America’s Leg Up on Petrochemicals

Petrochemical plant

The Iran War has caused a massive disruption in global petrochemical production. Since most of the world relies on oil-derived naptha, the ~12 million barrels/day shortage is taking a toll.

Many countries in Asia and Europe are beginning to feel the pressure, but the U.S. has a leg up on everyone else. Thanks to the shale revolution, America’s cheap and abundant natural gas is used to produce its petrochemicals. This has enabled the U.S. to avoid shortages and become a dominant global supplier of key petrochemical inputs.

Nearly every industry, from plastics to fertilizers, is impacted by these materials. So, the global industrial landscape is getting shaken up once again.

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Transcript

Hey, everybody. Peter Zeihan here, coming to you from Walla Walla, Washington. Today we’re talking about the Iran war and the impact that it is having on petrochemicals. 

The way most of the world decides to make petrochemicals is they start with crude oil and then refine it into an intermediate product called naphtha and then naphtha. 

Then it goes on and is processed into tens of thousands of things that we all use every day. That’s not how it operates in the United States. In the United States, because of the shale revolution, we have basically a bottomless supply of natural gas. Based on whose math you’re using, roughly one third of the natural gas that is produced in the United States, it’s produced is a waste product, or at least as an associated production of oil, which means that in the United States, natural gas is significantly cheaper compared to the cost of oil. 

So in the rest of the world pre-war, the ratio between oil and natural gas on a point of view was about 5 to 1. In the United States, it’s closer to 2 to 1. So we use natural gas to produce products that, everyone else would use naphtha for. Well, what has happened? Two things. Number one, all that natural gas means that the United States can produce most petrochemicals at a significant cost advantage versus everyone else. 

Second, with the Iran war going on now, there’s a global shortage of oil to the tune of about 10 to 12 million barrels a day. So everyone else is hardware is designed to turn oil into naphtha, into petrochemical products. But all of a sudden, the price of oil on the availability of oil means that basically everyone in the East Asian rim, and very soon, everyone in Europe, simply can’t access the product they need at all, and they don’t have access to enough natural gas in the first place to switch over. 

And even if they did, they’d have to change their hardware to be able to do it. So the United States is becoming, from an economic point of view, the only real functional, large scale supplier of the butadiene and methyl groups, which is where we already had, huge advantage. And that’s things like, particleboard and silicones and octane for gasoline and nitrogen fertilizers and melamine, plastics, a lot of things like that. 

Whereas everybody else is now discovering that they don’t have the price structure that’s necessary to maintain competitive production of really any of this. Third problem, because the United States, is able to have an advantage now in all of the product sets. We’re seeing a significant shift in production quantities as well as qualities. So let me show you this chart here. 

If you start at the bottom left, that gray bars oil, you turn into naphtha, which goes on to make all the water products go to the right side. At the bottom you start with natural gas. You crack it to get ethylene, and then you turn that into products. But this whole set can be made with natural gas. 

And so the United States has not just a price advantage now, but just a huge advantage in the quantity, the type of products that can be made in mass. You play this forward for six months, two years, which is easily going to happen because of the Iran war. And we’re looking at a shattering of the petrochemical supply chains on a global basis outside of North America, and that’s going to have massive impacts downstream on pretty much every industrial sector.

Iran War Winners and Losers: North American Energy

Satellite view of north american lights and energy

As Persian Gulf and Russian exports collapse, global prices will rise, which should benefit the U.S. and Canada. However, if exports are halted to keep gasoline prices down, then North America would become oversupplied. This would effectively cap oil prices near production costs, despite the rest of the globe facing shortages and rising prices.

This means the producers wouldn’t see much upside, with refiners becoming the only real winners (even though they still have to retool to use that domestic light crude).

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Transcript

Hey all, Peter Zeihan here, coming to you from Colorado. And today we’re doing another one of our Open-Ended series on winners and losers in the Iran war. And today we’re talking about energy markets, specifically in North America, where the two big players are the American shale patch and Canadian producers primarily, although not exclusively, in Alberta. All right, first things first. Let’s get an understanding from where we were the day before the war. 

U.S. shale output is at record levels, and by itself is the single largest producer of crude in the world. But most of that crude is light and sweet. The issue is that in shale formations, there’s not a big pool of crude for you to stick a straw into. It’s tiny, microscopic little packs, and so you drill into it, inject liquid which cracks the rock. You inject sand, which then goes into the cracks. You pull the water out and the sand keeps the cracks propped open. So the facility then generates its own pressure as this stuff drains up. And because of that, the oil never migrated through a rock formation. So it’s very pure. It’s, very light, very sweet, low viscosity. 

Canada’s oil sands are very different. It’s basically Bitterman, or oil sand where you’ve got a relatively porous rock and the petroleum is migrated through a lot to kind of almost make it a sludgy gel. So it’s very thick and very heavy, and some of the crazy stuff is actually solid at room temperature. So they have to often inject steam in order to make it liquid so they can pump it up. 

Sometimes they literally electrify it, sometimes they strip mine it. Anyway, it’s a lot more energy intensive than what happens with U.S. shale, but in both cases, the cost per barrel is pretty high. It’s rare that it’s, under 30. Sometimes it’s over 60. So in both shale patches and the, Albertan oil sands, if prices are too low for too long, a lot of the work just stops. 

Anyway, on the surface, with having the Persian Gulf go away right now, we’re at 10 to 12 million barrels a day off line. even if the war ends tomorrow, that will remain that way for at least three months, because these fields can’t just be flipped back on. Some of them will take at least two years, probably more. 

And that assumes no additional damage, which, considering the path we’re on right now, is a laughable, scenario. We’re probably looking at the bulk of the 22 million barrels per day that comes out of here never coming back, or at least not within a decade. In that scenario, oil prices have nowhere to go but up and starting strongly, strongly, strongly. 

So. So it would appear that US shale and the Canadian shale patch are big winners here mid term. Because, you know, if the price of oil doubles or more and you production costs don’t change and you have access to the world’s largest market and you’re nowhere near the the shooting, it seems like all positives, right? Wrong. Because when oil prices go up, there’s another piece in play here. 

First the Ukrainians are taking out basically the western half of the Russian oil complex. They’ve already destroyed the ability of the Russians to export through the Baltic. They’re going to be working on the block very soon. That’s at least 3 million barrels a day of Russian crude, maybe as much as five. That simply isn’t going to come back either. 

So we’re looking at Persian Gulf crude and Russian crude disappearing from the market at the same time, which will send prices even higher, which again, is great for Canada shale. Right? Wrong. Because I don’t know if you guys noticed this, but the American president, Donald Trump, is pretty populist. And if we start getting $10 gasoline in places that you know, aren’t California, there’s going to be a bit of a rebellion. 

