there’s a problem with this interpretation that age groups are adopting risk-based behavior. For Dr. Persse to be right about older people more successfully protecting themselves, you’d expect to see young people represent a bigger proportion of deaths and older people less. But this data is fairly stable. It looks to us that we are simply identifying more infected people because we’re testing more. Some may argue that deaths are a lagging indicator, but CDC data shows the same stable pattern for hospitalizations too. Although more young people are being counted as infected, the proportion of young people getting seriously ill or dying is not rising.

Early estimates of the Infection Fatality Rate (IFR) from Covid-19 were in the 3-4% range, based on data from China that assumed no asymptomatic spread. The New York Times article opens with 2.3 million+ cases and 120,345 deaths, implying an IFR as high as 5.2%. Projecting these IFRs across wide swathes of the U.S. population imply many millions of deaths, so it’s easy to see why governments took aggressive steps to protect people. But now we know that asymptomatic spread is high, which has greatly increased the infection rate. The fatality rate has correspondingly fallen as a result.

A recent paper from Stanford University (The infection fatality rate of COVID-19 inferred from seroprevalence data) has not yet been peer-reviewed, following recent practice to publish first with that caveat, in the interests of sharing analysis quickly. Serology tests estimate the infection rate across a population by looking for antibodies in blood tests. The Stanford paper uses data from 23 such studies, and arrives at an IFR of 0.04% for people under 70. This is why young Texans are drinking in bars and failing to follow social distancing. They probably take more risk getting home from the bar than when they’re inside.

Last week Oneok (OKE) did a secondary offering of 26 million shares. It was priced at $32, and diluted existing shareholders by around 7%. Although a healthy discount from two years ago when they raised $1BN at $54.50, it was nonetheless encouraging that a pipeline company could raise equity. On March 18, when the sector was roiled by desperate selling from incompetent closed end fund managers (see The Virus Infecting MLPs), OKE traded at $12.16.

In reviewing OKE’s recent stock price performance, a good friend of mine recounted some sage wisdom he once heard from a big investor: It’s never a bad thing to let your new investors make money.

Like most of the sector, OKE rallied strongly from late March. Energy led the rebound in stocks, and on Monday, June 8 OKE traded briefly over $48, almost 4X its low in March. This would have been a great opportunity to do a secondary offering, within touching distance of the price from two years earlier.

OKE management may have been thinking about it – judging from the stock’s subsequent fall, they were likely even discussing it, and perhaps injudiciously. But the announcement finally came two days later, after trading last Wednesday, June 10, when OKE closed at $41.98.

OKE quickly sank on Thursday, dropping $4 on the open and closing down $6.65 at $35.33. The secondary was later priced at $32, a third lower than its price at the beginning of the week.

Most of those involved must be very happy. Buyers of the secondary never saw a loss on their investment, and by Tuesday 16th the stock had rebounded to $38. The underwriters clearly did well, and even existing holders who didn’t participate in the offering can draw comfort from OKE’s now improved financial strength. OKE followed my friend’s advice to let its new buyers make money.

Nonetheless, a more adept management team would have been preparing earlier to fully exploit the market’s newfound passion for pipeline stocks. They would have been ready at $48, rather than chasing the market down to $32. Secondary offerings can be executed quite quickly.

By contrast, consider Tesla (TSLA). Given the trouncing he has handed short selling hedge funds and other skeptics, it’s likely CEO Elon Musk’s photo adorns many dartboards in Greenwich. The case for shorting TSLA was widely made and not that complicated – they were going to run out of cash. It was just a matter of when. Inconveniently for naysayers, this date with financial destiny kept being pushed off, as TSLA’s operating results continued to surprise.

Losses on short positions expanded steadily late last year as TSLA rallied. In January, as the stock exploded upwards like a SpaceX launch, shorts capitulated and joined the indiscriminate buying. On February 4^th, the day TSLA traded at $969. Elon Musk gracefully allowed the shorts an exit, via a $2BN secondary offering of 2.65 million shares. This was priced $200 lower, at $767, but since it was less than 1.5% of shares outstanding the dilution was inconsequential.

Coronavirus subsequently wiped out half the company’s value, which likely caused the embittered hurling of a few more darts at Musk’s likeness in Greenwich. But TSLA, like OKE and the rest of the market, has made a strong recovery since. However, the buyers of OKE’s secondary are probably happier than the buyers of TSLA’s. We think they’ll have more to cheer.

We are invested in OKE

Vaclav Smil is a prolific writer of books that explain how the world uses energy. Past titles include Making the Modern World – Materials and Dematerialization, Energy Transitions, Energy Myths and Realities, Energy: A Beginner’s Guide and Energy and Civilization: A History. If you want to understand the physics, chemistry and economics of energy, you need go no further. Natural Gas: Fuel for the 21st Century is four years old, but still provides a solid grounding in its importance for many decades to come.

What we call natural gas is mostly methane (CH4), and it’s been produced by the decomposition of organic matter on earth for at least 3 billion years. Rising concentrations of atmospheric methane can be traced back to the expansion of rice cultivation in Asia, thousands of years ago, and didn’t just begin with the industrial revolution. Ethane and propane are often present in the natural gas mix, although methane dominates. Methane is burned in power plants to produce electricity, and is used for heating and cooking in most homes. Ethane tends to be most valuable as a petrochemical feedstock into plastics, while propane is used to generate heat in various industrial processes, in backyard barbecues and in some cases for transportation.

