SpaceX Deploys 26 Satellites with New Starship

SpaceX rocket launching from a pad

SpaceX has completed its first (mostly) successful Starship test. The ship was able to reach orbit, deploy 26 Starlink satellites, and return home. And while there were some hiccups (engine failure on launch and reentry, as well as a crash landing) along the way, this was a step in the right direction.

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Transcript

Hey, everybody. Peter Zeihan here, coming to you from Colorado. It’s crappy outside, so we’re doing this one inside. It is the 28th of September. You’re going to be seeing this on the 29th. And the news today is that we’ve had our first mostly successful test of SpaceX’s new ship, the Starship. The intent is for the Starship to be the most powerful rocket ever launched by man. That will be able to take upwards of 60 satellites for the Starlink constellation up with every individual flight. Elon Musk, who, of course, is the the guy behind this, eventually intends to do one launch a day with most of the components being assembled on site in Boca Chica at their Starbase. 

Anyway, what happened today is it went up and had engine failure on the way up, and it had engine failures on reentry. And because of the engine failures, they cut the trip short only did two orbits. So it came down less than three hours after takeoff instead of the 8 to 9 hours. That was the original plan. That doesn’t mean it’s an overall failure, because it’s still launched the satellites, and this is the first time that a Starship has actually achieved orbit. But this is a step in the direction that they need to go. This is not a proof of success because they had, I think it was three engines failing the way up and two on the way down with engine failures that they thought they had solved already. They have to, I don’t want to say go back to the drawing board, but they have to completely reiterate and modify all of the engines moving forward. So it’s probably going to be at least a couple of months before we get another meaningful test. In addition, because they didn’t get a lot of data, they don’t know about the reusability problem that they’re trying to solve. The intent is for these things to be launched from Boca Chica, to do their orbits, to drop off their satellites and then land in Boca Chica. Without having meaningful data for how long the Starship can be in orbit. They just don’t know how to proceed with that at the moment. And then finally, this was a partial test of cargo. They only launched, I think it was 28 satellites. Their intent ultimately is to do over 60 per individual launch, which is a lot. Anyway, so moderate step in the right direction. Still a lot of work to be done. 

One more thing. It blew up when they landed it in the ocean. It blew up, which is normal because they weren’t actually trying to recover it. So don’t take that as a negative. Too much of a negative.

What Happens When Fossil Water Runs Out?

Coastal shoreline with shale looking rocks in water | Photo by Envato Elements

Fossil water is ancient water trapped in deep aquifers that take millennia to recharge, rather than the standard seasonal rainfall recharge. So, once you use it…it’s gone.

For regions that have become dependent upon fossil water for agriculture, this is a big problem. The Ogallala Aquifer currently feeds western Kansas and the Texas Panhandle, but that won’t last much longer. Some areas have already run dry, and regardless of less water-intensive crops and more efficient irrigation, the aquifer’s days are numbered.

This is the least consequential aquifer we’re discussing, but even this one plays a massive role in U.S. wheat and food production.

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Transcript

Hey, all. Peter Zeihan here, coming to you from, I guess, middle Slide Canyon. I’m approaching upper slide and behind me we’ve got Bath Mountain and the glory that is Slide Canyon. We are in northeast Yosemite, and hopefully we’re gonna get some sun today. Anywho, as long as I’m up here, I decided to do a video on some coming agricultural crises. 

This is going to be a short series because there’s multiple angles to this. But the first piece I want to talk about is something called fossil water. Water that is, fossil water is pulled from an aquifer that does not recharge with the normal seasonal cycles. So normally it rains, you get runoff, it seeps into the ground, goes into an underground aquifer and springs, and it recharges every season. So you can tap it, I don’t think as much as you want, but pretty heavily. Fossil water is deeper, and it’s typically in a more arid zone, and it doesn’t recharge from the surface at the same rate. So instead of recharging in weeks to months, it’s millennia. So we’re going to talk about three regions here that are affected, because all of them are going to cease to be agriculturally producing zones within the next 20 to 30 years. And based on what happens, it could really happen next year, because a lot of this is driven by stuff at the surface. 

The problem is honestly drilling for water in these zones. I mean, yes, there’s water down there. Yes, you can use it for agriculture, but you can only use it once. And so what we’ve seen in multiple parts of the world is the tapping of the zone in increasing volume. And the problem is honestly kind of legal, because if there’s a surface water dispute, there are negotiations, there are laws, there are regulations. It goes to court, there are sequestration of rights in order. And that’s primarily what’s going on in say the Colorado River basin. Not that it’s going great, but that’s probably what’s going on. But if you can just drill, then it’s just a race to the bottom of the tank. And that’s not something that can be easily regulated. So the first zone to consider is the Ogallala Aquifer in the United States, specifically in western Kansas, going down into the Texas Panhandle. Also goes up into, say, Nebraska and the Dakotas, although it’s really the southern section that’s in trouble. For the most part, we’re talking about zones that have been depleted to the degree of something like 200m. And most of these zones, if they’re not already going dry, are going to go dry within the next decade. We’ve already seen some efforts by places specifically in Kansas to shift to lower use irrigation. So instead of those big circular irrigation things that are huge water users and wasters to go to, say, drip irrigation and switching crops. 

The problem is, remember, the aquifer recharges in millennia, so switching from a high water crop to a low water crop doesn’t buy you much time and might buy them 30 to 60 years if they’re really, really lucky. And then, as we’ve already seen in a number of places in Texas, the land will just go follow because you won’t be able to grow anything there. 

This will have a big impact, because this is a zone that produces a lot of wheat that directly or indirectly feeds literally tens of millions of people, but it’s nothing compared to the other two. We’ll do that part of the video from further up the canyon.