And this is something that Trump doesn’t have to stretch the law to deal with. Back in 2015, when shale oil was new, there was a big debate in Congress over solar and wind versus oil exports, what was necessary to push the American energy complex forward. And the compromise that was reached was that we would allow oil exports that used to be illegal, and we would subsidize the development of solar and wind, and to make sure that we had a stopgap, the president was given the authority without having to go back to Congress, without having to even have a hearing to end U.S. oil exports if market conditions argued for problems. 

However, he defines that, which means that the 5 million roughly barrels a day of crude that the United States exports right now could go to zero with the stroke of a pen. And if we enter in a situation where the American internal oil market gets really expensive, to the point that it becomes a political problem for Trump and an economic problem for the country, you bet your ass he’s going to do that. 

So now we’re looking at a scenario where Persian Gulf crude and Russian crude and American crude all go offline at the same time, sending prices sky high. So this sounds like it would be great for the Canadians, right? Wrong. Because most of the crude that Alberta produces is shipped south to the United States, and it can really only be refined in refineries that the United States operates. 

They do have a one pipeline that isn’t doing very well, by the way, called Trans Mountain, that goes out west to British Columbia. That one pipeline will obviously be filled up to its capacity in this scenario, and anyone can get the crude out that way. We’ll be able to sell to the global market at a high price. But with that one exception, most of this is actually probably going to be seen energy prices in the United States and Canada going down. 

Because in a scenario where you can’t export, we’re in an environment of super saturation. And as long as you can produce crude in the United States and Canada for $60 a barrel, that’s pretty much as high as prices can go when you’re in such a huge surplus situation. So we get a situation in North America where prices are kind of capped at 60 to 70. 

We get a price situation in the rest of the world where 200 is a good day, and that’s where we are. That doesn’t mean that there are winners in the North American energy complex. It’s just not in production. It’s in processing. You see, the restriction on U.S. exports doesn’t apply to crude, refined products just to raw crude itself. 

So if you operate a refinery and you have export options, you can export your naphtha, your crude or your gasoline, your diesel, whatever it happens to be to the wider market at inflated prices was just one little glitch. U.S. refiners for the last 30 years have steadily retooled their entire complex to run on heavy, sour, imported crude, for example, from Canada. 

But with the United States locking itself off, most non-Canadian sources of heavy crude are simply not going to be available anymore, and they’re going to be forced to deal with the light sweet that comes out of American fields. Now, this can be done. The modifications are easy. They’re actually going to be dumbing down the refineries to run on higher quality crude. 

But in the process of doing that, they’re writing off a lot of capital investment. At the same time, they have to invest in a different kind of fractionated system. It’s not that that’s particularly expensive. It’s not. But that takes a long time. But it is definitely going to cut into the rate in which they can benefit from these situations. 

And in the meantime, they’re probably going to be having runs that are going at significantly lower efficiencies than they would prefer. In the long run. It’ll be great. In the long run, they’ll be making more money, but they have to get to the long run first. So for the first year or two, there’s going to be a lot of stress on their hardware before they can change over some of the infrastructure. 

So again, just as we’ve discussed with almost every other country, the conventional wisdom that a lot of people saw in the first couple of weeks of the conflict really doesn’t apply. As soon as something happens, there’s a reaction and oftentimes it’s the second, third, and even fourth order effects that are the ones that really stick. That’s definitely how it is with this topic.

The Energy Crisis: Downstream Impacts

Globe shot of energy hubs

The global energy crisis has moved from theoretical to very real. As the last shipments sent before the war begin to arrive, we are now hitting a turning point in the energy crisis.

Rationing and black markets have already sprung up in Asia. Some countries have found ways around the shortage (for now), but that has created new issues for others. The Europeans will feel the heat in the coming weeks, as oil from both the Gulf and Russia disappears.

The U.S. has also lifted sanctions on Russian and Iranian oil that is already in transit, temporarily easing shortages, but undoing years of work to limit export income for these countries.

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Transcript

Hey all, Peter Zeihan here, coming to you from Colorado. Yesterday we talked about what was going on with energy markets, primarily in the upstream, dealing with disruptions out of Russia and Iran. Short version. It’s pretty bad. It’s getting worse. Now, I wanted to deal with things that are close to the consumer where it’s pretty bad and getting worse. 

It has now been five weeks, which means that there’s a half a billion barrels of crude oil that hasn’t made it to market 

The final tankers from pre-war shipments from the Persian Gulf arrived in all of Asia last week. The final tankers will arrive in Europe this week and starting next week, the disruptions to from what the Ukrainians are doing to Russian oil exports will start to affect Europe as well. 

A mix of things here. Let’s start with who’s feeling what. Because of the shortages in Asia, we already have widespread rationing and the development of black markets. It’s affecting different countries in different ways. So for example, India has gorged on the thin stream of Iranian crude that’s coming out, and the legalization by the Americans of Russian crude that is out and about. 

And that has allowed them to avoid any sort of direct energy crisis as regards to oil and oil derivatives. However, almost all of their cooking, I should say all. But for about half the population, their cooking is done with propane liquefied petroleum gas that is exclusively produced for them in the Persian Gulf. That has gone to zero. And so now they’re seeing an energy shortage in that regard. 

Places like New Zealand and Thailand and Taiwan and the Philippines and Vietnam are all experiencing degree of energy shortages and rationing. And already the country that is most panic and should be is Korea, because their options are very, very limited and they’re a major industrial player in Japan at the moment, is avoiding this largely because they have access to sources from the Western Hemisphere and a navy that can protect them if it comes to that. 

And at the moment, the Chinese are okay, not because they’re not experiencing energy shortage. They absolutely are. But China has an overbuild of refineries. And so part of their economic model was to build refineries, absorb crude from abroad, refined into fuel, and then export that fuel. And so the way the Chinese have avoided an energy crisis is by stop exporting fuel. 

So at the moment China is okay, but those fuel exports now have stopped arriving in various places and countries like Australia, New Zealand, which used to get their fuel from China, their refined fuel suddenly aren’t. So we have a different sort of rationing and energy crisis. In Europe it’s going to hit them from multiple angles, but they do have a little bit more time. 

Like I said, the last tankers from pre-war Persian Gulf exports arrived this week. So it’s only now that the crunch really begins. The problem will be in 2 or 3 weeks, because they have this weird little setup where Russian crude can’t be bought in Europe, but it’s exported somewhere else, refined a product and shipped back. So we’re now starting the fuze on that, and in three weeks the Russians, will basically be a non-factor in European energy. 

