Fuels and Fossil Thinking

Today is September 29, 2021. The European gas market has melted. It has melted up. Gas in the UK is trading at approximately $30 mBtu. Not to be left behind, the same story is unfolding in Asia. Converted to oil, this price of natural gas is something like $200 per barrel oil equivalent. Propane and heating oil prices are spiking. There is no end in sight. To say the least, changes are coming to the gas pump. And not of a pleasant variety. To add a few other random numbers, coal burning in the electricity mix in China has gone from approximately 60% to 80% this year. Chinese coal consumption is hitting all time highs. We are learning the hard way that the world is still very much driven by fossil fuels of the dirtiest variety. While the EU is increasing its fees per ton of carbon emissions, China is emitting more carbon dioxide into the atmosphere than the EU and US combined.

In the last seven days, the world has come to realize that energy transition and renewables have not transitioned us very far. For all friends in Houston, elsewhere in Texas and around the world, who are employed in the energy industry, the last few days have been one gigantic heave between deja vu and “I told you so”. Has the energy transition bubble popped? I doubt it. The bubble can’t pop because energy transition is really not an economic phenomenon. It is mostly a political phenomenon, which is politically engineered and politically controlled. As such, it will continue unabated until and unless some major social shifts happen. What the last several days have demonstrated is that the primary accomplishment of the so-called energy transition was to transition enormous wealth from the poorest to the wealthiest in society. The poorest being the ones tending toward usage of the cheapest form of energy available. Business as usual.

We are about to start hearing that the spiking of fossil fuel prices will greatly accelerate the energy transition. Maybe so. In the meantime, let’s look at some of the other prices around the world which are greatly accelerating both inflation and poverty. Year-to-date commodity price increases directly correlated to the cost of energy:

Cotton: +50%, Coffee: +50%, Sugar: +20%, Aluminum: +45%, Nickel: +14%, Steel Rebar: +39%, Live cattle: +8%, Wheat: +12%

Everything, from gas, to bread, to housing materials, to your daily cup of coffee is going up. By a lot. The mainstream media keeps telling us that inflation is transitory. Apparently the commodity markets did not get the memo. If you are into hard numbers and statistics, I would recommend checking out this glorious Twitter thread from today: https://twitter.com/JavierBlas/status/1442802744671326213?s=20

As a student of history, I am very tempted to share one of Western history’s greatest lessons. World War One started about 100 years ago in summer. The combatants went to the front in festive mood, promised by politicians that the war would be won and they would be home for Christmas. It was a big lie, or wishful thinking at best. It was a long fight and by the time it was over, almost nobody in Europe was better off for it except a handful of politicians and military suppliers. A similar narrative has taken hold in the world of energy today. Politicians and ESG activists have taken up a crusade against established forms of energy consumption. They are allegedly transitioning us to a new place of cleaner, cheaper energy. This week, the narrative finally collided with reality. The lesson from history is that when the lies collide with reality, exposing the truth does nothing to stop the unfolding chain of events. The combatants in World War One knew by Christmas that they had been lied to. Yet the war kept going. Much of Europe was destroyed over the ensuing 4 years. After the war, the outcome was blamed on old-fashioned thinking, inefficient tactical methods of warfare, lack of social resolve, and what not. New politicians like Hitler sprung around and blamed it on the Jews. Ultimately, Europe went for a do-over 20 years later which saw the complete destruction of societies and the collapse of the old colonial world order.  When it comes to the war on fossil fuels, it seems to me that we are in the early innings of comparable events. The energy transition will not be done by Christmas. Buckle up for the long fight. It will get a lot worse before it gets any better.

P.S. I am heading over to Costco to buy some coffee beans and sugar. Because without affordable caffeination, my personal fight will be over.