Building Out the Power Grid: Large Power Transformers

An electrical station with transformers

There are three major obstacles to expanding the U.S. electrical grid: generation capacity, permitting, and large power transformers (LPTs). Let’s focus on LPTs today.

Reindustrialization will require a massive expansion of electricity generation (and that’s without further data-center growth). Large power transformers are essential for transmitting and distributing electricity, and most of the existing LPTs have already hit their expected lifespan. So, if the U.S. has any kind of shot at reindustrialization, it needs to replace all the aging equipment and add more LPTs, despite years of backlogs.

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Transcript

Hey, everybody. Coming to you from my tent in Yosemite. It’s raining outside. So I decided that discretion being the better part of valor, I’d take a nap. But first, I want to talk to you about the American grid. As you all know, we need to build out the grid as quickly as possible, as large as possible. And as I’m sure most of you have heard, a lot of people are unsure of how we’re going to do that. 

We’ve got three primary obstacles. The first is generation capacity. Assuming for the moment that the data center boom ends today. The United States needs to expand its grid by approximately 50%. And that’s obviously a lot. It took a half century for us to do the last 50% expansion. So to do that in a short period of time is going to be very, very difficult. 

With the data center expansion. You’re talking about a doubling or tripling or a quadrupling. And so anyone who tells you that data centers are the wave of the future clearly hasn’t done the math. There is no version of physics or the United States where that is possible. So this idea that this data center boom is not near its peak and is not a bubble. 

You know, regardless of what you think about the financing for data centers and the profit centers for data centers and the applicability of data centers, there just is nowhere near enough power, and there won’t be without a significant change in their design. Okay. All of that’s one. The number two problem permitting, it’s difficult to build large industrial infrastructure in a first world country because lots of people already have interests and they sue to protect them. 

But one of the real problems we have in the United States is permitting is that the local, state and federal level for power generation and any asset is typically managed at the local level within a specific electric district. Unless you’re in a place like say, oh, I don’t know, North Carolina, where I believe it’s Duke energy is really big. 

Most of these districts are like at the county level, maybe even smaller. And getting everything through, getting the capital lined up and getting all the permits, just taxes, staff that in many cases doesn’t exist in number. Keep in mind that U.S. electricity generation in the last couple of years had been stagnant since the late 80s. So a lot of the institutional knowledge has been lost, or very, very few people alive today that were proving data centers that last go around. 

But the third problem is probably the most significant, because if you decide that you really need something, you know, money can solve a lot of problems. And if you decide you need something, you can always speed the permitting by various means. But the third problem is something really can’t be rushed, and that is the presence of large Transformers large power Transformers LPTs, if you want to use the acronym. An LPT is basically something that is on the grid rather than in the power plant, and it steps up and steps down the electricity for transmission and distribution. 

They weigh 100 to 400 tons. And it’s a perfect example of one of those mid tech but high skill industries and products that the United States is basically outsourced. Very, very few of them are made in the United States at all. We import about 80% of what we use and get this. The average transformer, the average LPT in the United States right now that’s operational is about 40 years old. 

And these things typically last about 40 years. So not only do we need at least 50% more, probably more than that. We also have to overhaul and replace the entire grid supply of LPTs. The volume required here is immense. And the problem is that not a lot of places make these things at scale. 

And right now, there’s a backlog of 3 to 5 years based on which model you’re looking for. Even distribution transformers now have a backlog of over a year. So the real decision here to expand the grid should have been made five years ago. But, you know, here we are. Anyway. Most of the Transformers the United States imports comes from four places Mexico, Germany, Japan and China. 

And the Trump administration has picked trade fights with all of them. Although at the moment relations with the Mexicans are probably the best among the four. And that’s great. So if anyone is looking for a just brilliant lever to use against the United States and trade talks, LPTs are an excellent choice because we’re entering a stage where not just the United States is going to be unable to expand its grid unless it really gets some things moving. 

It’s not going to be able to maintain the grid it has. And that has horrible implications for absolutely everything. Remember, 50% increase is what we need. If we’re going to reindustrialize in a way that prepares us for deglobalization. So this is banded right together with all of those other issues that I follow that suggest that without some significant change in federal policy, we are simply not going to have the products we’re used to. 

The United States is a services economy. It’s a brain economy, and it relies on imports for a lot of its manufactured products. Now, you can argue whether that was smart or stupid to do in the first place. That’s where we are now. And now that deglobalization is here, we absolutely need to reindustrialize and you can’t do any of that work without power.

How To Ban Diesel Exports

Large Red Tanker Ship Docks at an Oil Terminal

A ban on American crude or diesel exports isn’t going to improve energy security; if anything, it will reduce domestic production. The problem lies in geography.

Most U.S. production and refining is concentrated in places like Texas and Louisiana, which are quite far from the demand centers in California and the Northeast. So for crude, export bans would oversaturate producing regions and discourage drilling. For diesel, the bans are futile without expanding infrastructure and changing the transport systems.

Export bans only make sense if paired with major changes to accompany them.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from Colorado. And today I wanted to talk about something that has been in the news a lot of late, and that is bans on exports of energy products from the United States. There’s two topics here, one that’s old and one that’s new. The old one is about exporting crude in general, and the newer one is about diesel specifically. So let’s start with the older topic, then move to the newer. 