At the same time, the Persian Gulf becomes a non-factor in energy. And it’s going to be a mess all around. A couple other things. Number one, there are more ships leaving the Persian Gulf. We saw 20 to 30 on both Saturday and Sunday, which brings up us to about one fifth of pre-war levels. The difference is Oman, which is the country that controls the southern side of the strait. 

Last week we talked about how the Iranians had set up a tollbooth system and were charging about $2 million per vessel and then kind of sort of escorting, ships through the northern part of the Strait of Hormuz in their territory. Oman is now doing the same thing in the south, basically to tankers, ships, whatever they happen to be are either re flagging or changing the trans front doors to say, Omani owned. 

And Oman has always been kind of the neutral power in the Persian Gulf. The Iranians have always kind of considered it in a different basket compared to Kuwait, Bahrain, Gutter and Saudi Arabia. In the UAE, which are more of the American camp. So far, the Iranians have not targeted these Omani vessels. I’m not saying that they this is a safe path. 

It’s not. But it has allowed some ships to get out. I will underline, however, that almost all of the ships that are using this route are leaving. Very, very, very few are coming in. Those that are typically Iranian flagged using the northern route. So of the two 300 ships that were stuck in the Gulf before, some of them are getting out. 

Nobody’s going back in. And that means that the oil production, even if it continued, even if it wasn’t damaged, still has no place to go. Let’s see. Finally, the big achievement of the Trump administration in this war so far in energy markets has been ending. the sanction system on places like Russia and Iran. They have now lifted fully the sanctions on purchasing what’s already on the water. 

And that has allowed basically the last 4 or 5 years of attempts to isolate the Russians in the last 10 to 15 years of attempting to isolate the Iranians economically, to vanish into the ether. If there’s going to be an effort by the United States or any other country to limit the legal access to these crudes, they’re going to have to start completely over. 

So the last 5 to 15 years of efforts to kind of squeeze these economies is now broken. Now there’s plenty of other things, physical damage, for example, that are drastically affecting both of these markets, primarily the Russians. But it is interesting to say that it took a war launched by Donald Trump on Iran in order to make Iranian oil legal again.

Good Luck, Texas

Texas cattle in an ice storm

A major cold front is sweeping across America, and I’d like to point out that our neighbors to the North are the ones who sent it down. But some areas are going to feel this more than others.

Texas is exposed due to its isolated power grid. Cold weather strains the system and essentially shuts everything down. This is a shorter storm cycle than the 2021 freeze, and thankfully, Texas has winterized since then, so the fallout shouldn’t be as devastating.

Outages are still possible, but statewide blackouts are less likely than last time.

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Transcript

Hey all, Peter Zeihan here. Coming to you from Colorado. As everybody knows, there’s a cold front that’s pushing down from Canada that’s affecting basically the entire Midwest down to Texas and over into the South and the eastern seaboard. 

For those of you who are in Texas, this is for you. You see, the power grid in the eastern part of the United States is interconnected. 

So if you’re east of the Rockies, everybody’s on the same grid, and people can pump power from one zone to another without a problem. Texas, however, is on its own. Texas does not like regulation at the federal level at all, in case you didn’t know. And, sometimes this works for them and sometimes it doesn’t. And this weekend we’re going to find out what it is. 

The issue is, kind of 2 or 3 fold. Number one, if you get ice, ice lands on the power lines. The power lines weigh more. Sometimes they snap. Number two, in times of extreme temperature variation, like a high cold front, people are going to be using a lot more energy than they would normally. 

So there’s a lot more stress on the system in general. And then third and freezing temperatures, natural gas production can be interrupted. A lot of natural gas fields bring up a little bit of water as a side effect and ends up in the pipes. And if the temperature drops enough, that will turn into ice, and eventually they’ll clog and freeze. 

So if you remember to a winter storm we had a few years ago, I think was 2021. The area around Dallas got so bad that the pipelines were frozen solid, and they basically had to deliberately ignore all safety regulations and go out there with blowtorches and heat up the ice so that the energy would flow. This cold front is both better and worse than that one. 

Better in that it is not going to last as long. We’re probably only going to have subfreezing temperatures in Texas for 2 or 3, maybe at most four days. Number two, Texas has made a lot of advances since then in making their system more stable, both at the grid level and at the production level. More pipelines are buried, for example, because if you just put your pipe under six inches of dirt, that insulation is probably going to be enough. 

Not a real crazy thing here. Almost everywhere in the United States that produces petroleum puts them underground. Texas was really unique because it just never really got cold enough for them to care. Now they do. Third, there are three different production regions in Texas, and it’s really going to depend upon what happens with the ice line here. the biggest one around the Dallas Fort Worth area is called the Barnett Shale. It’s almost exclusively natural gas. It is the primary source of energy for most of the region’s natural gas power plants. If we get ice in the Dallas area, but not lots of subfreezing temperatures along it, as long as it stays above, like 2025, we’ll be okay. 

That’ll probably be fine. Further south is Eagle Ford. Now, usually Eagle Ford, because it’s East of San Antonio stays warm enough that there. No, this is an issue. It’s unclear if that’s how it’s going to be this time. Probably they’ll get a lot of ice. Ice is not a big problem for pipelines, because it’s not cold enough to freeze the inside, and it just makes things very uncomfortable. So you could have high traffic incidents in San Antonio. While this is going on. Don’t drive in Texas if there’s ice because oh my God, they don’t know how to drive anything that’s not dry. 

Third one is the Permian that’s out west, Odessa, Midland, getting into New Mexico. That one’s probably going to be fine. 

A quirk of this particular storm is it’s blowing down from Alberta on the east side of the Rockies. And when you get down towards that part of Texas in New Mexico. Yes, you’re still to the east of the Rockies, but the Gulf Stream starts pushing everything further east. So it’s kind of like a hurricane in reverse, if you will. 

So while those areas are expected to be cold, they’re not as expected to get as cold or for as long, which would suggest that the largest oil natural gas producing basin in the country, the Permian Basin, is probably going to be able to maintain operations. So none of this is risk free. We’re probably going to have some sporadic power outages, but between the improvements and the dynamics of this specific storm, it looks like we’re not going to be looking at mass blackout events. 

And that’s a good day.

World’s Largest Nuclear Plant Coming Back Online in Japan

Photo show three nuclear power plant reactors

Japan is restarting the world’s largest nuclear power plant, after a 15-year shutdown following the Fukushima disaster. Nuclear power used to account for over 30% of Japan’s national electricity, so seeing these reactors come back online restores a key pillar of Japan’s energy system.

Japan’s mountainous terrain forced each region to establish large, redundant energy systems; therefore, the return of nuclear power gives Japan surplus capacity and flexibility in an otherwise stagnant environment.

With the global energy trade growing more unreliable by the day, Japan is now better positioned than most to weather the storm.

