Porridge Extra – 30th September 2021: The Looming Energy Crisis: People Are Going To Die This Winter
For many months myself and many of the investors I work with have become increasingly concerned at the growing instability and insecurity of energy markets. The 4 times spike in Gas prices this year has been a shocking wake-up call, highlighting energy insecurity in Europe and particularly the UK. Gas prices will remain elevated for months to come. The consequences are going to be brutal – and fatal for some.
Energy – whether derived from fossil fuels, nuclear or renewables – is a commodity and the critical thing about commodities is: “You can’t print commodities like you can print money. The rules are not the same,” says my good friend and head of commodities at Shard, Ashley Boolell.
Commodities are volatile and dangerous. Oil has doubled in recent months. But the thing about Gold, Silver, Palladium and copper prices is; no matter how volatile they are, they are simply investment opportunities or traps, and are unlikely to kill us.
Energy is different. It can kill us.
That was conclusively demonstrated earlier this year in Texas. A swift series of winter storms crashed the Texan grid when gas infrastructure failed in the cold, renewables weren’t delivering, and the deregulation of its energy system had delinked Texas from both US power Grids – making it difficult to import energy. Over 200 people died as a result of power outages.
Fast forward to this winter, and the UK and Europe are in the direct firing line of the coming energy storm. The security of energy supplies has never looked less certain. In the UK, neglected storage means we have the capacity to story 3-4 days of Gas. The recent collapse in sterling has been linked to the panic over Petrol supplies, escalating and cascading supply chain failures impacting industry and growing woes blamed on Brexit. I would add questions about how the UK’s status as a first world economy with zero energy security will line up.
How has this happened? Why?
Well… that’s a long tale… But, it will be mightily embarrassing for the Boris Johnson Government if the first UK power outages occur during the COP26 Climate Circus in Glasgow in November.
COP26 has driven the Government’s agenda and ambition to be seen as more green, more carbon neutral and more ESG than anyone else. I’ve heard tales of cabinet ministers throwing sweary hissy fits when asked to support policies that don’t immediately square with green policies perceived as vote winners.
As I’ve written many times – ESG is well intentioned, but perhaps the most dangerous force in Economics today.
Investment managers rely on people giving them money to manage. That is why every single fund manager on the planet is fixated on polishing their green credentials, demonstrating how they are funding ESG compliant investments, and eschewing anything even vaguely linked to hydrocarbons. It is also why Saudi Arabia is polishing its credentials by improbably launching and successfully selling a Green Bond.
The result is a chronic failure of common sense across the investment industry.
Fund managers claim to be investing in our futures. If that is true – how do they expect the world can transition seamlessly from dirty hydrocarbons to clean renewables overnight? It takes 20 years to get planning and build a nuclear power station – while wind is proving fickle, unreliable, far less efficient and difficult to maintain.
The brutal reality is we can’t decarbonise the global economy overnight. Over 30 years.. perhaps! Through the transition period we will still need power and energy derived from the old dirty hydrocarbons. Powering up EVs, making the fuel for hydrogen planes and trains, will all require hydrocarbon derived energy. That’s fact.
Instead, ESG investment compliance means all the gas in our offshore waters that could have powered the UK to becoming a truly carbon-nuetral, energy secure state in 20-30 years time is untapped and un-investible. For now – the skills to tap it are already disappearing.
ESG has evolved into a religion, a high church of environmental orthodoxy. Its heretical to suggest ESG can’t work unless we evolve towards a cleaner energy ecosystem by continuing to burn hydrocarbons. A crisis this way comes: for all the posts on Linked-In boasting about green investments, or the industry awards for Green Bond of the year, or the multitude of certificates one can earn on ESG investments – it will all count for nothing this winter.
This winter – people are going to die of cold.
As the price of energy goes higher, the costs will fall disproportionately upon the poorest in Society. Income inequalities will be dramatically exposed as the most vulnerable in society face a stark choice: Heat or Eat.
That has all kind of social consequences. Can you imagine how the Gillet Jaunes in France will react ahead of the French elections in April? And what about the prospect for riots as fuel prices hit the poorest communities and ethnic groups in the UK?
This winter the UK is likely to be on its knees begging energy from wherever it’s available. Europe will be in as much trouble. The Middle East will be charging whatever they can get away with, and the capacity to deliver is limited. The much vaunted energy-independence of the US will be tested – it unlikely they will be minded to export. That will leave government with a stark choice – let people freeze or pay the cost, probably triggering a balance of payments crisis and a further confidence crash in sterling.
The likely source of Gas will be Russia. And Vladimir Putin can’t wait.
The coming Energy Crisis will be his grand opportunity. Remember the famous photo of him with Angela Merkel and his dog prowling in front of her? Putin knew she has a terror of dogs so he deliberately intimidated her. He won’t deal with Europe. He will invite each European leader to plead their case individually, menacingly asking each leader why he should open the Gas Taps to their nation specifically.