So here’s the problem. The United States is a physically large country, while places like Canada and China and Russia are larger, most of those countries are completely uninhabitable. Whereas the United States has a relatively broad population distribution across its entire territory. So a lot of internal American economic issues, especially when it comes to energy, are based on distribution. The mechanics of how we move things from A to B determines what our economic policy should be. And then whenever we deviate from that, we generate problems for ourselves. So start with oil. Obviously the bigger players are Texas, Louisiana, New Mexico, a little bit of Alabama, a bunch out of North Dakota, some out of Colorado, little bit out of California, and then places like Ohio and the Appalachians, Pennsylvania. And that’s great because we’ve got people in all of those places. But our densest population footprints in places like the American Northeast or Florida or the bulk of California, are not proximate to where the energy is produced. So you need to pipe it, the crude, from wherever it’s produced to a refinery. In places like the American Gulf Coast, you get these natural concentrations because Texas is all one political unit. So they can build pipelines without too much of a problem. They don’t have to go to federal authorities for permits or anything like that for the most part. And so you get these huge concentrations of crude in places that may have people, but aren’t necessarily enough people to consume the crude. So Texas, for example, produces more than enough crude for not just Texas, but the entire American West Coast, which doesn’t have a lot. 

So when you start talking about a crude export ban, what you’re saying is we’re going to create these massive pools of oversaturation in certain markets. And when you do that, without the infrastructure in place to ship the crude easily to where the people live, then all you’ve done is really disincentivize the crude producers from producing. So if you were to do a crude oil export ban tomorrow and have no mitigating policies, you would see crude production in places like North Dakota and Texas fall off a cliff very, very quickly because they produce far more crude than they can use locally. We also don’t have enough refining capacity in the country as a whole to process everything that we produce. So the only way to then square the market is to reduce supply. And that means the United States goes from exporting somewhere between 20 and 25 million barrels a day, to probably something closer to 10 to 15 million barrels a day over a couple of years. 

And it would happen that fast, because the vast majority of American oil production these days comes from the shale fields, and most shale wells generate somewhere around 70% of their total output over the 25 year lifespan in the first 12 months. So it would happen very, very quick, and the result would be less energy security rather than more. 

Something similar happens with refining and diesel fuel. Again, there are some dense concentrations of refineries where we turn crude oil into fuels that we use with, again, the Texas-Louisiana section being the densest. We’ve got secondary centers that are roughly matched to demand in places like the Midwest. But when you look at California and especially the American Northeast and certainly Florida, there’s just nothing. And the United States decided a century ago, more than a century ago, to favor truck transport over train and especially ship. Even though they’re much more efficient, especially for the American geography, which means we have a large built in demand for diesel fuel. Even though our geography argues that we should be doing other things. Anyway, this all combines. So if we were to have a diesel ban tomorrow, again, you would have a catastrophic change in prices in Texas and Louisiana, where diesel prices would go through the floor because of oversaturation. And the only way to fix that is to reduce diesel runs. And all of a sudden, the United States has less diesel than it had before. 

Now, of course, the Trump administration, being the Trump administration, is now openly discussing how to make this happen, the diesel ban, specifically. The energy secretary, Chris Wright, is against it because he knows energy economics. And the Interior secretary, Doug Burger, is against it because it used to be the governor of North Dakota, one of the states that would be oversaturated. So he understands what’s going on. But every time that those two have tried to inject a little bit of economic rationality and reasonable forecasting into the white House, they’ve been slapped down and they will be on this situation to. Now does that mean that an oil export ban or a diesel ban are just uniformly bad ideas? No, no, no, that’s not what I’m saying. I’m saying if you think you can do a once and done policy and then move on, that is stupid because that will guarantee that the problem gets worse. And we reduce not just global supplies, but American supplies of these things. 

What you have to do is pair a ban, if that’s what you want to call it, with other things. So, for example, on the crude oil front, most of the crude that is produced by the US shale fields is super light and super sweet. It’s not viscous at all. It has very few contaminants. And that is not what the American Refining complex is designed for, because going back to the 1970s, we became convinced that the world had run out of this sort of light, sweet, crude. And so we started retooling our refineries to work on ever dirtier, ever thicker crude. Shale revolution came along in the mid 2000s, changed the math for the United States. But the refineries have been slow to shift because they’re the most advanced refineries in the world. And they spent 100s of billions of dollars getting ready for the world that then ultimately for the United States didn’t happen. So what happens is the United States exports the light, sweet stuff and imports heavy, dirty stuff. So if you want an oil export ban to mean something without damaging American energy security, you have to force the refineries to change what they do to use local crude. And if you do that, then all of a sudden we have the flow through that we need for fuels, and then it’s a distribution problem. 

If you want to look at the diesel situation, it’s somewhat similar. If we get these dense concentrations of supersaturation, the only way to fix that is to improve distribution. And that means product pipelines. Right now, we really only have one, the Colonial Pipeline that takes refined fuels from the Gulf Coast up to the American Northeast. And that’s it. Everything else is shipped by rail or more likely, truck. So what you have to do is build a nationwide distribution system, or maybe even mandate the creation of refineries in places where there aren’t concentrations of them. Or here’s a crazy idea maybe ship it by water and amend the interstate commerce act or the Jones Act so it’s easier to move stuff around the continental United States. 

Bans by themselves sound good. Because it means that the stuff will be trapped here, but it’s trapped in the wrong places. It’s still a distribution problem, and a distribution problem means you have to address the distribution system. And unless and until you do that, the conversation is just in the wrong place.

U.S. Sanctions on Iran Take a New Approach

Flags of the United States and Iran blending. Licensed by Envato Elements

The U.S. has just announced that it will remove any company or country caught servicing Iranian-owned aircraft from the U.S. dollar system. But these sanctions don’t target the IRGC or regime; instead, they impact everyday Iranians in the hope of stirring up a rebellion against the regime.

