Hey, everybody. Peter Zeihan here, coming to you from Colorado. we’re going to talk today about Texas because back on the 28th, on Sunday, the, electricity regulator of Texas called Ercot warned that there could be rolling brown and blackouts on the 29th of April. their concern was that temperatures were already expected to nudge up above 90 degrees in some parts of central and southern Texas. 

Now, at the end of the day, it wasn’t too bad. We just had a few sparks and brownouts here and there. The issue here is twofold. First, the one I can’t do anything about, and that’s climate change as Texas is getting warmer, as the population is expanding and people are moving into warmer and warmer areas. you’re seeing more pressure on the system writ large. 

electricity systems can transmit as much power when it’s hot. In addition, things like water cooling systems for, say, nuclear power plants don’t work as efficiently. So hot actually doesn’t just mean demand goes up. It means sometimes supply can go down. The other problem is more industrial, and it’s going to become a bigger and bigger and bigger problem moving forward at a much faster rate than anything the climate change does. 

as the Chinese and the European systems crack. the United States is going to have to enter in a period of extreme industrial regeneration. Now, we’ve already started that. We’ve seen industrial construction spending in the United States expand by a factor of ten in just the last five years, and Texas has been an outsized beneficiary of that. 

But the bottom line is this if you’re going to add a lot of industry and manufacturing, you’re going to be moving metal and forging materials and doing a lot of stamping. And all of those are really electricity intensive. It’s not that we don’t use more electricity as we get into things like server farms, but it’s nothing compared. What happens when you forge and move stuff. 

So I estimate that the United States needs to roughly double the size of its industrial plant. And just from that, we need 50% more electricity. Well, in the case of Texas, you got a triple bind here. You’ve got the energy transition, which is more electricity dependent. You’ve got a population explosion as people move to Texas because it’s a cheaper place to live. 

There’s no taxes. Land is cheap. food is cheap. Electricity until recently was cheap. And so you’ve got just a broad spectrum demand build and then the manufacturing renaissance on top of that. So I would estimate that the Texans need to actually double the size of their grid, preferably within the next 10 to 15 years, that we have never had that kind of build out before. 

Now, there is a problem here in addition to just the sheer numbers involved, and that is the regulatory structure of Texas. It is separated from the rest of the national grid. It regulates itself, and connections between Texas and the rest of the country are very slim. So when Texas enters into a period of abject shortage, the only solution for it is to overhaul its regulatory structure, to bring in new power systems, or to link up to the rest of the grid, which means some federal regulation will come into play. 

The Texans really don’t want to do option B. The problem with option A is if the Texans are have to change their ideology of power management. Right now, the way Ercot regulates the space is you can only charge the rate payers money four times when a power plant is actually operational. Well, that sounds kind of obvious. The problem here is when you deal with situations like, say, peak demand in the evening, you have to bring in a lot of peaker plants. 

When you’re looking at solar systems. if you’re going to bring them on line, they only generate during the day. So what Texas has done partially for ideological reasons, is to penalize, companies that build systems that are not used all the time. Thing is, when you get into surge demand situations, that just means the grid goes down and that is an entire model that they are going to have to reimagine. 

Now, people will, of course, point to California as a counterpoint, and I’m not saying that Californians have figured it out either. California’s decided to go whole hog into the green transition and pull out all the coal out of their system, and now as much natural gas as they possibly can. And they’re starting to make some crazy claims about having a largely carbon free grid. 

And it is a lie. The Californians are really bad at math. basically every time the sun goes down, you know, every day they turn on this 11 gigawatt capacity cluster of lines that connects Los Angeles to, the Arizona border. And every a bed of electrons that are coming in from Arizona is fossil fuel driven, primarily natural gas and coal. 

overall, California imports over one third of its electricity. They just don’t include that data in the math. So it’s not that California has really gotten green. It’s a California has simply outsourced its carbon emissions. Both California and Texas, I would argue, are now operating on a model that is failing, and both of them need to get overhauled. 

Texas, however, is the one where this is going to be a desperate issue because no one is really thinking, oh, I’m going to build a manufacturing plant just outside San Jose. No no no no no no no. All that sort of stuff happens in Texas. So the demand to build is going to be explosive. And it’s going to force the Texans to make some uncomfortable decisions and some very large investments very soon. 

Hey everybody. Peter Zeihan here coming to you from San Francisco Bay where I’m cool on my heels waiting for my flight. I’ve been here for the last several days and as you might guess, I get a few more environmental themed questions in California than I do other places. The one that I got that I found most interesting, however, came from a series of economists in Europe who were talking about how the solution to the climate crisis ultimately may well be that we just need to use less.

The idea is if we’re using X number of amount of energy and that’s too much, and solar and wind and the rest are just not ready for prime time, then perhaps they didn’t stick their reputations on this. Then perhaps the only way to go is to go down. Maybe. Here’s the thing. There’s a direct correlation between economic activity and energy use.