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Transcript

Hey all, Peter Zeihan here. Coming to you from Colorado. Windy day. Today we’re and talk about the energy system in Japan because the Japanese just turned back on the world’s largest nuclear power plant. Now, if you remember roughly, what’s it been 15 years ago now? Almost. There was a really bad earthquake in the Sendai region of Japan, which generated a Sunni army which flooded a large power plant that happened to be on the coast. 

Note to self, don’t put up nuclear power plant on the coast on a fault line. Anyway, because of the partial meltdown, because of the damage, because of the radiation leak. Because it’s nuclear power. The Japanese shut down every single nuclear reactor they had until they could complete a series of safety tests. And a lot of those power plants didn’t do so well on the first round. 

Anyway, fast forward 15 years later, more and more of them are opening back up. And now this new large one is as well. Which means I think it’s a good time to talk about what the power system in Japan looks like, because it is giving the Japanese a lot of options that other countries don’t have. So Japan is an archipelago, lots of islands, some bigger than others. 

But what all of their cities have in common is they’re backed up against really, really rugged terrain, mostly mountains, and a pretty steep ones at that. This is shaped the political culture of Japan going back since the emergence of the Japanese, ethnicity well over a millennia ago. And it means that most Japanese, in a manner somewhat similar to Germans, having a local identity more than a national identity, from many points of view, because they’ve basically spent time immemorial competing with one another, but oftentimes having a hard time reaching one another. 

So you have a very, very strong local customs, traditions and identities. What that means for the power system is that you can’t link together two prefectures in Japan with power, infrastructure, because the terrain is too difficult. This is not linking Iowa and Minnesota together. You have to go up and over mountains to get from one little enclave on the coast to the next one. 

And what that means is each major city in Japan, you shouldn’t think of it as a city. You should think of it as its own thing, its own almost country from an infrastructure point of view. So if you have to do that, you can’t rely on piping in wiring and power from your neighbor. So you need excess supply. 

So you build power plants that you expect to never use. You do ones that burn coal or natural gas. You have your nuclear power plants. Maybe you do a little solar, wind or tidal if you’ve got the right environment for it, maybe even put up an oil burner, which is something that usually not even third world countries would do. 

But the point is, if one of them goes out, you have a backup plan. Now, since the Sendai earthquake, Japan has taken one of those pillars of its energy security nuclear and just taken it completely offline. It used to be 30 to 35% of national demand. That is now coming back in a very big way. At the same time, the Japanese economy over the course of the last 30 years has been fairly stagnant, so power demand hasn’t moved too much. 

So you have this large oversize energy system for each individual part of Japan, and they’re now getting one of their major sources back. So if you fast forward a few months, a few years into a world that is more disconnected, where things like energy trade are not nearly as reliable, all of a sudden the Japanese have a lot more options than other countries. 

Yes, they still have to import the vast majority of their energy, but they don’t really care where they get it from, and now they don’t really care what it is. So even in a world where energy supplies break down as long as there’s something that works, the Japanese are going to be okay. And that’s a lot better than what I can say about a lot of the countries out there.

The Reality of Electricity in America

Electrical powerlines on a sunset

Doubling the US industrial capacity requires 50% more electricity…already a high barrier to entry. If we want to throw in some new data centers, add another 25-50% on top of that. No small feat.

Should the US want to accomplish this industrial buildout, then heavily investing in long-distance lines is essential. The data centers are going to require 24/7 baseload, which means nuclear or coal (and natural gas for surges). So, you’ll have to swallow that pill too.

Power needs to be able to flow from where it’s created to where it’s needed. Transmission is the name of the game. Without that, none of this works. And if someone tries to paint a different picture for you, maybe don’t drink their Kool-Aid.

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Transcript

Hello from Hazy Colorado. Today we’re taking a question from the Patreon page. Specifically, it’s about electricity and data centers and what is it going to look like if we’re going to do all these data centers, much less consider doubling the size of America’s industrial plant? 

How much power do we need in what is going to look like on the other side? How do we get there? A lot, a lot wrapped up in there. Let’s start by saying that we need 50% more electricity if we don’t do data centers, if all we’re going to do is double the industrial plant, data centers are on top of that, and that’s another 25 to 50% based on which model for the future of data centers that you want. 

Now, everyone broadly agrees on the problem here. Now, one of the big weaknesses in the United States grid is it’s not very well interconnected. We don’t have a lot of cross state, large scale electricity transmission lines. And what that means is that regardless of where you need electricity, you’re kind of stuck with local resources in order to get what you need. 

And that means you’re going to be overbuilding capacity in order to guarantee what you need, which means you’re going to have more facilities than the nameplate would suggest, and they’re going to be running that lower capacity. And that’s particularly true if you want to do something, say, with green tech. So, for example, if you put a big solar farm in, say, Arizona, you’re going to generate three times as much electricity as if you do it outside of New York City. 

And so the whole idea of a long range transmission line is you can take the power from where it can be generated efficiently or cheaply, and move it to the places that can’t. And in that way you get a much more efficient system, even if it might cost a little bit more. So roughly, if you expand the grid by half, you need about $1 trillion in new plant, new generation facilities, and then about half $1 trillion in distribution systems that assumes you’re doing everything within state boundaries. 

You’re paying more for more nameplate than you probably could use, because you’re gonna have lower efficiencies, but also means higher manufacturing costs, higher installation costs. Or you can spend about maybe 20% more, if that 20% more is almost exclusively on long range transmission. And if you do that, you build less generation that is more effective at what it does. 

And you wire in the power. Here’s the issue. The United States really doesn’t have any of those long range high voltage lines. In fact, if you’re looking at above 70 kilovolts, which is kind of the standard for like the big stuff, we only have one cluster in the country, and that is an area roughly a triangle between Pittsburgh, Pennsylvania, Chicago and Saint Louis, because in the middle of that triangle is coal country. 

And back during the 60s, 70s, and 80s, a succession of American governments came to the conclusion that it was cheaper to wire electricity than it was to rail coal. So you generated the electricity within this triangle and then had these massive lines to send that power somewhere else. 

If the goal is to have a lot more electricity, regardless of why that version of the model needs to be replicated more or less nationwide, and that is easily a $300 billion program, probably more now. 

Data centers specifically, something that everyone seems to forget, is that data centers churn all the time, 24 hours a day, which means any sort of power generation that cannot generate electricity 24 hours a day is something that a data center will not consider. So solar out because it’s dark every night, wind largely out because most places don’t have reliable wind currents. 

Although in some places, if you go high enough, that’s a possibility, which merely means you only have two options. Number one is you can build a new fleet of nuclear power plants because while they can be spun up and down, the Nuclear Regulatory Commission really doesn’t like to see those numbers change because it looks a little bit like a meltdown. 