While regime change is unlikely, the effectiveness of these sanctions will largely depend upon Chinese adoption. Without Chinese goods, Iran would be in quite the pickle. And we might even find out China’s stance in the coming days, as Trump and Xi Jinping meet in Washington.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from Colorado. Today is the 22nd of September. You’ll be seeing this on the 23rd. The news today is the U.S. Treasury Secretary Bessent, has just announced new sanctions on not specifically Iranian aircraft and airlines, but anyone who might do business with them. Basically, if an Iranian owned aircraft lands anywhere in the world, anyone who provides assistance with ticketing, with boarding, with air traffic control, with fuel, with maintenance, anything is immediately purged from the US dollar system. 

The intent is basically to deny all access. Now, this is not a sanction that is designed to pressure the regime because the regime can always, you know, jump on somebody else’s aircraft Chinese, Russian, whatever. And most of them don’t leave the country anyway because….they’re not nice people. This is about targeting the population. We’ve seen a lot of measures like this over the last couple of months, as the Trump administration has come to the conclusion that pretty much everything that can be sanctioned on Iran has been sanctioned for the better part of the last 40 years. And they’re coming up dry with efforts to find other ways to put pressure on Iran overall. So the theory now is let’s try to make life as difficult for the Iranian population as possible so that they will rebel and overthrow the government. That’s a very tall order. Not only has it failed so far this year, with several attempts, complete with the Iranian government killing several tens of thousands of their own people as a result. But the stack is really high. The Iranian military combined with the IRGC, which is the paramilitary arm of the government, has well over a million people under arms, and it’s not designed to invade their neighbors. It is designed to occupy their own country to prevent the various groups of Iran from rising up. Keep in mind that even after thousands of years of ethnic consolidation, only about 50% of the Iranian population is actually Persian. The rest is Kurds and Balochis and other things. So internal security has always been first and foremost the concern of the Iranian government and Persia before it going back to antiquity. We’ve only had a half a dozen regime changes in human history in this part of the world. And to trigger another one is going to be really, really difficult. 

We’ve seen lots of other measures that the US government has done in the last couple of months. My favorite one is graduate standardized testing. You can’t take the GRE in Iran anymore, but it gives you an idea of how few levers there are if you actually want to change the government. 

Anyway, the real open question here is whether or not every country in the world is going to agree to do this. So far, most companies and most countries have already signed on, maybe grudgingly. But the real outside question is, of course, China, which is the primary source for most of the manufactured goods that flow into Iran. Up to and including the parts that they need for their drones. 

Now let’s see, I’m recording this on the 22nd. You’re going to see it on the 23rd. On the 24th. Chairman Xi Jinping of China is going to actually be in Washington for bilateral talks with Trump. And the technical term for what’s going to happen here is a shit show. On the American side, the Trump administration has systematically gutted all of the institutions that helped the president make decisions. So whether it’s the CIA or the State Department or the NSC, their staff was gutted last year. They were never rebuilt. And so all of the normal things that the American president would get on economics and culture and the political maneuvering within China, he’s not getting. Keep in mind that this is not just a China thing. Over half of the world’s country don’t have an American ambassador right now. China does. But the point is that Trump is coming into this as the least informed president for any summit in American history, and that will obviously color what comes out of it. But don’t get overly excited because Xi is not in much of a better position. Because Xi purged all of these systems a decade ago and has been operating in the dark in most international affairs, basically just working off of propaganda. So we’re going to get two of the most powerful people in human history who are also among the least informed leaders in human history, trying to hash out the details when they don’t have any of the details in Washington in 48 hours. It’s going to be a delightful negotiation, which means that the Americans are roughly unaware of what’s going on in China. The Chinese are roughly unaware of what’s going on in the United States. And if you happen to be someone in the middle like Iran, you might just manage to slip through unnoticed because it’s not up to the teams, because there aren’t teams. It’s just these two really arrogant and increasingly isolated men, pretending that they know what’s going on. 

Wow. There’s going to be a show.

The AI Race: U.S. vs. China

The letters "AI" on a blue cyber background

The AI race is in full swing. China is chasing digital sovereignty, but there’s a glaring hole in that plan…it doesn’t have the advanced manufacturing capabilities to achieve it. Here’s the real kicker: nobody does.

China might be a bit more flexible with its ethics and data manipulation, but that means nothing without the advanced chipmaking equipment. China can produce less efficient chips, but has incredibly low yields on leading-edge chips. To produce the highest-level chips, there are roughly 65 countries involved in a complex supply chain.

Which means that not even the U.S. could go out and do this on its own (unless it underwent a 20+ year tech ecosystem rebuild). America’s real advantage in the AI race comes from the broad coalition of allied countries all working together to produce high-end semiconductors.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from the top of little Castella, taking advantage of a break in the wind to answer a question from the Patreon crowd. Oh, by the way, that’s an ash mountain over there. And all of that is the Turner Ranch. Ted Turner, I guess, is a state, is a single largest landowner in the country. 

And that’s where he used to party. Anyway, the question is, is how is China’s artificial intelligence program coming along? They clearly don’t have any of the ethical restrictions that the United States has. And is that given them an edge? Is this something we need to worry about? Number one, I would argue that if you’re comparing the tech bro culture of Silicon Valley to China and the idea that one of them is morally superior, you need to do a little research. 

Silicon Valley, and especially the folks that are involved in AI, really don’t give a rat’s ass about your personal privacy and are perfectly willing to pillage your data in any possible form. In fact. Hey, I got a little visitor here. Hey, buddy. Yep. Never mind. He’s gone. Anyway, point being that if you are on Facebook or what is it now? Meta, whatever, any sort of social media whatsoever, all of your data is being mined actively in a way that the Chinese honestly sometimes have trouble keeping up with. And while the Chinese certainly do it with a little bit more flair, the AI Kings in the United States, the data kings in the United States have no problem getting all of the information that they need from you already. 