So while you can make efficiency gains, they tend to be incremental. We have made a lot of those over the last 30 years, things like ovens and dishwashers and refrigerators use about about half the energy that they did back in the nineties, but that’s a relatively small fry. The real issue has to do with location. If you’re living in a place where climate control is required for daily life, I mean, you’re it’s really hard to use less.

So let me kind of give you an example here that puts some numbers behind us. If you go back to World War Two, the populations of Iowa, Minnesota and Florida were all between two and 3 million. But if you fast forward to today, Florida has over 21 million. Minnesota has about six, and I was still below three. The difference is climate.

Say what you will about the Midwest. It tends to have summers and not too oppressively hot winters that are not too oppressively cold. And so if you’re in the middle of it, like in Iowa, climate control is nice to have, but it’s not required for modern life in the same way that it might be, say, in hot, humid Florida or frigid, frigid, frigid Minnesota.

But once the Minnesotans could have heat and once the Floridians could have air conditioning, the math changed. Well, that means that living in these places generates a lot of energy demand in order to get the concentrations of populations and the economic activity we have now. So to those economists, I could say this, you know, yes, we could all use less, but that would mean that we all have to move to Iowa.

Hey everyone. Peter Zeihan here coming to you from flat on my back in bed because I threw out my back. This is the last what I heard from here. We have a dead update from the U.S. government, specifically the Department of Energy’s Energy Information Agency, which tracks energy production, usage and prices and everything and their data for a calendar year 2023 indicates that the average price for natural gas in the country was just over $2.50 per thousand cubic feet.

In fact, it bottomed out at just below $2.20 in May. And this is after a really volatile year in calendar year 2022, when because of the Ukraine oil cuts a slow, we’re because we’ll just we’ll just do that we’re because of Ukraine or there was high demand everywhere and everyone was trying to get away from Russian natural gas in that calendar year.

U.S. prices hit nearly $10, but that was nothing compared to what happened in the rest of the world. With prices for several months being above 50 and even approaching a hundred in a few areas, which still boggles my mind that we actually hit those numbers that way. 2023 was much calmer. And the reason for it is twofold. Number one, that the United States is not just a producer, an exporter of natural gas, but it does so using a series of technologies that are broadly not applicable in the rest of the world.

The shale technology and fracking. Because of this, the United States has a break even price in our pure shale natural gas fields, typically below five in some places below $3 per thousand cubic feet. And second, we get a lot of associated natural gas production that comes from our shale oil operations, which, you know, technically based on how you run the numbers, that could be free anyway.

It means the United States is the world’s largest producer of natural gas, kicking out about 120 billion cubic meters a year. And most of that is trapped in the system at home because moving natural gas from A to B is kind of difficult. There’s really only two routes. One is to have a pipeline network that sends it from production to consumption locations.

Usually those are within individual country because natural gas being a gas is hard to store. And the U.S. does have the world’s largest system for distribution by far. The second option is to chill it down to -300 odd degrees into a liquid form and then put it in onto a special sea tanker to send it across the ocean to someone who has a specific receiving facility, who can take the liquid and reclassify it without it blowing up.

All of that is as expensive as it sounds. So what happened in 2022 in Europe was the Europeans used to be on a pipe system that brought in stuff from northwestern Siberia for the most part, and that gave them access to reliably, large and reliably cheap supplies. So when the Europeans decided to move on from the Russians, they had to go to some other piped suppliers that they have, specifically Algeria, Libya, and especially Norway.

But that wasn’t enough. So they had to go out and tap the world for liquefied natural gas, which is not available in large volumes in the way that piped gas from a neighbor can be. And so prices went up and up and up and up. And in the United States, we sent everything that we could and that allowed the Europeans a degree of energy security, but only at a very, very high price point.

What we’re seeing now is the slow motion so far, slow motion degradation of the Russian system, because the pipes are all oriented towards Europe and they are falling into disrepair because they’re not being used. And the Russians are using all their technical experts to maintain their war effort. They do have a couple of liquefied natural gas facilities, some in the Far East and the island of Sakhalin, north of Japan, and some on the IMO Peninsula in far northwest Russia.

But it is foreigners who provide the technical skills for those facilities to operate. And as those technical skills are increasingly withheld, these facilities will fall into disrepair. And well, let’s just see when you’ve got a refrigeration unit that is dealing with billions of cubic meters of flammable materials and something goes wrong, something goes wrong all at once. We haven’t had any industrial accidents at these facilities yet, but it’s only a matter of time, one year to year, five years.