And we try to avoid those. So you build a nuclear power plant either specifically for it or nearby, or you refurbish an old one, whatever happens to be baseload power, that’s what you’re after. Baseload power. The only other option is coal. Yes, you can build a natural gas plant, but natural gas is better for spinning up and down. 

You want it for surge capacity as opposed to more generally for baseload capacity. So either you’re getting nukes or you’re getting coal. And if you want data and you don’t like those two things, then you might as well does not try to do either. Data centers at all. And just kind of forget the next 30 years of human technological advance. 

This is what you need. Lots of long range transmission, lots of nukes, lots of coal, and then natural gas, solar and wind for everything else. Anyone who cannot lay it out like that to you, it’s been blinded by a degree of ideology or personal interests. This is what you need is a digital future or a more industrialized future is what you’re after.

Ukraine’s Energy Scandal

Hand offering stacks of Ukrainian money

Some officials over in Ukraine have been stuffing their pockets with $100 million stolen from the energy sector. Before you get worried that someone has been dipping into the US or EU aid…this dates back long before all that started flowing in.

Before the war in Ukraine, Russian natural gas transited the country in massive volumes. Guided by the morals of the Soviet system, Ukrainian officials took their cut off the top of the profits. Once the war hit and the gas stopped flowing and the bombs started falling, Ukraine rushed to modernize its process. Updates were made and efficiency became the focus, but those who benefited more from the old system clashed with the new models.

These reports are now surfacing, and many key figures implicated in the corruption have already fled Ukraine. So, what should we expect? We were seeing a major overhaul of the energy structure anyway, now it will just coincide with some political and economic house cleaning…and mounting pressure from the war.

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Transcript

Hey all. Peter Zeihan here coming from Colorado. Today we’re gonna talk about a scandal that’s breaking in Ukraine. President Zelensky is in a bit of hot water because some of his former allies, not current, have basically been charged, accused of stealing upwards of a $100 million from the system, mostly from the energy sector. What? This is what this is not. 

Let’s start with what is not. This isn’t people stealing the aid that has come from the European Union or the United States to help with the budget or military equipment or anything of that. In fact, the Ukrainians have a really digitally ironclad system where they film every part of the weapons transfer system right up until its usage. 

So there’s a digital record showing that it didn’t end up in a black market. So people who say that that’s just conspiracy theory bullshit, mostly generated by, the Russian bot farm. What it is, though, is real corruption. The Ukrainian energy system is kind of a mess. And not just because of the war. It used to be completely state controlled, and you basically had a government enterprise who controlled the natural gas transit system that crossed the country from the Russian space into the European space. 

The Ukrainians charge transit fees for that, and then took a bit of the natural gas as payment in-kind in order to fuel their entire economy. And because the energy was coming from the former Soviet system, the people who were in charge of it had a very bureaucratic Soviet mindset and part of the bureaucratic Soviet mindset is I get 2%. 

So what happened? Was Ukraine unique among the former Soviet republics? Really unique within the Eurasian landmass, thought of itself as having free energy provided for by the Russians from 1992, when formal independence happened, until very, very recently, certainly until the war started in 2022. And so there was never any effort by the Ukrainian state to become more efficient. 

And in terms of the calories burned or the energy consumed per dollar of GDP, Ukraine usually figured in the very, very bottom of countries in the world, certainly on the continent. 

So the people who were in charge of this system made money on the throughput, and so volume was all that they cared about because they got a percentage cut of everything. 

Enter the war. With the war, the energy system has been under attack, and the state bureaucratic model is not very good at responding to that, because it’s never been about efficiency. So bit by bit by bit, the Ukrainian system has become more efficient because if it hadn’t, the power plants would have never been rebuilt, the transformer stations would have never been repaired, and the country would be living in the dark. 

You put this against that old statist model, and eventually we were going to get a crunch because Zelensky, like every president before him, had to keep the lights on. And so the people who were the corrupt ones had to work with the new ones who came in, operate on more of what we would call a market basis here in the United States. 

And they were getting more and more and more of the system, because every time something was damaged, it moved out of full state control into some more of a hybrid system. Well, so much has now been destroyed, especially this last winter, that finally, these two almost diametrically opposed approaches, vast volumes and corruption versus more efficiency, came to a clash. 

And now we’ve got the exposure. Is it something that can bring the government down? Who knows? He definitely involved himself with the people because he was the president and it was the country, and that’s what he inherited. And he had to, Does that mean it could have been cleaned up sooner? Sure. But I’m not the one that’s fighting a war right now, so I have a hard time making that value. 

Judgment. All we know for certain now is that the chief people responsible have fled the country. And so they’re definitely no longer getting their cut. And that means we’re probably going to see a significant overhaul of what’s left of the statist energy system in just the next few weeks, against the backdrop of the Russians being much more effective at targeting energy assets across the country. 

So it’s not just that we had a corruption scandal and now the personalities are changing. We also have had so much physical destruction of the assets that it’s a question of whether the old system will persist at all. Keep in mind that the Europeans have now cut completely their use of oil and natural gas that comes through Ukraine from Russia. 

Those pipelines are basically shut down now with a couple of minor exceptions. So we were always going to see a house clean of this from an economic point of view. Now we’re getting a house clean from a political point of view as well.

Would You Like Some Plutonium with That?

Fragment of Plutonium | Photo by wikimedia: https://upload.wikimedia.org/wikipedia/commons/6/60/Plutonium_%28Element_-_94%29_3.jpg

The US needs to massively expand its ability to generate electricity. A possible solution? Mixed-oxide nuclear fuel. We’re talking repurposed weapons-grade plutonium mixed with uranium. This is complex, expensive, and time intensive. And perhaps more to the point, there’s a proliferation concern. No surprise that Russia is the only country that has done this so far…

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Transcript

Hello. Peter Zeihan here. Coming to you from Colorado. Today we’re going to talk about an old technology that the Trump administration is dusting off and seeing if it’s applicable for the current environment. The reason is that the United States has just massive electricity shortages right now, and a number of states are on the verge of having, rolling brownouts. 

And we’re not talking here about California. We’re talking about everybody. Trump administration says that it wants to massively expand manufacturing output. We can debate whether the policy that is in place is going to enact that. But I would argue that we need to expand, the industrial plant by at least double in order to prepare for a globalized world. 

Most of the products that we’re used to importing, we’re gonna have to make ourselves one way or the other. Plenty of debate to happen about the specifics of Washington’s policy. But if any version of this is going to happen, we need more electricity. We probably need to expand the grid by about 50%. 

And at the moment, pretty much all electricity expansions in the country are on hold. The Trump administration’s tariff policies have massively driven up the cost of doing everything that is related to the grid. For example, copper and aluminum, the two biggest inputs. And those now have a surplus tariff of 50%. And the government has actually canceled a number of power plants that it doesn’t like. 

