Tag Archive for: EnergyCrisis

Every Curve Flattened

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Estimated Reading Time: 3 minutes

Yesterday, EU Commission President Ursula von der Leyen addressed the mounting problems in European energy markets. On Twitter, blaming Russia for “manipulating” energy markets, she recommended a handful of steps to mitigate the rolling blackouts and other shortages plaguing Europe. The first tweet reads as follows:

Smart Savings of Electricity: We need a strategy to flatten the peaks, which drive the price of electricity…

For anyone who has been awake for as little as a few hours during the past thirty months, yes, we have heard this before. There’s something about hills and troughs in time series that creates discomfort, especially when it brings a notable change in circumstances. And in an age where the belief in the feasibility of the omnipotent state is prevalent, calls for government action inevitably follow. 

If disease infections are rising, everyone should stay at home. If wages are falling, a minimum wage is clearly needed. Should wealth increase rapidly among small strata of society, it must be taxed away. When suicides skyrocket among combat veterans, they should receive counseling and other services. Stock indices or commodity prices are plummeting? Shut down the markets for a random period of time!

Yet nowhere in these cosmetic reactions are nuanced, let alone enduring remedies. Who is being struck by disease, and under what circumstances? Why are wages declining? In what professions, and where? What is the effect on employers and the broader job market? If wealth is rising, why? And what effect does it have on individuals who aren’t wealthy? Is it better to hurl hundreds of thousands of young people into war and sloppily patch them up afterward, or should military forces be deployed far more sparingly? If the prices of financial assets fall, are they not repricing? What new information is spurring that financial realignment? And however painful the decline may be for investors, doesn’t it create new economic information that entrepreneurs and managers can see and use?

Numerals, the symbols developed to represent the mathematical objects we call numbers, came early in human history, permitting the counting and tracking of phenomena. The price system, built on the evolution of money by employing numerals, arose to signal subjective exchange ratios and changes in them over time. The change is not only visible to the immediate consumer, but to other market participants near and far. A massive intellectual edifice surrounds each of us, providing information at varying intervals across uncountable simultaneities. Political incentives, more and more, are aligned toward imposing temporary, usually illusory, stability upon any corner of the human endeavor that strays from constancy.

Some situations require rapid action. But those should be short-lived holding actions explicitly selected to buy time for deeper analysis, determining root causes, connections, trade-offs, and unintended consequences. Clumsy, superficial policies are increasingly the end states of crises or periods of duress. The handful of nations currently on their seventh or eighth failure to impose Zero Covid come immediately to mind, as do the woefully diseconomic choices made by the London Metal Exchange to address the nickel short squeeze in March of this year.

The increasingly popular rule that every curve must be flattened and every dip filled is disconcerting, as every domain touched by human experience exhibits volatility at times. An increasing tendency toward knee-jerk responses from politicians and regulators ignores both the underlying generators of those swings and the harvesting of information embedded within them. The pursuit of nostrums whereby fragile stability is sought regardless of the consequences is a half step removed from uninhibited superstition and an abdication of empirical reality. Thoughtlessly mandating the crushing of trends, in retail electricity prices, unemployment, infections, and beyond, is killing the proverbial messenger. Short-sighted, mechanistic solutions not only solve nothing, but provide creatures that thrive on power a license to intervene again, and again, and again.

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This article was published by AIER, American Institute for Economic Research, and is reproduced with permission.

Without Fossil Fuel Infrastructure We’re Supposed To Have An ENERGY CRISIS!

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Estimated Reading Time: 4 minutes

Over the last decade, climate activists have successfully pressured governments, banks, and corporations to divest from crude oil and natural gas companies. The energy infrastructures are just like the “civil” infrastructures the American Society of Civil Engineers (ASCE) Infrastructure Report Cards constantly addresses, and the resultant poor “grades” given to the infrastructures of our economy. Under-investment in infrastructure leads to deterioration and supply chain issues that more adversely impact the economy.

Without fossil fuel infrastructure we’re supposed to have an ENERGY CRISIS! ESG “Environmental, Social, and Governance” investments are all the rage on Wall Street these days as climate activists continue to pressure governments, firms, and banks to divest from oil and gas exploration. The ESG investment directions are impacting the energy markets and the supply chain of products and fuels manufactured from crude oil and are, paradoxically, causing rising coal use, carbon emissions, and shortages.