So the info influx really is not much of an issue. There used to be a moment when things had to be manually entered in, and the Chinese had an advantage of that for the numbers, but now AI has reached the point that it can self process. So again, that’s gone away too. So the structural issues really are not relevant. 

It really comes down to hardware. Now the Chinese are under export restrictions, so they cannot import the hardware that is necessary to make high end semiconductors, specifically the extreme ultraviolet machines that come from the Dutch company ASML. And without those, there’s no way they can make anything that’s really under seven nanometers reliably. That means that the reliant on importing chips and their export restrictions on anything coming out of the United States or Taiwan or Japan or Ireland, or any of the countries that make high end semiconductors, that limits them to approximately a 4 to 5 nanometer ceiling. Now, it’s not that those are bad chips at six nanometers. 

I mean, they’re fine, but if you want to do AI, it’s all about the number of computations you can crunch per chip and the power that takes per computation. And right now, in the rest of the world, the high end chips are in the 2 to 4 nanometer range, and we are now starting to get ships that were designed with coolant topography in mind. let me spell that out. What that means for an operational if you have a one gigawatt hyperscale data center, you probably have about a half a million GPUs on top of that. Lots of CPUs, lots of Dram, lots of Nand, different sorts of processing capacity, lots and lots of hardware. 

But the 500 GPUs or the core of it because large models. And when we’re talking about AI today, that’s what most people are discussing. Use those chips almost exclusively. And the better they are, the more computations, the more energy efficient per computation. The Chinese don’t have access to those 2 to 4 nanometer chips. Sometimes they can import some five and especially six nanometer chips. 

But they have made the decision that for sovereign control reasons, they don’t want to depend upon anyone’s imported chips. If they can make anything that’s even partially functional themselves really cool in. But there’s a middle ground. There’s a gray area because while the Chinese can’t import those high end chips in that high end equipment, they can still import a lot of equipment and a lot of gear. And they do that. They imported deep ultraviolet, DUV machines that are still pretty good and that are the basis for a lot more mature nodes. 

And they have used these to successfully make nodes as small as seven nanometers. Now I have to emphasize this. These chips kind of suck. They you generate about one third the computations per chip compared to what comes out of Asme and Taiwan. They generate about twice as much power, probably closer to three times as much power. Once you consider that the rest of the engineering of Chinese data centers, is that just that much worse? 

So you’re looking at overall one ninth efficiency compared to the leading edge stuff. On top of that, the yields for these seven nanometer chips is awful. It’s typically less than 30%. And as a rule, anywhere else in the world, any yield rate below 95% is something that wouldn’t be considered because it’s just such a massive waste of resources. 

China does the math differently, and they’re concerned with digital sovereignty and keeping them with the United States. But what it means is they need to build nine data centers for everyone in the United States in order to get an equal number of compute, and that is assuming the hardware can run the software that is required to do things like large language models. 

Bottom line, the Chinese are doing everything they can. They are sparing no horses, and they’re not even remotely close. They have tried over and over and over and over again for the last four years, to try to push past that seven nanometer limit, and they have succeeded in making a few emphasis on the word few chips, the meter level using technology. But it’s highly inefficient. And you’re talking about yields that are below 5%, nowhere near enough to supply a single data center, much less a raft of them. But before I laugh in their face, I have to say that the technology of AI is changing day by day, week by week, one by month, and the hardware is always two years behind. 

So I don’t want to rule it out there. Certainly motivated, if that’s the right phrase. But when it comes to the domestic manufacturing of the hardware that is required to do this, no, they’re just not even in the same game. Now, before anyone goes and toots America’s horn, the United States can’t make these chips either. Neither can Japan or Korea or Taiwan takes a team effort with 65 countries and 100,000 manufacturing supply chain steps and almost 10,000 companies. 

It really does take everyone. And if anyone is actually trying for real digital sovereignty, they’re going to fail unless they rebuild the entire tech ecosystem. And that is not something you do in less than 20 years. So are the Chinese going to fail at this by the rules of the game, as I understand them? Yeah. Are the Americans going to fail at this by my understanding of the rules of the game? 

Yeah, but the United States is part of a coalition of like minded countries that implement these technologies together. That’s how we do AI. And if the US decides to go it alone, it’ll be at best in China’s position.

The Diesel Shortage Hits America

Hand shown pumping diesel fuel with a Shell logo on nozzle

With Ukrainian attacks limiting Russian refining capacity and the Persian Gulf conflict restricting exports through Hormuz and the Red Sea, a diesel shortage is imminent.

While the U.S. should be able to weather this storm without issue, the poorly connected domestic distribution system will be a major source of problems. Unless the U.S. can move away from its heavy reliance on diesel trucks for shipping, the next 18 months will be full of shortages and rising transportation costs.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from a drizzly Colorado today. We’re going to talk about diesel and what is almost certainly going to be diesel shortages in the United States, which is going to reverberate through the entire American economy for months. 

Okay. So on the front end, the approximate causes are two fold. Number one, we’ve got the Ukrainians basically taking out Russian refining capacity. Russia used to be the world’s largest exporter of diesel. And now it is a net importer pulling from the United States, India, South Korea, lots of places. That is not going to change anytime soon. Even if the Ukrainians were to stop attacking, the Russians no longer have the capacity to repair all of this infrastructure in a short period of time. And so they will probably be net importers at least through the remainder of the year, probably through the remainder of next year. And that assumes that Ukrainians stop attacking, which is highly unlikely. Number two, of course, is the Persian Gulf conflict. We now have the Saudis basically largely removed from oil markets. We’re probably near the very end of their ability to use pre-positioned crude on the Red sea to export that direction, because the pipeline has been taken offline. It’s a bypass pipeline that used to bring crude from the eastern part of the country, where the oil fields are to the western part of the country. That is not dependent on Hormuz, but it’s been bombed. So who knows how long that’s going to be offline, and it can always be bombed again. In addition, the Strait of Hormuz remains mostly closed. At the best, in the last three months, we’ve seen maybe 20 ships go through a day, down from what used to be about 150. And as of Wednesday, only three ships came through. So the ability of the Iranians to shut that on and off is pretty, pretty strict. And that means we’re looking at roughly 20 million barrels of crude that can’t get out. And that’s going to hit energy at every level, including diesel. 

