doomberg on energy trends for 2023

These Top Energy Trends Will Shape 2023 | Doomberg with Adam Taggart on Wealthion

Check out the Episode Page & Show Notes

Key Takeaways

  • Europe’s unseasonably warm winter has reduced the nation’s demand for natural gas, which has spared it from a shortage of natural gas and broader energy crisis
  • Germany spent $500 billion scrambling to secure oil, natural gas, and coal to avert an energy crisis this winter; the same $500 billion could have bought Germany a generation’s worth of state-of-the-art nuclear power plants with plenty of money to spare
  • The dangers of Europe dodging a bullet: policy makers may learn the wrong lesson and think that they do not need to change course  
  • A well operated nuclear power plant runs at a capacity factor of 93%, while Germany’s solar capacity factor is 11%
  • Essentially, a country needs to install ten times the amount of solar nameplate capacity in order to produce the same amount of power that nuclear power would
  • Every attempt to “green up” an energy grid ultimately makes the grid browner than it was in the first place 
  • New England is following the European energy playbook: shutting down nuclear reactors, trying to make its grid more green, and vilifying fossil fuel usage 
  • The opposition to fossil fuels believes that a priori, fossil fuels are evil and must be eliminated, regardless of the effectiveness and implications of their replacement
  • There are no clear winners in the energy space; there are only trade-offs
  • The Russian pipeline arteries that used to feed Europe are now being laid to feed China; once natural gas can flow from Russia to China, what would Russia’s motivation be to supply natural gas to Europe?
  • President Xi Jinping’s visit to Saudi Arabia was a monumental event that could set the stage for a renewed attempt at the de-dollarization of global energy markets
  • If the effort to de-dollarize and settling international trade in the “petro-yuan” instead of the petrodollar continues at its current rate, the likelihood of an armed conflict over Taiwan radically increases in Doomberg’s estimation
  • War quickly follows anytime there are moves against the dollar
  • Doomberg predicts that heat pumps will be the new ESG grift of 2023     

Intro 

  • Doomberg (@DoombergT) is a small team of former executives from the commodities sector. Their newsletter Doomberg is the number one finance substack in the world with thousands of paid subscribers. It covers energy, finance, and the economy at-large through educational, provocative, and fun content. Subscription details can be found at Doomberg.Substack.com
  • In this conversation, Doomberg and Adam Taggart discuss the state of energy markets in Europe, nuclear energy vs. solar energy, the troubling situation in New England, the sabotaging of the Nord Stream 1 pipeline, the implications of a prolonged conflict between Russia and Ukraine, the significance of President Xi Jinping’s meeting with Saudi Arabia, the potential de-dollarization of global energy markets, the opposition movement against fossil fuels, the next ESG grift, and more
  • Check out these Podcast Notes on The Story Behind Doomberg 
  • Host: Adam Taggart (@menlobear

Doomberg’s Energy Outlook In The Near Term 

  • It’s all about the weather in the short-term; all eyes are on Europe, who is relying on warm temperatures to make it through the winter 
  • Europe’s unseasonably warm winter has reduced the nation’s demand for natural gas, which th has spared it from a shortage of natural gas and broader energy crisis 
  • The fragility of energy grids has turned every cold snap in the U.S. and Europe into a major weather event on the Weather Channel because of the consequences 
  • Recently, as much as 40% of the energy being produced in the New England network was being produced by the combustion of oil; a back-to-the-future scenario of using oil to make electricity  

Europe Dodging A Bullet  

  • During key times in December, when the weather was average as opposed to the warm side, the German grid was among the dirtiest in the developed world 
  • Germany burned coal as its primary source of fuel and brought back online old coal plants
  • Germany spent $500 billion in December 2022 keep the lights on, scrambling to secure oil, natural gas, and coal 
  • There are times in Germany when the sun does not shine and the wind does not blow, which makes its renewable energy infrastructure less useful 
  • The $500 billion could have bought Germany a generation’s worth of state-of-the-art nuclear power plants with plenty of money to spare, as Doomberg explains in “The Whims of Gaia 
  • The weather gods blessed Europe and the country has dodged a bullet 
  • The dangers of Europe dodging a bullet: policy makers may learn the wrong lesson and think that they do not need to change course 
  • The worst thing that Europe can do is double down on its failed energy policies that put them in this situation in the first place

Comparing Nuclear Energy to Solar Energy 

  • A well operated nuclear power plant runs at a capacity factor of 93%, meaning it produces steady, reliable, baseload power 93% of the time
    • The 7% off-time is for planned maintenance
    • It is very rare for a nuclear reactor to unexpectedly go offline
  • Conversely with solar, the sun does not shine at night and it is not that intense during the day in Germany
  • Germany’s solar capacity factor is 11% 
  • The best operated solar farms in the United States have a capacity factor approaching 30%
  • The solar industry’s deplorable capacities factors is the “dirty little secret” of the industry
  • The solar industry will boast about its “installed capacity,” but the installed capacity relies on the sun shining, which it only does for some part of the day, if at all 
  • Essentially, a country needs to install ten times the amount of solar nameplate capacity in order to produce roughly the same amount of power that nuclear power would!
  • Being forced to spend half a trillion dollars to make it through the winter is not a victory