Because Donald Trump doesn’t like windmills. So the government, as a partner in the process of expanding the grid, has basically become a burden rather than a bolster. So this new technology, old technology, is something that maybe the government can actually step in, in a constructive way. And it’s called mixed oxide fuel. In essence, you modify a nuclear power reactor. 

So instead of running on a down blended uranium, where, say, 3 to 5% of the uranium is a fissile component, in a broader block of power fuel, you instead use MOX, which is a mix of uranium and plutonium. Whether one technology is better or worse than the other from an economic point of view is very much in debate. 

The only country that uses Mox at the moment for their civilian power systems is Russia. And Russia does it because it had 30,000 nuclear warheads, mostly plutonium driven, as part of its arsenal. When the Cold War ended. And they basically when they decommissioned them as part of arms control agreements, they took all of those warheads and spun them into the fuel. 

So from their point of view, it’s a big savings. As a rule, once you factor in the cost of expanding or modifying your nuclear power system in order to use the MOX, it’s probably a wash for an economic point of view, because the up cost investment is so high. And if you’re going to use it just to use spent military, surplus equipment, eventually you’re going to run out of that. 

You don’t have to have a plutonium supply chain. So a number of countries have played with this technology, most notably Britain, France, the Netherlands, Belgium, and Japan, also India. But no one has actually instituted as a civilian program. The problem is very simple. Not a lot of countries have nuclear weapons. Not a lot of countries had tens of thousands of them to decommission to serve as an input fuel source. 

Really just the United States and Russia in that regard. Which means that if you want this to work, you have to build a civilian plutonium production system. Now, plutonium does not occur naturally in the world. It’s pretty much only generated as a byproduct of a, you guessed it, uranium power plant. One of the waste products that comes out of spent uranium based nuclear fuel is plutonium. 

So if you want to have a MOX industry, first you have to have a uranium power plant industry, and then you have to have a system that takes the spent nuclear fuel and separates out the plutonium and purifies it. So basically, to have this sort of power sector, you have to have a civilian system that creates large volumes of weapons grade plutonium as part of their supply chains, which explains why most countries have not embraced it. 

The Trump plan would do basically an echo of the Russian plan and take some plutonium cores from weapons that we have decommissioned and convert them to MOX. The problem they’re going to come across in addition to the proliferation question, is the same problem of everyone else who has decided to play this game. It’s a processing issue. You have to take the plutonium cores from the old decommissioned weapons, spin them into a different form in a different geometry. 

it’s a manufacturing issue. It’s a fabrication. And above all, it’s a processing issue. And one of the problems the United States has at every level right now is we don’t have enough materials processing. We need to be able to turn bauxite into aluminum. We need to be able to turn iron ore into steel. We need to be able to turn copper ore into copper wire. 

And if this program was going to work, would need to be able to turn surplus plutonium cores from decommissioned weapons into fuel. So it’s an interesting idea, but there’s a lot of upfront investment that has to be done before you can seriously try it. 

They are hoping, hoping, hoping, hoping to have a little pilot program going by the end of calendar year 2026 to see if it’s even viable. I don’t know if it’s going to be viable, but as part of this process, you also then have to prepare a fuel cycle that puts weapons grade plutonium civilian hands on a regular basis. 

And to this point, the only country in the world that have decided that that’s a good idea is Russia. And Russia, of course, is one of the world’s great proliferator.

The Highs and Lows of Burgum’s Energy Strategy

Photo of a pumping station at sunset

Trump’s Secretary of the Interior, Doug Burgum, has shifted his energy strategy to focus on oil and gas. He’s doing this because renewables are no longer financially viable in most of the US, but there are some holes in his plan.

Between interest rates and tariffs, solar and wind projects are making less and less sense in fewer and fewer places. So, a fossil fuels-based strategy makes sense; however, using federal lands isn’t going to be the magic solution Burgum makes it out to be.

Given the lack of infrastructure, slow permitting cycles, and limited financial incentives…development will be slow and pricey. We’re talking a decade+ before anything meaningful comes out of it. Burgum’s geopolitical angle is what really interests me, though. He hopes to use US oil to undercut Russia, which doesn’t quite align with the rest of Trump’s inner circle.

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Transcript

Hey all Peter Zeihan here. Coming to you from Colorado. Today we’re taking a question from the Patreon page, specifically about Doug Burgum, who is the new Secretary of the interior under the second Trump administration. And the question is basically, Burgum seems to have devolved from an all of the above approach to energy to just fossil fuels, just oil and gas. Why is that? And should we care? I think that’s broadly an accurate assessment, but he’s not doing it for ideological reasons, despite the fact that he’s in the Trump administration’s, Burgum basically is saying that oil and gas is more reliable for the environment that we’re in right now, and we need to unlock the federal lands to get as much of it out as possible. 

So let me talk about why he’s probably right and then why he’s probably wrong. So first the correct. We’ve seen the cost of financing go up by a factor of roughly five, in the last six years. And that means if you are looking to borrow capital, everything just costs more. So, for example, take mortgage. I’ve owned my house since before the transition, so my mortgage rate is 2.5%. 

You know, eat your heart out, Millennials. Today the mortgage rate are above seven, and they’re probably only going to be rising for the remainder of the decade and well into the next one. 

So let’s say just to pick numbers that your mortgage today is 8% compared to my 2.5%. That means your monthly payment on a 30 year mortgage is a little over twice what I pay. 

So whatever the house is you are looking at, suddenly you’re looking at having to pay twice as much and that entire increase is all extra interest. Well, most green tech projects, whether it’s solar or wind or biomass or whatever else, don’t have very high fuel costs. Everything is the upfront, construction, the land siting, the physical construction, the labor for that. 

And that tends to be roughly two thirds of the cost of the entire project. If you compare that to a conventional natural gas or coal system, a thermal system, most of the cost, roughly two thirds is fuel, and only about one fifth of the cost is that upfront construction. Well, the upfront construction is something you have to finance. 

So you’re talking about a project that already had a much higher financing, burden. And now you’re roughly doubling, if not more, the cost of the project over its life. Now, I have solar panels on my roof. They paid for themselves in four years. But part of that is because of where I live. I live at 7500ft. And that means I live above an elevation where 99.5% of other Americans live. 

So there’s very little air, much less moisture, much less cloud between me and the sun. In addition, ambient humidity in my neck of the woods is about 15% versus the national average of over 60. About 90% of Americans live in a place that’s more humid, so I’m closer to the sun. I have less obstacles, the humidity doesn’t get in the way, and so I was able to pay for my panels in four years because the amount of electricity we generate, you drop down to where I lived in Austin, where the humidity is much higher and I was only at about 1000ft. 