Anyway in the United States, we’ve got a couple of things going on. First of all, it’s bringing this to my attention. So there have been a lot of social media posts in places like California and Texas of gas stations saying that they’re just out of diesel. I wouldn’t worry too much about that at the moment. Having weekly outages here and there. Throughout the country is a normal thing. And the number of outages is not of a number that suggests that it breaks from the norm. The problem is price, because now we’ve got this pressure in the international system, and every time somebody exports a cargo of diesel from anywhere in the world, everybody is trying to buy it. So that is putting upward pressure, even on domestic prices here in the United States, even though we are diesel exporters. But there’s also a regional breakdown issue. The Californians, for example, have closed most of the refineries. So the only way that they have to get diesel in is by ship. And that’s typically a Jones Act certified shipped from Texas. So in the United States, we’ve got this incredibly stupid law on the books that dates back to the 1920s, called the Jones Act, or the Interstate Commerce Act, which says that any cargo that is going to be transported between any two American ports has to be on a boat that is built in America, owned by an American, captained by an American, and crewed by Americans. And as a result, the cost of maritime transport in the United States is increased by a factor of five compared to the world average. Which is just idiotic. Anyway. So we’ve got that restriction. There’s only a limited number of Jones Act vessels, and they have to take the stuff all the way from the Gulf Coast, through Panama, on up to California. So the entire West Coast, California specific is facing what is about to be just astronomically high diesel prices. It’s not much better on the East Coast. They do have something called the Colonial Pipeline that goes from the Gulf Coast, Texas/Louisiana area and sends fuel directly into the American northeast. But the volume isn’t sufficient for the needs. So they also use Jones Act. Go further down the Atlantic coast into places like South Carolina, Georgia and Florida. You’re talking purely Jones Act or truck. Trucks use diesel, so you’re using the thing you’re running out of in order to ship the thing that you’re running out of to places that can’t make it themselves. In the middle, you’ve got the Rocky Mountains, the Mountain West and the Midwest, who for the most part produce most of the diesel that they need. And we’re not seeing any shortages there. And then, of course, the place with the surplus is the Gulf Coast, Texas, Louisiana. And that’s where most U.S. exports come from as well. The problem is these various regions are not linked together very well. There aren’t a lot of pieces of infrastructure like colonial, and so most of the stuff has to be shipped by truck or by train, both of which use diesel. 

All of that combined means regional shortages are pretty much guaranteed. And that’s before you get to the real problem. Because of the Jones Act, the United States a century ago made the unconscious decision to move away from water transport and even rail transport to truck transport. Now, trucks have certain advantages. They can go to places where you couldn’t run a rail line because it’s too steep, important in the mountain west, but they cost a lot more and trucks use diesel. So by ton mile, the majority of U.S. cargo is shipped by truck. You see the problem here? 

Nearly unique in the world, the United States has the best maritime transport system possible, but has instead opted for the most expensive transport system possible. Shipping things by water costs less than one tenth of shipping them by truck. And so we should be using our water network to the fullest extent, which would also minimize our diesel demand. Instead, we’ve done the opposite. And now with shortages on a global basis, guaranteed even in the United States, which is a net exporter, even in the United States, which is the largest net exporter of refined product, we’re going to be facing problems in our transport system, which will affect every single thing that has to be moved throughout the entire country for at least the next 18 months.

The Venezuela Oil Deal Is Just the Start

A chevron Gas sign against a dark night

The recent series of U.S.-Venezuela oil deals is not quite as significant as it was made out to be.

The main highlights are Chevron’s investment and the U.S. putting its stamp of approval on NABEP. While NABEP lacks much of what it takes to expand production, U.S. backing gives the company credibility to attract outside investment.

This is just the beginning of a long road to recovery, but it’s better than nothing.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from Colorado. Today we’re going to look at something that happened while I was away at Yosemite. The oil deals between the United States and Venezuela. There’s been a lot of hyperbolic conversation about them. The reality is much more muted. 

We’ve got three things. First of all, Chevron, which is an American company that never left Venezuela, has announced a series of investments with the aim of increasing output by 300,000 barrels over the next five years. This is probably the upper level of what Chevron can do. Not that Chevron’s not capable, but that the crude in Venezuela, as a rule, is very difficult to work with. You basically have three regions, one in the East that has some more conventional crude, one in the west around Maracaibo that’s heavy crude. And then down in the south in a place called the Orinoco Belt, where it’s super heavy, crude and is actually a physical solid at room temperature, and it has to be heated up and mixed with other liquids in order to be able to put into a pipeline. Anyway, Chevron has operations throughout the area. They’re basically taking the fields that they already have, putting in some more money and trying to increase recovery rates. So really not doing anything new. So 300,000, that’s about all you’re going to get. 

The second one is Americas Hunt Oil, which is taking over two small fields in the east of the country…that are small. And if they do really well, you know, maybe they’ll get 100,000 barrels out of that over ten years. Again, not very interesting. Remember, this is a country that at the height was producing 4 million barrels a day back in the 1980s and 1990s. And then Chavez and Maduro, it just…..until it fell into under a million barrels a day, where it is now. 

