Blain’s Morning Porridge, 25 March 2022 – The Crisis Approaches; Energy Security and the Nuclear option.
“Is atomic energy a force for good or evil? I can only say, “as mankind wills it.”
This morning: Energy and Food Security are intricately linked – and constitute the biggest and most immediate “no-see-um” threat markets have faced in decades. It’s time to get real about addressing energy transition and security, and climate change by accepting Nuclear energy is the most viable solution in the time left us.
Earlier this week I listened to the United Nations Secretary-General Antonio Guterres declare we are “Sleepwalking into a Climate Catastrophe”.
It was a NSS moment (No S**t Sherlock) – but is anyone listening? It’s difficult to find much decision-level attention for perspective at the moment. The immediate consequences of the Ukraine invasion dominate front and centre. Nor was anyone paying much attention when the Secretary General also warned of “a spiral into a global hunger crisis.”
The UN is not awash with credibility after its ineffectiveness to address the invasion of Ukraine, but Guterres made a good point. Energy Security has emerged as the biggest No-See-Um moment in decades. (To be fair, I warned about it last year: People are going to die this winter – BP is up 22% since I made that call.)
The new Food and Energy crises are intricately linked. Russia precipitated it in the expectation Europe would cave into Putin’s demands because he perceived their floundering energy security gave him an edge. Wrong. As a result, the globe is waking up to unparalleled Food and Energy shortages.
Food and Energy are clear and immediate threats. Climate change is long-term. Guess which one governments are more worried about?
Energy and Food scarcity will likely be more destabilising and dramatic for markets than the debt crisis of 2007-2008. They will make the GFC (Global Financial Crisis) look a storm in a teacup. This will be a Real World crisis – one that can’t be solved by simply printing loads of money, and consequentially generating the windfall financial asset inflation of the last 12 years that is now unravelling. The energy crisis is going to trigger a host of very real and very painful consequences for the global economy. Take a look at the riots and food hoarding sweeping Spain this week for clues.
Like all “good” crises, this one has been quietly fermenting for years. Ukraine has simply crystalised it in plain sight.
Today: global energy comes from 30% Coal (declining), 30% Oil (flat), 25% Gas (flat), while all the renewables (including Nuclear and wood) contribute less than 15%. Coal is the easiest to convert, but Gas produces around 60% less emissions. Even without the Ukraine crisis we were looking at a growing energy deficit as we transition from fossil fuels – 4% this year according to my chum Rob West at Thunder Said Energy (the top energy transition analyst in the multiverse).
The energy shortfall is set to widen – caused by increasing energy demands and years of under-investment. We will be short of up to 10% of global energy consumption by 2030. The assumption we could stop fossil and replace it overnight with solar and wind… was misguided. We’re not re-discovering it takes time to drill gas and there simply isn’t enough space for that many windmills.
The only way Energy Scarcity can be addressed in the medium term is higher prices for those that can afford it, and fuel poverty for those who can’t. Some countries can mitigate the pain – many can’t.
The democratic governments of the West are concerned with re-establishing their strategic energy and food security they foolishly gave up in favour of cheapest-to-deliver “globalisation” supplies. The most obvious example was reliance on Russia. Don’t forget – the UK decided to give up maintaining a strategic gas storage reserve in favour of buying on the open market. (It was a classic PBI moment: Policy by Idiots.)
Things will be bad in the West. They will be worse elsewhere. Autocratic dictators are going to be entirely focused on containing the social unrest that will erupt when the lights go out and food runs out. Addressing the immediate consequences of the war on inflation, and factors like the global scarcity of fertilizer, are now paramount. The West will succeed better because we have the institutions and market mechanisms to cope – but they will still be impacted by unfolding food and energy crises elsewhere.
Re-establishing energy security in the short-term is critical, but it’s a bit like patching-up a sinking ship. It we focus on the immediate threat only we may still crash into the iceberg of climate change… In which case… its glug..glug.. all round.
At this point the Trumptards will stop reading – I have dared to question their wisdom that climate change is a hoax. When it comes to Climate Change, I absolutely go with the science. Smart people who know stuff by learning and discovering it – rather than read it on a spurious site on the internet – tell me temperatures will rise, the weather will become more chaotic and sea levels will rise. Not ideal. But I’m not going to bet against them being right.