I don’t know how long before those facilities go offline and then Russian natural gas will be gone. Getting it out by other means is nearly impossible. There are very few countries that can do LNG liquefaction. China is not on that list. Most of them are part of the Western alliance plus Japan that is backing Ukraine. And if you’re going to get a pipeline for the small peninsula to populated China, you’re talking about the world’s largest chunk of infrastructure with roughly 70% of the train it’s going to cross being virgin with no existing infrastructure at all.

So you’re talking tundra and tiger and permafrost and mountains. Building that pipeline would be $100 billion project. It would take a minimum of 15 years. And even if it was done, the cost of operating would be two, three, four times as much as the natural gas would be worth. So the Russians and the Chinese repeatedly say that this pipeline is going to happen.

They’ve been saying that for 20 years. And then you get down into the details and the traders again, the Russians are going to pay for the operation pipeline. And the Russians, like, you know, the Chinese are going to pay for the operation of the pipeline. And that’s why nothing has started. So the world has to get by without Russian natural gas.

And until a year and a half ago, they were the world’s largest exporter. That is going to have big price implications everywhere except in countries that produce natural gas for themselves. Read the United States. Now, that means in the United States, the 2 to $3 range we’re in right now is more or less normal. We’re not going to go above five for any more than very short periods of time, because what we’ve discovered is that the shale gas guys can bring on well, wells in a matter of weeks.

If you remember your shale history back between 2004 and 2011, roughly, it was all about the natural gas. And then in 2011, the 2013 oil really came into its own and natural gas faded, not because we were producing it, but because we were producing it as a byproduct of oil production. What we saw in calendar year 2023 when prices were going up is that the shale guys went back to the old natural gas fields and were able to produce using the tricks they’d learned in the shale oil fields the last ten years.

And that pushed down the cost of production and push up the volume of natural gas that was produced by massive volumes. And we basically got back to a balanced market. Now, the United States does have takeaway capacity to get some of that natural gas to international systems. We have roughly 10 billion cubic feet of pipeline capacity, mostly in Mexico and about another 10 billion cubic feet for LNG, which is mostly going to Europe now.

That’s in comparison to 120 billion cubic feet of overall production, which is a number we now know that we can increase in fairly quick succession when we need to. So again, prices should be lower for a longer. We might have those occasional spikes, but then the shale guys will just drill and bring the price right back down. Now, why does that matter to you?

Three big reasons. Number one, natural gas remains the number one fuel source for electricity generation in this country. About 40% of the total. So anything that requires electricity, which is almost everything, natural gas is the solution, at least in the mid-term. And since the United States needs to roughly double the size of its industrial plant. As the Chinese fade away, we basically need 50% more electricity, and natural gas is going to be a huge component of that.

Second, let’s say you don’t like fossil fuels at all. Let’s say that you’re a greenie and you like solar and wind. Well, you should still like natural gas because when the wind doesn’t blow or when the sun doesn’t shine, which happens, you know, every night, you need a partner, a fuel in order to keep the lights on. And natural gas combined cycle power generation facilities can spin up and spin down in less than 15 minutes.

So they are the best partner for GreenTech that we have. And while the Californians don’t like to say it out loud, about half of their energy that they generate within California itself comes from natural gas, specifically because of this pairing capacity batteries cost an order of magnitude more. They don’t last very long and they have some other problems with their construction That is ugly from any number of strategic and green points of view.

Natural gas is a known and as long as we’re going to be moving towards wind and solar for most of this country, even in increments, natural gas is the logical partner for all of it. And then the third thing is a little bit more esoteric, and that has to do with what happens in manufacturing. Once you decide you want to really get into everything in globalization, we have broken up the supply chains.

Energy comes from someplace, iron ore comes from someplace, steel comes from someplace else, plastics comes from someplace else. It’s brought together for assembly, different locations. As the world breaks apart and we have a more national or continental system, more and more of those intermediate steps need to be done at home or near home. And a lot of those intermediate steps use raw materials that are made from natural gas.

So natural gas makes naphtha, makes polyurethane makes plastics, naphtha makes fertilizers and pesticides, makes agricultural products. Natural gas is the base material for a lot of this stuff. And now the United States is the largest producer, supplier and exporter of all of those intermediate products. And what we’re seeing now is the U.S. moving up the production chain, moving in a greater value added production system for all of this so that we can still do the classic manufacturing and have the entire input system at home.

So to have natural gas at these price levels for a very long time is great and it’s going to be a very long time. We largely stopped looking for natural gas about ten, 15 years ago because we knew at that time we had over 30 years of supplies at current rates of production. And we proved in 2023 that it’s pretty easy to bring even more on line.

So this is going to be the norm for the United States while it goes through these massive re industrialization phases. And natural gas will both power fuel and provide the base materials to make all of the possible. And that is not going to be replicated any where else. No one else can produce natural gas at the price point that the United States can.

And no one else has. In natural gas production facilities relatively close to the population centers like the United States does. So this this is our new normal, and it’s going to provide the bulwark for American industry for at least the rest of this century.