The Shale Revolution in America has been as much about natural gas as crude oil, although it’s the latter that draws more attention. Natural gas relies heavily on pipelines for transportation, so long term purchase agreements are common in order to justify the significant capital investment in necessary infrastructure. One of the most remarkable energy stories in the last decade is how the U.S. switched from planning greater natural gas imports to becoming a major exporter, as domestic production swelled. Greg Zuckerman’s The Frackers recounts how Cheniere Energy turned reoriented Liquified Natural Gas (LNG) terminals from import to export.

Facts and figures are the very essence of Smil’s books, providing support for every statement. Methane has relatively low energy density, which is why it has to be converted to near liquid form before loading onto LNG tankers; otherwise, the economics of shipment would be unattractive. This is also why it’s not used in road vehicles, where propane’s higher energy density makes it preferable although gasoline dominates because it has even higher energy density.

Natural gas storage is often underground, in depleted natural gas reservoirs, porous rock formations or salt caverns. A giant aboveground tank 100 meters in diameter and 100 meters tall would only hold enough natural gas to heat around 500 Canadian homes during a typical winter. Methane’s high combustion efficiency has led modern residential natural gas-fired furnaces to reach efficiencies of 95-97%. No other fuel is this efficient. In power plants it generates less than 60% as much CO2 as coal. Developing technology may bring further, dramatic improvements (see Clean Fossil Fuels May Be Coming). America’s switch from coal to natural gas for electricity generation is why greenhouse gas emissions have fallen. It’s also why getting China and India, the world’s big coal users in the coming decades, to rely more on natural gas is one of the most important ways the world can combat global warming.

Today’s Energy Transition anticipates the global economy’s move from fossil fuels to zero-carbon based energy. The role of natural gas in this transition is hotly debated – as the cleanest burning fossil fuel, Smil believes (as do we) that it’s going to be part of the solution to lowering emissions. The religious zeal of climate extremists makes no distinction between coal and natural gas, or the impracticality of eliminating 80% of the world’s energy sources. Because this is so unappealing to most people, global emissions grow and Greta lectures ineffectively to virtue-seeking audiences (listen to Davos Talks Climate Change).

Smil provides many more useful insights about natural gas, which will be discussed in a later blog. For a highly informative read, pick up a copy of Natural Gas: Fuel for the 21st Century.

On Thursday my wife and I boarded a plane from Newark, NJ to Charlotte, NC. Although Governor Murphy is slowly relaxing the lockdown restrictions that have been imposed on New Jerseyans, it is an incremental process. Each minor restoration of a freedom lost is quietly celebrated. Restaurants will soon be allowed to open for outdoor dining. Hair salons will reopen with limited capacity,  but no news yet on dentists. The sequence is slow and opaque.

We’re in the minority, believing living in a free country includes selecting your risks. Frequent hand washing, masks in public places and social distancing are completely reasonable and courteous. Those at high risk of serious illness are generally in well-defined groups. If you’re worried, stay home. Destroying so many small business owners’ life’s work deserves more consideration than it’s getting.

We await each new missive from the governor without much idea of their framework or schedule. Little is said of the destruction to New Jersey’s already precarious fiscal outlook, but we know eventually the Coronavirus bill will come due. Expect much complaining as ruinously high property and income tax rates are tweaked even higher.

NJ has suffered around 12,000 deaths, 80% of whom were over 65. It doesn’t need saying but I shall anyway, that each death is tragic and my heart goes out to every family. Related but not comparable is that 1.2 million NJ residents have filed for unemployment.

The fatalities didn’t cause the job losses. We shut the economy down to prevent more deaths. Suppose without lockdown, it would have been twice as bad. The lockdown meant 12,000 people survived who otherwise wouldn’t have. Let’s suppose this lucky group is also 80% over 65.

In this scenario, the ratio of jobs lost to coronavirus fatalities avoided is 100:1. Versus working age fatalities it’s 500:1. These ratios have no optimal value, and some may find the concept crass. But they do seem high.

Since we long ago flattened the curve and a vaccine is a 2021 event at best, life needs to rapidly adapt to whatever new normal is.

Newark airport was eerily quiet. Everyone is required to wear a mask. The TSA estimates passenger volumes at 15% of normal, which looked about right. There was virtually no line at security, even for the non Pre-check crowd. Most airport stores were closed. Restaurants had plastic wrapped their seating to further dissuade visitors, even though no meals are on offer. It was rather sad.

On hearing we’d be flying, most friends commented on the risk of infection. Modern aircraft have HEPA air filters which are apparently fine enough to catch the virus. Fear is constraining all kinds of travel, but most have nowhere to go. Pandemic restrictions in some form are everywhere.

But the choice to endure lockdown in New Jersey from early March would have few takers. For several weeks even walking in a forest or park was forbidden. We vowed then to visit somewhere else, almost anywhere, once my wife’s obligations as an online pre-school teacher were complete. North Carolina, a rental car and a plan to drive south to Charleston, SC and then beyond, beckoned.

When we exited the plane at Charlotte, two passengers walked 40 feet and sat down at the first bar they’d seen in three months.

Coronavirus has constrained life in South Carolina too. Museums are closed, but restaurants are open for indoor seating with socially distanced tables. As we were walking through historic Charleston, we excitedly pointed through a window at four people sitting at a restaurant table indoors. The diners looked back, regarding us with some amusement.

South Carolina has less than a fifth as many cases as NJ, and 8% of the fatalities, adjusted for population. Of course, NJ has fared worse than anywhere except neighboring epicenter New York City. So just traveling away from NJ was likely to be an improvement.

Visitors to Charleston are way down. Our original hotel reservation was canceled because the owners suddenly decided to carry out renovations.

Nonetheless, life in Charleston is more agreeable and probably our new normal. We ate our first meal out in three months. Tables were generously distanced and the waiter wore a mask. Turns out he and his girlfriend fled Queens, NY two months ago. We understand.