Covid 19 was the first big test for Europe. Its’ vaccine programme failures could have been disastrously fractious for the EU. When faced with a European Energy Crisis and Russia holding the cards, what’s to stop countries doing deals? Who will crack first? Poland? Germany? And what will Putin expect in return? Legitimacy? A free-hand to deal with domestic dissent? Sanction ending? A free hand in Ukraine or even the Baltics? It rather depends on what price he thinks he can force Europe to pay.
And what will Putin ask of Boris? That London reopens its door and markets to the kleptocracy he leads? Or something more…?
Make no mistake, this winter is going to be shocking. Be aware.
Five Things to Read:
Guardian – China Energy Crisis: Factory activity declines as Energy Crisis hits home.
Torygraph – UK Gas Prices Hit New High
BBerg – Europe’s Energy Crisis is Coming for Rest of World Too
Guardian – What has caused UK energy crisis?
Forbes – What a modern energy crisis looks like, and why no country is safe
Bill Blain
Strategist – Shard Capital
20 Comments
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This energy crisis was made in No 10 and the House of Commons with the passing of the Climate Change Act. As the UK now discovers, the declared public enemy CO2 also turns out to be essential to the food chain, from photosynthesis to packaging what you eat. One day there will by a reckoning by the electorate on the authors of this folly.
Just FYI, the Texas Power Grid was set up to be separate from neighboring states in 1935. This was not the result of deregulation but more from a desire to not be dominated by federal agencies under the New Deal. The New Deal is now accepted as ‘saving’ America in the Depression. A more nuanced view is that it both prolonged the Depression and gave unconstitutional powers to the Federal Government (taking powers intended in the Constitution to be retained by States). This is the central theme of the destruction of the Republic and the growth of the Federal power leading inevitably to Big Brother as seen in current events.
Texas does have interconnections with other grids however, in a crisis, nearby grids may not be able to supply power if they are facing the same high demand. The true cause of the Texas grid failure was two fold: 1. Renewables almost always quit producing when most needed. Intense cold is accompanied by high atmospheric pressure that can settle in for long periods. High-pressure areas mean NO WIND. Also wind turbines only function in Goldilocks wind conditions. Too low = low output. Too high= shut down to prevent damage to the wind turbine. Icing conditions are as bad for turbine blades as for aircraft wings (very similar principles). Also, subsidies for renewables have resulted in regulators cutting prices paid to reliable, base-load power plants. Too avoid bankruptcy, the owners deferred maintenance to cut costs (economics 101). We are reaping the results of our own stupidity.
Interesting. Our planet is warming, even at night now. More wind. Storms and bright sunny days are windy where I live in the USA. Fires in the west are kept burning by winds. Buildings in the South are blown over by winds. Just off the US East Coast the constant winds are steady energy, too! No wind?
Maybe getting outside more could convince you that dead zones are becoming rare?
It makes no sense to continue destructing our planet when we know exactly what we must do.
As a world, we all need to grow up! Respect our children’s futures!
That is incorrect. Both sides of the Atlantic show periods of low and high winds. I know this because I looked at the data, and my passion is sailing.. so please don’t try to tell me winds are constant – they are not.
Check the data and headlines. In UK its shows the gas price crisis was exercerbated by a blocking high in August (and again in Sept) meaning colder air from the north and very weak winds – insufficient for the wind farms. As a result we had to fire up the non renewable power stations. Earlier in the month we had a warmer, no wind event: Check headlines from BBC: UK fires up coal power as gas prices soar, https://www.bbc.co.uk/news/business-58469238
I do think increasingly chaotic weather caused by global warming will become an escalating and increasingly serious problem – but warmer oceans and land power up hurricanes and typhoons, triggering larger storms and longer periods of high winds (when the offshore wind farms have to be shut down) and longer lulls between events. THe data is not supportive of wind farms – we would have been far better to have invested that money in hydro and offshore tidal power – but we went for the easy scores…
The reality is wind is a fickle friend – any sailor over the last 2 millenia could have told you that…
BB
Patently false. Despite Gov. Greg Abbott’s fatuous attempts to blame Texas’s power failures on a failure of sources using renewable energy, the fact is that the renewable sources provided a greater degree of reliability than the “conventional” sources and outperformed them in every way. A much greater fault was the Texas Power Grid’s blithe failure to invest in maintenance and upgrades of the existing grid.
Good essay, but I’m reading that in South Korea they build nuclear generating stations in about two years and deliver power for about two cents per KWH. It takes more time to build politically correct power plants. lol
In the UK planning can take decades to get it approved. It then takes another decade with doubleplus cost escalation to complete the construction – all of which makes it impossible to fund – because who wants to invest in something that will take 10-yrs to make any return, and may well have been made obsolete by then anyway.
I do hope firms like Rolls Royce can get small container size nuclear reactors (like in Boomer Subs) underway. And new teck like molten thorium salt to make hyrodgen.. etc…
But tomorrow and tomorrow..
“Deliberately intimidated her”, paranoid much? He had a dog who met many leaders, it’s sends a positive humanising message. Until the Western propaganda machine gets its inversion-hands upon it of course. Plus… dogs tend to judge characters well, if one chose to bite Merkel we should pay heed.