And the break even for those panels took closer to I think it was nine years. If you moved to say, New York out of the city, you’re talking about much higher humidity, much lower solar penetration, much lower altitude and your break even time if you’re lucky, is going to be in the 11 to 14 year range. 

That was when interest rates were cheap. Now you need to double that, maybe even triple that. So there really aren’t a lot of places in the country that have a decent economic payback for wind and solar in the current environment. I live in one of them, but like I said, 99.5% of Americans live below me and 90% of Americans live in a place with lower humidity. 

So I am not the norm here. Still works here, still works in Colorado, still works in North Dakota. Burgum should know North Dakota isn’t just a leading oil and gas state. It’s a leading wind state. But you change the rules of finance like we have and that doesn’t help very much. And so most projects in most of the country just aren’t economically viable in today’s capital cost environment. 

And that’s before you consider that the vast, vast, vast majority of the solar panels we use in the United States are imported from China. And so now there’s a tariff, tacked on top of that, that at the moment is 55%. But by the time we see this, I’m sure that number is going to change. Oh, okay. So that’s where it becomes probably right. 

Solar and wind, at least for now, are offline unless there’s a significant change in the environment, whether because of the technology, the manufacturing base or the cost of financing, it’s really not going to be a big part of the picture in the United States for the rest of the decade, and probably throughout the next one where he’s wrong. 

Federal lands. Okay, federal lands by almost default, have very little infrastructure on them. You’re talking natural forests are, for the most part, in addition, because they’re federal lands, they have not been exploited for economic purposes aside from logging here and there. And there’s very, very, very little oil and gas development on them at all except in the offshore, which is a special case, maybe a topic for another time. 

One of the things that we’ve learned about the shale revolution is that the states control most subsoil rights. They can be privately held, but the states control the regulation on federal lands. The subsoil rights are all federally held. They are not controlled by private interest. So step one, there is no one who would get involved in the project who has a personal financial reason to push it. 

If you want to go on to federal land, you have to get a lease that costs money. So already you’ve got that layer of cost built in that does not exist in, say, the Permian in West Texas or the Bakken in North Dakota. Problem number two is infrastructure. One of the reasons that the Permian in the Bakken had been such successful oil plays in the shale revolution is because a lot of the infrastructure was already there from previous oil booms, and for the first roughly decade, they were just putting new oil into old pipes. 

It’s only in the last decade that they’ve actually had to build more physical infrastructure. For takeaway capacity. You want to produce oil or gas in federal lands. You have to build that infrastructure from scratch. And most of these places not only don’t have pipes, they don’t have roads. Third problem information, because the Permian in the back end were preexisting fields, there had been preexisting geological surveys of them. 

There was some place for the shale guys to start. You want to do this in federal lands, you have to start from scratch. Fourth regulation Texas, North Dakota A handful of other states have a relatively encouraging investment climate for oil and gas because they have decades of experience. The federal government doesn’t have that on most federal lands, and so they’re gonna have to make it up as they go. 

Now, could this Trump plan for massive deregulation make a difference? Sure. But consider the scale on the time in Texas. If you want to drill from the point you submit your permit, 99% of permits are approved or denied one way or the other within 48 hours. In the United States, on federal lands, it generally takes 230 days. Now, when Trump won, they got that down to 220 days. 

But the bonfire of regulation that would required would first require the Trump administration staffing up the senior staff of the various departments in order to figure out which regulations to keep and lose. And that process has not yet begun, and we are already in July at five. Oh my God, it’s only been five months. Holy crap. Anyway, if all of these pieces were to magically fall into place today, you build your roads, you start your seismic surveys, you start building the pipeline infrastructure with money you have not yet earned. 

Then you start drilling. You would expect to see first meaningful output of oil and gas from the federal lands. Assuming that the surveys show that there was oil and gas there. Let’s call it 2040. Texas wasn’t made in a day. It took a century to build Texas’s oil platforms and what it is now, you’re not going to wave a magic wand to make it all happen overnight. 

So wind and solar, most places. Yeah, that’s for the past. That’s for the far future. When? When gas on federal lands. I wouldn’t hold my breath on that one, but I don’t think we really need it. The United States already produces more oil and gas in any country in history. In fact, we export an extra 5 million barrels per day of refined product. 

We export more finished product, gasoline, jet fuel, and the rest than any three countries in world history have ever produced. Raw crude. That’s already the best in human history. I really don’t overly feel the need that we need to do more, unless you want to do it for geopolitical reasons. And this is where Bergmann gets kind of interesting from my point of view. 

He has emerged as a voice in the foreign policy establishment on the topic of energy dominance. Now, that is for the most part, just a bunch of bunk that Trump likes to say from time to time that has never actually been put into any meaningful policy. But Bergen’s idea is to deliberately drive specific oil producers and exporters out of the market, and then displace them with American crude. 

And the country that he is most interested in doing that, too, is Russia. He wants to crack down on the Russian shadow fleet, which is using under or uninsured old leaky tankers to send roughly 3 million barrels of crude a day around the world. He wants to break any pipeline connections. The Russians have to the outside world, and then he wants to steadily ratchet up sanctions so that they can’t keep the existing oil fields that they had going. 

That’s really interesting. That could take us a lot of fun places. And since in an American shale context, it only takes 6 to 12 weeks to bring in a new oil well online, it could be done with a relatively limited impact on international markets, all else being equal, which of course, they never are. But it has put him at a crossroads with most of the people that Trump listens to on foreign policy. 

Basically right now, the inner circle doesn’t include the secretary of state, Rubio, who’s basically been banished after Foggy Bottom and isn’t allowed into the meetings. You’ve got some of Trump’s buddies from New York real estate. And we’ve basically been wrapped around the little finger of Vladimir Putin. 

You’ve got the director of National Intelligence, Tulsi Gabbard, who, if she’s not working for Putin, is probably a clone of him. And now we have Laura Loomer, who has basically taken over as de facto national security advisor. Laura Loomer is basically a, a far less competent version of Hillary Clinton. So she’s mean. She wants to kill people, but she doesn’t actually know anything about what she’s talking about. So, you know, you put that together and all of a sudden you’ve got this former governor of North Carolina who walks in like numbers and facts and history and economics matter. It’s an interesting room.

The Night the Lights Went Out in Geor- er, Spain

A candle in darkness

On Monday, April 28, a widespread power outage hit Spain and Portugal. Other than our marketing guy who was on vacation in Madrid at the time claiming he “had no signal” and “couldn’t work”, this outage highlights a broader issue with renewable energy infrastructure.

