Our Energy Delusion

You don’t know what you’ve got ’til it’s gone.  Joni Mitchell 

Energy is Life

Energy is the ability to do work and is fundamental to life. Our origin story begins with energy enabling early life forms to overcome entropy. Over an unimaginable period of trial and error and plentiful energy, life evolved and successfully adapted to its environment.

Proof of Work

Within the last few 100 000 years, our ancestors began to share their knowledge and changed the environment to improve their condition. They tamed and bred animals, planted food and used tools to extract natural resources. Depending on your worldview, these first acts of economic development were either the beginning of humanity’s remarkable flourishing or the initiation of its journey to environmental destruction and doom.

Stepping Stones

Either way, a successful energy transition lies behind humanity’s every step to its current level of proliferation. Energy transitions are not binary events where we skip from one energy source to another. They evolve from the tried and tested, trial and error process along our stepping stones to the future. Horsepower and human enslavement were early forms of energy, and both endure today despite the availability of more efficient and morally acceptable alternatives.

Clever Bastards

Our path to economic development has been based on increasing our types of energy supply and a gradual transition to denser and non-intermittent sources. As Dylan Grice put it, “when you buy commodities, you’re shorting human ingenuity”. The late economist Julian Simon’s successful wager with doomsday biologist Paul Ehrlich in 1980 was over much the same issue. So too, is the aphorism that “the stone age didn’t end because we ran out of stones”. Human ingenuity has shaped our world, always driven by ingenious means of increased energy consumption.

This Time it's Different

However, our current energy transition is different. Its central direction distinguishes this transition from its predecessors. And our prescribed journey to net zero has resulted in significant, detrimental and unintended consequences. The two most important issues are critical under-investment in natural gas and nuclear; (gas as an energy-dense, non-intermittent low-carbon bridge to a 100% renewable future and nuclear as a clean baseload power source). The omission of these vital energy sources from our investment plans over the last twenty years has been significantly consequential.

Hero Gas

Over the last decade, the unsung hero of the reduction in carbon emissions has been the transition of electricity generation from coal to natural gas. The U.S. has reduced C02 emissions by 525m tons since 2005 by replacing more than 200 coal-powered power stations with natural gas; two-thirds of this gas comes from hydraulic fracturing (the unsung energy supply hero). Natural gas adoption has to date, reduced C02 emissions in the U.S. by 50% more than that of wind and solar combined, without subsidy.

Gas v Coal v Wind & Solar

Meanwhile, in Germany, a government-mandated $80bn programme to accelerate wind and solar energy reduced total C02 emissions by less than half the U.S. amount, yet resulted in energy costs increasing three-fold from 2000 to 2019. Over the same twenty-year period that Germany and the U.S. reduced CO2 emissions by less than 1bn tons, China and India’s increased coal usage has added an extra 6.5bn tons, pumping eight times more CO2 to the atmosphere.

More Gas, Less Coal

Our supply of natural gas needs to be developed faster and for longer. Today four countries account for two-thirds of the world’s economic, natural gas resources (USA, Russia, Iran and Qatar). Neither China nor India nor any European country appear in the top ten. As a result, all these regions are burning more coal.

Burning Furniture for Heat 

One of the perversities of our current energy crisis is that the price of coal has gone stratospheric. For the first time on record, thermal coal (for power) trades at a premium to coking coal (for steel making). Overall, coal’s energy equivalent value is now higher than oil’s. Both coking coal and oil are predominantly used to make value-added materials. Thermal coal selling for a higher equivalent price than both coking coal and oil, is the equivalent of burning furniture to stay warm. It is the perfect precursor for enduring stagflation.

Europe De-industrialising

German utility RWE is currently dismantling a wind farm in Germany to make room for expanding an open-cast lignite mine. At the same time, the U.K. decided to ban fracking for the second time in the current Parliament. Instead, we will increase imports of more expensive and environmentally damaging liquified fracked U.S. natural gas. Europe is literally de-industrialising to keep warm.

Illiquidity to Insolvency

Having responded to the threat of energy illiquidity (price volatility and margin calls), Europe now faces looming energy insolvency. Last week, German chemical giant BASF said it would have to downsize “permanently” in Europe, with high energy costs making the region increasingly uncompetitive. The statement from the world’s largest chemicals group by revenue came after it opened the first part of its new €10bn plastics engineering facility in China, which it said would support growing demand in the country. The company said it had spent an additional $2.2bn on European natural gas in 2022 compared with last year, making production uneconomic. It is worth noting that more than 50% of China’s energy supply comes from burning coal.

Putin the Symptom, NOT the Cause

To avoid economic oblivion, Europe must climb down from its renewable energy absolutism. An inconvenience most Western politicians fail to acknowledge is that Putin’s inhumane activities in Ukraine are a symptom of the energy crisis, not its cause. As oil analyst and S&P vice chair Dan Yergin says, “This didn’t happen overnight. We were in a global energy crisis well before Russia invaded Ukraine. Prices today result from several years of decisions and non-decisions.” Now Putin has done what he has; most western politicians continue to face the wrong way. President Biden is playing oil poker with Saudi Arabia and OPEC+ with his cards face up while Europe taxes energy producers and subsidises energy consumption. At the same time, it continues to try and close perfectly safe and effective nuclear reactors.

Nuclear Option

A single pellet of uranium fuel is no bigger than your fingertip and costs about 15 U.S. cents, yet used properly provides as much energy as a ton of coal. Coal costs about $350 a ton, more than 2 000 times the price of uranium. A typical pressurised water reactor needs one lorry load of uranium fuel a year. A coal-fired power station offering the equivalent output would require two and a half million tons or 120 000 coal wagons pa, about 4-5 train loads a day.

What a Waste

Of course, fuel cost is only part of the story for nuclear. Building reactors is expensive, and disposing of waste fuel is problematic. But as the U.S. Department of Energy statistics highlight, the entire U.S. nuclear industry currently produces 2,000 tons of spent fuel pa. By comparison, coal burned in the U.S. produces 140m tons of coal ash annually, a toxic brew of heavy metals and other contaminants. The World Nuclear Association explains, “unlike other industrial toxic wastes, the principal hazard associated with HLW [high-level waste] – radioactivity – diminishes with time. After 40 years, the radioactivity of used fuel has decreased to about one-thousandth of the level at its disposal”. The U.S. Department of Energy estimates that “U.S. commercial reactors have generated about 90,000 metric tons of spent fuel since the 1950s. It could fit on a single football field at a depth of fewer than 10 yards if were stacked together.”

Energy Priority

A few paragraphs here will not change minds that are formed on the worldview that the ascent of man is nothing but a scourge on nurturing Mother Earth and that the best humanity can do is crawl back into the caves from which it came. However, realistically there are no absolute solutions to our current problems, only trade-offs. We must reassess our priorities in a deglobalising world where energy and other necessities of human life have become weaponised. Just as we can no longer be indifferent whether we produce microchips or potato chips, we can no longer afford to outsource our essential energy supply. Energy is our very life.

NB. International Energy Association, US Department for Energy and the World Nuclear Energy Council for the energy statistics used and Ian Drury for some of the subheadings. Suggested further reading: Manhattan Institute, The Energy Transition Delusion, Follow Doomberg on Twitter, Fossil Future: why Global Human Flourishing Requires More Oil, Coal, and Natural Gas–Not Less, by Alex Epstein.

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