Shortsighted Energy Policy, Predictions For 2023 

  • Doomberg believes natural gas and energy prices more broadly will harmonize to a pretty thin band in 2023, where the width of the band is the cost to ship the natural gas around the world 
  • Doomberg is also closely monitoring the price of coal in 2023 
  • Currently, the price of coal is higher than the price of oil on an energy basis 
  • The energy crisis in Europe has spread to China, and China is burning coal with reckless abandonment and buying up every Btu of coal that it can   
  • The attempt to “green up” the grid has resulted in a browner grid than you had in the first place
    • Especially in Germany where it stripped itself of its nuclear reactor
  • Everywhere that “greening up the grid” is tried, the grid ultimately becomes more brown

New England Is Following In Europe’s Footsteps  

  • New England is basically running the European energy playbook by shutting down its nuclear reactors and trying to make its grid more green 
  • About 40% of New England’s electricity in December 2022 was produced by burning dirty oil
  • The concept of burning oil to create electricity in a modern society like New England boggles Doomberg’s mind 
  • The Northeast of the United States is very rich in natural gas, but it does not have the infrastructure to use the natural gas 
  • New England is right next to Appalachia, which is one of the world’s largest natural gas resources, and yet New England refuses to utilize it
  • New England has actually worked to remove existing pipelines in its region
  • It is reasonable to believe that New England will experience rolling blackouts at the worst possible time when residents need to heat their homes 
  • We are rolling from one near miss to the next; most of the homes in the Northeast heat their homes with diesel fuel, and now there is a a diesel shortage  

Why Has New England Done This?

  • The opposition to fossil fuels is that they provide no benefits whatsoever, so one cannot make a trade-off calculation  
  • Doomberg mentions that Alex Epstein has done a good job chronicling this concept; Alex is the author of Fossil Future and hosts the podcast “Power Hour  
    • Check out these Podcast Notes from Alex Epstein’s conversation with Peter Thiel 
  • The opposition to fossil fuels believes that a priori, fossil fuels are evil and must be eliminated regardless of the effectiveness and implications of their replacement 
  • There are no winners in the energy space; there are only trade-offs
    • Nuclear waste is a trade-off that we know how to handle
    • We can’t find anyone who has died from nuclear waste 
    • People die all the time producing oil and gas
    • China uses slave labor to produce the solar panels that the solar industry uses
  • How do we compare the safe handling of a relatively small amount of nuclear waste with our moral objections to the use of dirty coal and slave labor to make cheap solar panels in China?
  • Many people do not think there are any benefits to fossil fuels, radically exaggerating their side effects, and believing fossil fuels should be rapidly eliminated 
  • The current opposition to fossil fuels refuses to admit that there are any benefits to fossil fuel usage
  • We must consider the trade-offs between the standard of living that we want and the damages to the planet that may result from achieving that standard of living 

Public Awareness Of The Anti-Human Energy Policy 

  • The average citizen in New England has no idea that 40% of his electricity was coming from burning dirty coal 
  • The average person in New England does know that the grid did not go offline, there were not rolling blackouts, and that they were ultimately fine
  • Worst possible outcome: The alarmists questioning the current energy policy embolden the policy makers to further double down on their unacceptable policies 
  • Kicking the can down the road is not a solution; inevitably, there will be a cold snap that breaks the system 

The Significance of the Nord Stream 1 Pipeline 

  • Whether and how peace is achieved in Ukraine is the variable that matters in regards to the destruction of the Nord Stream 1 pipeline
  • A prolonged conflict where peace is not achieved makes the lack of Nord Stream 1 catastrophic
    • Much of the natural gas that Europe burns today was delivered by the Nord Stream 1 pipeline that connects Germany to Russia  
  • Nord Stream 2 appears to be operational but it has never been put into service 
  • The land pipelines that run through Ukraine have amazingly not been attacked by Ukraine or Russia
    • The land pipelines are one of the reasons why Ukraine is of such geopolitical significance to Europe 
  • The Russian pipeline arteries that used to feed Europe are now being laid to feed China
    • “All bets are off” once these pipelines to China are complete, according to the Green Chicken
  • China is building these pipelines to extract natural resources from Russia, and can build them at a rate that is unthinkable to the West 
  • President Xi Jinping’s recent trip to Saudi Arabia is a critical development in the relationships amongst Russian, China, and Saudi Arabia
  • There may be a complete rewiring of energy markets moving forward

So, Who Blew Up The Pipeline?  