Climate change gets worse the longer we delay addressing it. Thus far policy has been to talk a lot about it, encourage investment into supposed green energy solutions, and hope it sort of happens. Enough of Gabfests like COP26. We need proper policies towards Energy Transition.
Food and Energy scarcity bites today. In contrast, the “frog-in-a-pan-of-water-on-the-hob” analogy applies with it comes to climate change. Because you don’t feel it day-to-day, it’s confused by ill-informed climate rage protestors and climate-change deniers who’ve bought the fake-news propaganda.
Because we are so credulous, and climate change can be sold with cute photos of pengiuns and polar bears, it’s become a marketing angle and opportunities for well meaning hippies and a host of shysters shilling EVs to Green Bonds while hiding under ESG false flags. They all claim to be the new, new thing that will protect the environment… but ultimately many will prove to be roads to nowhere. (Regular readers will know my thoughts on lithium batteries… don’t get me started.)
Understand this critical point: Climate Change policy failure has led us to this moment of energy scarcity. Underinvestment in Energy security from traditional sources, and delusional policies based on hopes new tech will replace fossils, mean we face at least a decade of energy scarcity. And we have to replace the missing energy capacity with any available energy…
The reality is brutal. We have a limited number of decades to reverse the damage and mitigate carbon dioxide. End of. Yet, for all the talk, the debate, and the protests – THERE IS NOT, AND NEVER HAS BEEN, A PROPER TRANSITION PLAN. That is clear PBI.
No Government has ever faced up to presenting or costing a real transition plan to replace fossil energy with clean power. Instead, the West is letting the market chase multiple uncoordinated rushes to replace Internal Combustion Engines with Batteries (even though the carbon savings are debatable), to rely on Alternatives like Wind and Solar, and vague hopes and expectations that hydrogen power will sort everything. Let a thousand weeds grow and hope some of them work is again: PBI!
We are dancing our way through a minefield. It’s Time to Get Real.
We need non-carbon power and energy security. There is only one real solution – and it won’t be cheap. Stop the dither and hopes around wind and solar.. (They can be part of, but can’t be, the whole solution.) It’s time to invest seriously in a Nuclear Future. It solves two problems: future energy security and addresses climate change.
From my humble seat in the backwaters of finance, it seems bleeding obvious. I was there in the 1970/80s protesting about the construction of the Torness nuclear station. I had a Nein Danke Nuclear sticker on the car. Now I accept there isn’t another viable solution. Yes, I know 34% of Uranium comes from Russia… but Germany and Belgium get it and are keeping plants open.
We need to
i) build and extend immediate nuclear capacity with current designs,
ii) design new intermediate nuclear strategies such as smaller, cheaper mini-nukes and more efficient scale plants, and
iii) make Fusion a priority with an investment of money and resources on a scale that dwarfs the Manhattan project to develop the atom bomb 80 years ago.
No country can do it alone. The UK will have to suck up to Europe or America.
Nuclear is not without problems – fuel supply, construction, decommissing costs, and safety risks, but we need power. If not we face economic catastrophe and burgeoning social unrest… global famine will just fuel the flames.
For politicians – it’s a wake-up moment. Let’s have less Rishi Sunak nonsense about balanced budgets, austerity spending and higher taxes. Let’s get real about the immediate energy crisis and real about the future – or we simply won’t have one…
Let’s make nuclear the core of our Energy future – then we can go back to biffing the Russians.
Finally… The French were obviously very upset by my comments about Renault. They have declared War on the Morning Porridge. (Well, its easier than taking on Russia.) Yesterday they fought back as BNP warned: “Spiralling prices risk sparking riots across Britain”, says the third least bad bank in the land of the Gillet-Jaune..
Bring it on CESM.
Five Things to ruin the weekend.
Weekends are for whimps. I’m off to Cairo tomorrow. They work on a Sunday, so no weekend for me.. But you have a great time and enjoy yourselves… while I sing along to the Chorus from Aida..
Strategist – Shard Capital