Meanwhile, China, India, East Asia, and Europe are all mining and burning more coal to make up for the lack of natural gas. China, India, Indonesia, Japan, Vietnam, and Africa will have more than 3,000 coal-fired power plants by 2030 in those developing countries with billions of people seeking abundant, affordable, and reliable electricity.

The ESG considerations now propagating throughout corporate America account for much of the decline in capital expenditures by international oil companies in recent years. Big financial institutions such as Bank of America and Mastercard, investment managers such as BlackRock and Vanguard, and hundreds of corporations are going all-in on the financial and commercial portion of the Great Reset, pushing environmental, social, and governance (ESG) metrics.

As we have learned from the ASCE Infrastructure Report Cards, under-investment in oil and gas exploration is “supposed” to facilitate the deterioration of fossil fuel infrastructures and lead to an economy rife with inflation and supply-chain disruptions.

Of the three fossil fuels of coal, natural gas, and crude oil, the ESG enthusiasts do not understand that crude oil is seldom ever used for the generation of electricity.
For electricity, most of the world’s continuous uninterruptable electricity generation is by coal, natural gas, hydropower, and nuclear. Crude oil is a non-player for electricity generation.

The primary usage of crude oil is not for electricity, but to manufacture oil derivatives that make 6,000 products used in our daily lives, and the transportation fuels needed by the world’s:

Militaries
23,000 Commercial jets
20,000 Private jets
10,000 Superyachts over 24 meters in length
300 cruise ships
53,000 merchant ships, and
1.2 billion vehicles

The economic comeback from the covid pandemic has pushed up demand. The underperformance of electricity generation from breezes and sunshine has meant higher demand for both natural gas and coal, to provide continuous uninterruptable electricity generation.

With ESG investment guidelines hovering over corporate America, oil and gas firms have since refused to expand production, even though the proof of this desperately needed infrastructure is in the data. Fossil fuels’ share of global energy production remain unchanged at 81 percent. To the extent emissions in Europe and the US declined, it was largely due to the transition from coal to natural gas.

Socially responsible investing is decades old, but ESG was embraced over the last decade by large university endowments, investment banks like Blackrock, governments, the International Energy Agency, the United Nations, and eventually by oil and gas companies themselves, including Shell, Total, and many others. In May, a court in The Netherlands ordered Shell to reduce its emissions, a ruling that made firms reluctant to invest in new oil and gas exploration.

With ESG having picked breezes and sunshine as the winners for intermittent electricity generation, those taxpayer subsidies could further reduce the incentive for private firms to invest in oil and gas. Even if they don’t, the Biden administration has moved to restrict oil and gas drilling on public lands.

Like California, that relies primarily on foreign countries for 58 percent of California’s crude oil demands, President Biden has effectively accepted the idea that the United States will rely more on foreign oil. As a result, foreign nations will benefit from rising oil and gas prices at America’s expense.

High oil and gas prices are already creating political problems for governments as they worsen inflation. Prices and shortages are likely to remain high for years not months.

Increasing America’s dependence on foreign oil producers makes even The New York Times, which has long championed oil and gas divestment, nervous.

The flagship of the alarmist policies today is the Green New Deal, the most recent iteration of the Green New Deal was first proposed in the United States by Rep. Alexandria Ocasio-Cortez (D-NY) and backed by other prominent politicians and Democratic presidential candidates, including Sens. Bernie Sanders (I-VT), Elizabeth Warren (D_MA), and Kamala Harris (D-CA).

Among the goals, the GND seeks to accomplish by 2030 are the following:

The elimination of all electricity generated by coal, natural gas, and nuclear power, concurrently while intermittent electricity from breezes and sunshine is underperforming.
The GND seeks to replace all fossil fuels, including the innocent bystander fossil fuel of crude oil that is seldom used for electricity, but necessary for products and fuels.
The ESG movement does not bode well for both the electricity market and the supply chain for more than 6,000 products as the primary usage of crude oil is for the manufacture of derivatives for thousands of products, and fuels for transportation infrastructures.

Seems that we have learned very little from the ASCE Infrastructure Report Cards that have taught us those infrastructures deteriorate with under-investments. By under-investment in crude oil and natural gas infrastructures, the world leaders are tinkering with the supply chain of crude oil that is destined to impact resultant shortages of transportation fuels and the thousands of products made from the oil derivatives manufactured out of crude oil demanded by current lifestyles and worldwide economies.

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This article was published on November 5, 2021, and is reproduced with permission from CFACT, The Committee for A Constructive Tomorrow.