  • Look at the subset of people who benefit from it blowing up vs. the subset of people who are punished by it 
  • Doomberg thinks that it is safe to say that Russia did not blow up their own pipeline 
    • The destruction of the Nord Stream 1 pipeline has been swept away from the headlines
    • It would likely be shared all over the news if the West had conclusive evidence that Putin blew up his own pipeline
  • One of the pipelines remains undamaged, so it may serve as a lever for peace between Russian and Europe 

Russian Retaliation  

  • Destroying the pipeline risks an escalation that could be extraordinarily consequential, as Doomberg explains in “Decades in Minutes
  • In a related event, and shortly after the Nord Stream 1 pipeline explosion, the Freeport LNG export facility in Texas experienced a similar explosion     
  • The Keystone pipeline was recently damaged as well
  • There has been a series of targeted attacks on pipelines in the United States, which has caused much speculation as to who is behind them 
  • A guerilla war where countries attack each other’s energy infrastructure can get out of hand quickly
  • Russia announced that it will not sell oil to any country participating in the G7’s oil price catch scheme 
  • Once natural gas can flow from Russia to China, what would Russia’s motivation be to supply natural gas to Europe?
  • Doomberg believes that Putin made a terrible miscalculation in his invasion of Ukraine 
    • But one of the reasons he felt confident enough to do so was because the West showed him its energy cards 
  • It is unlikely that a Western-friendly leader takes over Russia and chooses to resume selling energy to Europe
  • The Europeans are also not motivated to buy from Putin 
  • Expect long-term changes in the flows of energy, which will have both good and bad consequences 

Zoltan Pozsar, The Petro-Yuan, Taiwan   

  • Doomberg recommends people read Zoltan Pozsar of Credit Suisse’s latest piece on oil and gold, which felt like a summary Luke Gromen’s work over the last seven years
  • Doomberg agrees with Zoltan’s analysis that President Xi’s visit to Saudi Arabia was a monumental event that could set the stage for a renewed attempt at de-dollarization of the energy markets
  • It is unlikely that the United States would just sit back and allow this de-dollarization
  • If the effort to de-dollarize and settling international trade in the “petro-yuan” instead of the petrodollar continues at its current rate, the likelihood of an armed conflict over Taiwan radically increases in Doomberg’s estimation 
  • In a weird coincidence, war quickly follows anytime there are moves against the dollar
  • Doomberg believes that the US dollar will be around for a “very very long time”  

Natural Gas Markets 

  • Qatar is the big winner of the current geopolitical situation, which Doomberg details in “Molecular Delusions” 
  • Regardless of Qatar’s flawed social policies, it has the molecules; if you want the molecules, you need to come to the table and pay the price 
  • In addition to Qatar, the United States is one of the biggest beneficiaries of the destruction of three of the four Nord Stream pipelines

Heat Pumps: The New ESG Grift 

  • The words of 2023 will be “heat pump”, as detailed in Doomberg’s piece “A Home Near You” 
  • Doomberg predicts that environmental movement will swap its obsession with solar panel with heat pumps in 2023
  • Heat pumps are sophisticated air conditioning units that have the capability to both heat and cool a home
  • The state of California has banned the sale of new natural gas furnaces starting in 2030
  • “California is always the first to lead its population over the energy cliff.”Doomberg   
  • The Inflation Reduction Act includes substantial tax benefits and credits for the installation of heat pumps in homes to replace furnaces 
  • Doomberg believes there is a host of issues with heat pumps that makes them suboptimal to furnaces, including their noise pollution and their inability to handle extreme cold
  • Private equity firms are gearing up for a massive revolution in how people heat their homes 
  • Heat pumps will cost the taxpayers: The overhaul will take a very long time, and they will do next to nothing for the environment, which is the classic ESG grift 
  • Expect strong and persistent propaganda for heat pumps

Investing, Regression To The Mean   

  • From an investment standpoint, Doomberg thinks the real winners will be HVAC company operators, not necessarily the makers of the heat pumps themselves
  • Doomberg looks to where things must go eventually as a guide; for example, coal cannot indefinitely trade at an energy value above oil 
  • Regression to the mean is always a safe trade when viewed through the lens of physics
  • Doomberg is not an investment newsletter, but it does point out when energy arbitrages get out of whack 

Where To Find Doomberg 

  • You can find all of Doomberg’s content at Doomberg.Substack.com
  • You can follow The Green Chicken on Twitter @DoombergT 
  • Doomberg ranks number one in the finance category on Substack  
  • It is completely subscriber-supported; there is nothing wrong with the ad model, but Doomberg could not be as provocative as it would like to be if it had advertisers 
  • Free email subscribers receive a comprehensive preview of every Doomberg piece
  • Doomberg has published 160 pieces as of this writing, which are all made available upon paid subscription 
  • Expect 6-8 high-quality pieces per month
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Notes By Stan Rizzo

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