The third one. The third deal is the one that’s getting really interesting with a company called NABEP and NABEP is the successor that has been renamed a few times, for a firm that started operating back in the 20 tens that at the time was called Petrozamora, run by a guy by the name of Alejandro Betancourt López. This guy is somebody who is tightly affiliated with the Russian government. And when the United States put sanctions on the Chavez-Maduro regime, the Russians basically came in to do what they could. But Russian technology sucks in the type of fields that Venezuela has. So Betancourt was able to basically bring in a few people from outside the Russian sphere and actually operate a few fields. But then when you get to 2020, if you remember back to 2020, you know, Covid year, it was kind of rough in Venezuela as well because they had elections and it looked for a hot minute like this guy from the outside was going to take over. He never did. But Betancourt sided with him, and it came to light that he had also been embezzling a lot of money from the Venezuelan state oil company, and so he got kicked out of the country. And Petrozamora (fell apart) until it was only producing like 100,000, maybe even 50,000 barrels a day. Well, fast forward to calendar year 2023. And a woman by the name of Rodriguez, who is now the acting president of Venezuela, brought him back in because the oil sector in Venezuela had just tanked in the intervening three years and started bringing the company back. I think it produces about 200,000 barrels a day right now. Anyway, this new deal with the United States is with the successor to Petrozamora, with Betancourt personally. They’ve renamed the company NABEP, and they’re basically taking all of the Russian concessions and all of the Chinese concessions and giving them to this new company. Now, this new company does not have the staffing, much less the expertise and the volume and the drilling rigs that are necessary to operate all these fields. You probably need about 90 rigs to really make it all work. They’ve got two. In addition, the United States has taken a theoretical not not actual theoretical share in NABEP and has theoretically the ability to assign people to their board. And theoretically, if the U.S. Defense Department specifically wants to take the crude that NABEP produces, it gets rights of first refusal, the first 20% they get at a huge discount, basically production cost and the other 80% they can get at market costs. But all of this is in theory. Unless and until someone else comes in and provides the funding and the staffing and the equipment, NABEP really isn’t going to go anywhere. The point of this deal, however, is for the U.S. government to put a stamp of approval on this one firm so that others who are willing to take more risk can come in, invest in the firm, and then maybe turn it into something that can turn Venezuela’s oil fortunes around. It’s a necessary first step. I don’t begrudge the U.S. administration or the acting Venezuelan government for that. But there’s no money here. There’s no skill transfer here. There’s no equipment coming in at yet. The Chevron deal really is at the moment, the only one that matters at all. And that’s 300,000 barrels over five years. Not a big deal. 

But if if if if if if all of those things happen, then you are talking about the very, very beginning of a renaissance in Venezuela. You still have to change the laws, because right now foreign ownership is an issue. You still have to change the reparations route, because right now it’s not clear how the money gets to the investors. But at the very minimum, we now have at least one entity operating in Venezuela that actually has the right to develop fields, that isn’t the state. That is a step in the right direction. But let’s not get too crazy. Let’s not get ahead of ourselves.

My Two Cents on the AI Debate

ChatGPT logo with a synthetic brain hovering above

Hear me out…everyone has been yelling about AI the past few days, and the reality is that everyone is probably right, but it probably doesn’t really matter anyways. Let me explain.

When every industry leader raises concerns about a technology potentially becoming dangerous, it’s probably a good idea to listen. At the same time, both sides of the political aisle are making fair arguments for pumping the brakes or stepping on the gas. And you know the last time we’ve had a unanimous desire to discuss a new technology? The automatic loom.

So, yes. It’s a good idea to discuss the consequences of a transformative technology before it fully arrives, but supply chain issues will likely make this a moot point until the 2040s anyways. But hey, we love a good head start.

Prefer to read the transcript? Click here

Transcript

Peter Zeihan here, coming to you from Colorado. A lot of folks on the Patreon page have written in with questions about the artificial intelligence debates that have been happening in the last several days, so I thought I would put my two cents in. I don’t have a firm position. I’m kind of a weird belief that I think everybody is right, if that makes sense. 

So let me just kind of go through it. Number one, we’ve had some whistleblowers come out recently and say that within the artificial intelligence companies like Anthropic and ChatGPT. There is an understanding right up at the top that what they’re doing is dangerous and could be used badly and could get away from them. I have no reason to doubt those statements, and it would be very strange if this wasn’t a concern within the industry anyway. But keep in mind that this is something that has never happened before. And so predicting what path it’s going to follow is very, very thin. And so that’s all I have on that. 

Number two, there now seems to be a general agreement in public among the leaders of these companies that maybe we should slow this down a little bit for safety. But as the Speaker of the House said, we can’t really do anything with that because they all have different opinions on what the problem is and what should be done. Agreed. 

Third problem. Trump has basically said fuck all to the idea that we’re going to slow down at all because the Chinese won’t follow anything anyway. He’s got a point. Keep in mind that the United States spends about ten times as much on hardware, for the stuff that is necessary to run AI then the Chinese do, and then several times as much on the actual software. In terms of software, the most generous assessment I’ve seen of the Chinese is that they’re six months behind American companies. It’s probably more like 36 months. But when it comes to hardware, there’s no contest. The Chinese cannot make chips by themselves that are better than 28 nanometers. And you’re not going to run even a sloppy AI engine on something that is worse than, say, 14 or 15. And almost all the stuff that’s being done in the United States is on stuff that it’s five nanometers and smaller. So it really is night and day. And so from the Chinese point of view, they’re not close to where the United States is. So any sort of broad international agreement to hobble AI in any way means that they get stuck several generations behind American companies. So they would reject that out of hand. 