The dog did not bite her. She made a joke at the time that at least the dog did not kill journalists. She commented to the press afterward that Putin had shown his political weakness in seeking to intimidate her with a dog. I personally love dogs but it was clearly an instance of intimidation, or attempted intimidation.
I’d argue there is no such thing as ‘green/clean’ energy. That is a marketing slogan to sell the idea and products. All energy sources regardless of their name are ‘dirty’ in that they have negative environmental/ecological impacts. Every. One. In fact, scratching below the surface of the ‘clean energy’ mantra one will find not only that its promises are built primarily on yet to even be unhatched eggs, but very much on the fossil fuel platform it purports to be aiming to replace. But this is all a distraction. Our fundamental problem is increasingly looking to be ecological overshoot. We have increasingly built complex societies dependent upon a one-time cache of photosynthetic-derived energy that was finite in nature, especially liquid fuels that provide most of the energy we use. ‘Electrification’ of everything can’t address that; in fact, even if we were to happen upon a ‘clean’ and cheap energy source this would just exacerbate our likelihood of forcing other vulnerable areas past their tipping points. In the end, chasing infinite growth on a finite planet was always going to end in ‘collapse’ of one kind or another. We just have yet to accept that.
I will say only this. The present level of economic activity can not be maintained, and any future growth can not be achieved without nuclear energy. Period. Between physics and the woke, physics will win.
“ESG is well intentioned”
No it isn’t. Virtually all climate nonsense is a cynical ploy to gain power and wealth.
Disagree
ESG asks very important questions about protecting the environment we all share, improving the social outcomes for all, and identifies the key to it all – good corporate and sovereign governance; how companies and goverments should function to ensure optimal results for all.
Call it socialism, call it communism – these are just names thrown by folk scared of change. They could achieve a power of good.
The problem with ESG is getting the mix right – too much focus on fashionable greeness and not enough on governance to ensure optimal outcomes.
BB
New to the blog. Came from the link in the NYT Friedman article. Impressed and will stay. Thank you, however, for the sane reply to the comment above. Totally agree that it’s as much about governance and the righteous refusal to give up obsolete structures and look for new forms of collaboration (e.g. read Brexit and Empire nostalgia there). Wow… what an end of Cretaceous bunch in your commenters. The asteroid is coming and they just look up… nahhh, nothing there.
Man-made climate change has been proven over and again, ad nauseum, to be (as you put it) a cynical ploy to gain power, wealth, and (might I add) thorough global control of all resources. It is based on junk science long ago proven to be manufactured from whole clothe. But there are none so blind as those who will not see. These people see presents under the tree at Christmas and insist Santa must be real – for who else could possibly be responsible. “Solar cycles you say? … Nonsense! … it’s farting cows and Escalades that will be the doom of all mankind!” Such arrogance! Such lunacy! But the idea that green energy will one day replace fossil fuels, providing the same level of output and production, is just a fairytale perpetuated by the lunatic fringe.
Beleive what you want to believe.
For the record – the Morning Porridge beleives climate is more likely to be real rather than a nasty conspiracy theory. We listen to smart people, scientists and look at the evidence they present – and conclude its better to be hedged against the probability its real rather than deny the evidence presented. THat would be the logical approach.
Feel free to post climate denial comments – if they are outrageous I will simply bin them. My site. My views..
Nuclear energy will kill everyone though genetic damage, thank you physics. I myslef agree with all this doom laden analysis. I have fled to the forests of Latvia where I have enough wood to keep warm and watch the JG Ballard future unfold from a distance.
Fair comments about Energy & the cost to citizens. The comments about Russia are totally hyped up & stupid BS that is part of the UK War mongering propaganda. It’s unnecessary & spoils an otherwise excellent article. Russia has been maligned for too long & is NO threat to anyone in Europe if not provoked!
As an Esto expat/refugee to Canada, I would beg to differ. Like in Brexit, a society going down the tubes resorts to nostalgia about former power days to keep the uncritical masses (and some intelligentsias) happy. So this is Russia then. The victims are those at hand, read immigrants, as in Brexit, former satellites, as in Russia, now enjoying a long awaited but constantly threatened independence. Who would have thought of finding fellow travelers today.
I agree. I don’t see how tens of thousands of deaths (worldwide) are to be avoided if heating fuels run out in winter.
If it runs out in broad local areas with few heated buildings around, it could easily be far higher – perhaps even into millions?
If all stops are pulled out to get fuel to everyone this winter, if Russia is pressured to release the methane it’s trying to save for itself into Europe, is that going to diminish the supply for winter 2022-2023 and make it far worse then?
Globally we have doubtless hit over 2x overpopulated and after 1/2 a century of unsustainable population growth we seem to be running out of many and various things all at once. There is seemingly no other way this can end than a very large involuntary population drop.
I’ve moved to a rare place with more resources than people. This summer I built a second woodshed to hold more firewood.