The root of the problem comes from the use of green energy sources like solar and wind, that lack the built-in stabilization that traditional energy sources like coal and natural gas have. This meant that there was no safety net to stabilize the grid once a fluctuation entered the system. Thus, the automatic shutdowns were triggered, resulting in a widespread outage.

Preventing future outages will require some changes. An expensive and multi-decade integration with a fast-discharge battery system. Keeping 15-20% of the grid powered by coal or gas. Or using microgrids, like a hippie compound. No solution is perfect, but outages will continue until something changes.

Oh, and don’t think this won’t happen anywhere else. Grids that are defined by isolation (think the United Kingdom, or Australia) will be next up.

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Transcript

Hey, Peter Zeihan here coming to you from Colorado. It’s kind of like Seattle today. Anyway, today we’re going to talk about the power outage in Spain and Portugal, what it means, how it happened and how you fix it, because it’s kind of relevant to a lot of other things that are going on in the world right now. 

Okay. Electrical engineers out here. I’m not going to give this in the purest form. I’m going to try to make this safe for laymen. So hate me if you want to, but hopefully I’ll get this right. The issue is something called alternating current, which is what we use for electricity distribution. And throughout pretty much all of modern life and alternating current, as it might suggest, is a wave. 

So there are peaks and troughs. It follows a very regular route. And in the European situation they use a 50Hz, oscillation. We use a 60 here in the United States. Just for a point of comparison. Not one is not better than the other, just is. Anyway, basically, there’s a wobble built into the power system, and that wobble has to stay stable. 

And if, for whatever reason, you introduce, a change in the wobble or a second wobble, all of a sudden all the gear that is operating at that wobble starts to have issues and it starts to shake, and oftentimes it catches on fire. Sometimes explosively. And it doesn’t take long for the disruption to manifest as a problem. 

So for example, when the wobble was changed in Spain, it only took about four seconds for things to go horribly wrong. And because the things that catch on fire are critical pieces of equipment like transformers, what you have into the system is a series of failsafe built into every node where they sever themselves from the grid. Should that wobble, shift, or second wobble get introduced and everything just goes dark. 

And the same happened at the interconnectors that connected the Iberian Peninsula to Morocco and France. They just shut themselves off from everything else. And we had a cascading failure, to kind of put it into layman’s terms. The normal wobble is very regular, and it’s kind of like at a junior high dance when everyone’s doing the Macarena. Da da da da da da da da da da da, and then all of a sudden somebody flips a switch and everyone attempts to do the lambada, and it’s chaos and everything is destroyed. 

Anyway, the problem that was introduced here is that the Spanish and the Portuguese no longer have a failsafe to stabilize the wobble. What normally happens, and the reason why we don’t have this kind of blackout on a regular basis, on a global scale, is that most of the power generation of the world comes from coal or natural gas, which are thermal units. 

And when you burn the natural gas or burn the coal, you get a stream of energy that basically spins a turbine. And that turbine, in addition to generating electricity, also has a lot of pent up kinetic energy stored within it. So if something changes the wobble, something changes it away from that 50MHz that the Europeans have to have. 

You can either spin up or slow down, or otherwise tap the power of that spinning turbine to buy yourself a few seconds so that we mere humans can react and bring on or take off other capacity to stabilize the current in Spain and Portugal. At the time that this breakdown happened, about 80% of the electricity was being provided by solar and wind, which sounds great from an environmental point of view and from a national security point of view. 

However, all of the energy that comes out of solar and wind is direct current. And so every solar panel and every wind turbine has an inverter that turns the power from direct current to alternating current to match the wobble. And there aren’t a lot of moving parts, so there’s no kinetic energy that you can tap. 

And so there just wasn’t enough coal and natural gas, enough turbines spinning in order for them to stabilize the entire thing. And in four seconds, all went straight to hell. Now, if you want to fix this, you’ve got to options. Option number one is to continue down the net zero route and put in another type of battery. So right now you’ve got grid storage which is typically lithium ion or lithium phosphate or lithium cobalt. 

And these batteries do not charge or discharge very quickly. But that’s not what they’re there for. They’re there to provide supply to the grid so that everyone has power. Instead, you need a fast charge or a fast discharge battery that’s usually lithium. Titanium. Now, titanium sounds all impressive, but really the supply chains for titanium are more or less okay. 

The issue is one of manufacturing. These batteries are made in six different places. Only one of those places China. So it’s know South Korea, Japan, the United States, Switzerland I think are the big four outside of China. But they don’t make very many of them. They’re relatively new battery type. And so if all of the lithium titanium batteries that were capable of grid storage were provided to Spain and Portugal, it would take a year of global production just to fix the situation on the on the peninsula of Iberia. 

So we’re talking about needing to do a very significant industrial build out on a global basis if we want to solve this on a global basis. And of course, you have the other little minor problem that pretty much all of the world’s lithium is processed in China. And between China’s pending impending in-progress demographic collapse, including the trade war, that is absolutely smashing. 

Their, their home industries. We also need to relocate the entirety of the lithium processing industry away from China into more stable places. So solving this from a battery point of view is very problematic if you want to do it on anything less than a 15 to 20 year time scale. The other solution might not be as ideologically friendly. 

If you’re agreeing, but it’s a lot simpler. Just keep 15 to 20% of your grid constantly running on coal natural gas so that you have those term bits spinning all the time. The reason we’re seeing this in a place like Portugal and Spain first is because Portugal and Spain are on the Iberian Peninsula. They don’t have a lot of physical interconnections to other grids, so they can’t rely on the spinning turbines of the country next door. 

One of the reasons that the Germans have not experienced this problem is even though they have for a few days in the summer, basically go 100% green. All of their neighbors have coal, natural gas plants, and so when things start to spin out of control, they can rely upon the stabilization provided by all of their neighbors. So you’re going to see this first in places that try to go green, that are more isolated. 

So your islands and your peninsulas watch Australia because you’ve got a disconnected grid there. Watch New Zealand, it’s an island. Watch the United Kingdom. Holy crap, the United Kingdom is very lucky. This hasn’t happened to them already, because their green tech is not nearly as reliable as it is in Spain and Portugal. It’s not as windy. It’s not a sunny and so you have a lot more spots pouring in. 

But if you happen to get a windy, clear day, all of a sudden they go from being 100% green to 100% unstable. The only other solution I can think of is microgrids. That works for some people. They’re incredibly expensive. And you have no backup should something go wrong? The advantage is in a microgrid. If everything’s on direct current, you don’t have to worry about the wobble at all. 

But you have different problems anyway, one way or another, as green tech gets more integrated into systems, one of these three solutions has to happen. One of them requires a multi-decade build out. One of them requires a big step back from an environmental point of view, and one of them basically means becoming a rich hippie commune. 

None of these are great solutions, but that’s where we are.