You put all this together and, you know, honestly, it’s not that I don’t see the concern. It’s that I actually see something really positive. You know, the last time the United States actually had an open, honest conversation about the effect of a technology….It was the loom, the electric loom. Back in the 1700s, Ben Franklin was the one who led that conversation. Since then, new technologies come along. They remake our culture and our society in the aftermath, we’re like, oh, wow, that was that was kind of rough. It was. Maybe we should have discussed that first. And so the fact that this is a hot button issue at really every level of society on both sides of the political aisle, I mean, hell, we’ve got Steve Bannon and who’s that freak from Vermont, Bernie Sanders. Basically joining hands to talk about artificial intelligence. This this is weird, but it’s good. 

So I’m not at the point yet where I’m really concerned at all. And then, of course, in the background of my mind, this is probably all moot anyway, because we’re going to lose the ability to maintain the supply chains that make these chips in the first place. And then we’ll have 4 to 6 years where the AI chips, capable chips that are in data centers will basically run, and then they’ll burn themselves out, and then we have to start all over. 

So this is a conversation that honestly doesn’t need to bear fruit until, say, like the 2040s when we rebuild those systems. And until then, I just think it’s really good practice. So, you know, great.

The Geography of… Bear Attacks

A Grizzly bear running in a field

Everyone is always so worked up about bear attacks while I’m out backpacking. The problem is that people are referencing the rise in bear attacks in Japan, as if it’s the same here in the U.S. The reality is that unless you come across a grizzly without your bear spray, you’ll probably be just fine.

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Transcript

Hey everybody. Peter Zeihan here, coming to you from the Canadian Rockies in Alberta. Just out for a morning stroll. Today we’re going to do kind of a public service announcement slash question from the Patreon crowd. And it’s, do I worry about wild animals when I’m out backpacking for extended period of time, specifically bears, because there have been reports of hundreds of attacks of bears throughout Japan, especially in northern Japan this last year, which I think is more than what has happened in the decade previous. Short version is no, I don’t. And a couple of big reasons that separate the North American experience from the Japanese experience. 

So first, the physical human topography. In the United States, even in small towns, you tend to have an urban core surrounded by a suburban zone, surrounded by an exurban zone. And then outside of that, ranches and farms. That’s not the Japanese experience. Japan is a very rugged archipelago. So in many cases, the mountains come right down to the small enclave that is home to the urban zone. So the bears are used to being right up against the edge of human habitation, even in the best of times. Second, the Japanese physical footprint for humanity has evolved quite a bit in the last 30 years as their demographics have failed. Keep in mind that Japan, demographically, is the oldest society right now, with the highest proportion of senior citizens, and the population has been shrinking for the last 20 years. And as you age, you live differently. So, you know, your 20s. It’s all about hostel vacations. In your 30s, it’s all about single family homes so you can raise your kids in your 60s. It’s all about starting to downsize. And by the time you hit your 70s and 80s is where the population bulge in Japan is, you’re starting to need to live closer to one another in order to get services. And so the elderly tend to move out of the farms and the ranches and out of the exurbs and even out of the suburbs into the city core, where there’s a communal living facility where they can get assistance. And so what we have seen over the last 20 years is the steady abandonment of the outer edges and even kind of the outer core of a lot of urban zones throughout Japan. And that has left the bears with new territory to claim. Bears tend to be pretty territorial. Even if you relocate them a couple hundred miles, they’re likely just to run back within a week. 

So in the United States, when bears come across a human settlement, there’s progressively more noise and more activity and more alien environment. With all these artificial constructions and above all else, humans to scare them away. Human activity, whether it’s a car or some guy just yelling at them, that doesn’t happen in a lot of northern Japan anymore. This is the part of the country that has faced the steepest demographic crisis. A lot of young people have relocated to major cities like Osaka or Tokyo. And so the Outer Rim, which comes right up against the mountains, has been abandoned. And the bears, bit by bit, explore this new zone, claim it as their own. And so when they do run across a human, they don’t see the human as an alien environment. They see it as an intruder and attacks can happen. The bears also have no problem breaking into a house, and there’s been plenty of examples of bears breaking into find the pet food and then eating the pet to, that just doesn’t happen in the United States. In the United States, interactions between bears and humans have usually ended with the bear being scared off. Black bear, you basically make yourself big and loud and they run off. That doesn’t work as well with an Asian bear. Which brings us to the third thing. There’s different species. American black bears are basically big raccoons. They’re primarily scavengers. That’s why they call them trash pandas in Colorado. So if you keep your trash in your garage and you have a locked trash box, you only put it out the day that gets picked up, you’re more or less going to be fine. Oh yeah. Fun. Random fact black bears love baby diapers. Very strange. Anywho, the bears in Asia, in Japan are called Asian bears. Different species, a lot more aggressive. Making noise, especially in an area that they don’t feel threatened in, is more likely to trigger an attack than it is to make them run away. Of course, there are lots of different kinds of bears around the world, so, for example, the bear you should worry about in North America is the grizzly bear range starts in Wyoming and works north throughout the Canadian Rockies. They’re much bigger. They’re much more aggressive. They’re still omnivores, like all bears, but they’re perfectly capable of hunting. And if you come across a grizzly bear in the wild, the best thing is to stop, look down and slowly back away and just hope that it’s not interested in you. If you do get charged, don’t make yourself big and loud. That’ll just piss it off. Don’t shoot it with a gun. That’ll just piss it off more. I mean, these things are half a ton, the small ones, so that’s not going to stop at all. Your best bet is bear spray, which is basically a capsicum spray that stuns them because they’ve got really sensitive eyes and noses. Like I was saying earlier, the Grizzlies are Wyoming North, so there’s actually a really dense concentration of them right where I am right now. 

And, and I don’t have any bear spray on me. So, you know, maybe, maybe this is a good time to turn around.