Would you try to fly a kite when there’s no breeze? Or try to surf when there are no waves? If you answered ‘no’ to those questions – CONGRATS – your basic analytical skills are much better than those tasked with the green energy buildout. Now we just need to test your math skills…
With a resurgence of manufacturing and industrialization in the US, electricity generation needs will skyrocket. I’m all for green energy, but it needs to be done the right way, in the right places, and with the right energy infrastructure to support it.
Conservative estimates show electricity demand increasing by more than 50%, and the green transition will complicate that even further. I’m still a Green, but no matter how hard we try – green energy isn’t going to solve this problem alone.
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Hey Everybody. Peter Zeihan here coming to you from northern Indiana at the Nipsco coal power plant. That is not a nuclear cooling towers, just coal cooling tower. This power plant is on schedule to be decommissioned around 2025 and then replaced with wind and solar. But I don’t know how many of you guys have been to northern Indiana, but this is neither a windy nor sunny area.
More to the point, if things go with the Chinese and to a lesser degree the Europeans in the direction that I think it’s going to. And if the Americans decide they still want stuff, the industrialization wave that’s coming here is going to be unlike anything we’ve seen before. And it’ll be a lot faster than what we did in World War Two.
But it also means that we need to generate a lot more electricity wherever that comes from, because manufacturing takes more power than services. And doing the processing for things like lithium and steel and the rest takes a lot more power than it does for normal manufacturing. So we need to conservatively increase the power plant in the country and transmission capacity by at least half.
And there’s only been one year since 1960 where we’ve increased power generation in the country by more than two and a half percent. And that’s what we did the year we were coming back from COVID. So that was just turning things back on as opposed to actually generating more. So I’m not saying that coal’s the future or anything like that.
I’m just saying we need a lot, a lot, a lot, a lot, a lot more. And that assumes we don’t do the green transition because if we electrify transport, then we need to double the power plant. And honestly, we need to do this before the end of the decade. So chop, chop.
The Greentech industry has reaped the benefits of cheap capital for years, but that’s all changing as demographics take a turn and investment patterns start to shift.
Financing Greentech projects requires a boatload of upfront capital, and if the cost of that capital rises, the viability of those projects has the inverse effect. This means the Greentech space will be in hot water even if economic growth holds steady.
Sure, Biden’s Inflation Reduction Act will help the US a bit, but there’s no replacing private investments. This isn’t an isolated issue either; if countries with solid Greentech potential want to see their industries thrive, we will need to see some major breakthroughs.
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Hey everyone. Peter Zeihan here coming to you from Mexico City. And today we’re going to talk about some of the challenges that are facing the green tech space. If you’ve been following stock tickers in New York in general, you’ll know that there’s been a lot of pushback from the financial world about everything that has to do with wind and solar and interconnections, not just in the United States, but on a global basis with many communities getting sticker shock and changing some of their plans.
Now, this, of course, is going to be a story that’s going to look a little bit different everywhere. But there is a common theme, and that has to do with capital. One of the things that really sets green tech apart from any other power generation, whether it’s in transport or the generation itself, is that you have to pay for it all up front.
The the system is different. So like if you’re going to build a coal plant or a natural gas burning power plant, most of your cost over the life of the facility is going to be the fuel. Actually setting up something that, you know, burns it is not all that complicated from an expense point of view. But with solar and with wind, where the fuel is free, all of the expense is upfront, or at least two thirds of the total versus less than a fifth for most conventional systems.
And that means it has to be financed. Now, from 2000, literally from 1997 until very, very recently, that has not been a problem because we’ve been living in an environment of absolutely dirt cheap capital, and it’s been a demographic moment. The baby boomers were in their forties, fifties and early sixties, and in that time frame in your life, your expenses have gone down, but your incomes are high and they’ve been socking away all the money that they’ve got to prepare for retirement.
All that capital makes it into various different investment opportunities, whether it’s T-bills or the stock market. It makes it very easy for people, for corporations, for governments to borrow at scale. Well, as of the fourth quarter of 2022, the majority of the United States is baby boomers. The majority of the world’s baby boomers had moved into retirement, and they’ve liquidated their savings and they’re not generating any more.
And they’ve moved their savings into less prospective projects. So a lot more cash, a lot more government debt, a lot less things like stocks and bonds. And that means that the cost of capital has already gone up for everyone. And we’ve seen mortgage rates just in the United States double in the last 18 months. And for large projects like wind turbines and solar panels, we’ve seen it closer to a tripling now over, say, a ten year payback, which, you know, is just kind of a good benchmark.
That means that the interest costs have gone up to the point that the overall payback is going to be at least a quarter higher than it was just a year and a half ago. And if you have to finance your GreenTech project, all of a sudden you’re facing an expense that you weren’t having to deal with before. Now, this, to a degree, this sort of overbuild and retrenchment happens with any industry as people kind of grasp the realities of that.
Maybe solar and wind aren’t as great for our community as we thought they were going to be. But the capital that’s going to hit everyone everywhere, it’s going to slow economic growth on a global basis. And for projects that are very capital forward, like green tech, it’s absolutely going to retard the progress of everything. And the United States, we’ve got this little thing called the Inflation Reduction Act that the Biden administration was able to get through Congress, which is basically a green plan that is going to help a lot with making the finances of green tech a little bit better.
But it was never going to replace private capital. It’s just going to supplement. And now, since we need 25% more minimum, probably closer to half again more by the time we get to 2026, it’s going to be able to start seeing some of the edges off, but not fundamentally change the problem. But if you’re in other countries, I’m thinking here, places that have good green tech potential, places like Argentina or South Africa or Mongolia or Greece or Mexico.
That borrowing difference is everything. And unless we have a significant breakthrough in the economics and the physics of solar and wind in the next couple of years, it’s just not going to cut it. So my recommendation remains the same that it’s been for the last three years. We know the texts in their current form won’t get us to where we think we need to go, which means we need better technology.
And until we develop that, the rest of this is just kind of spinning in place.
Most of Europe has been working to reduce dependency on Russian natural gas, and boy, did they deliver. Russia’s natural gas state monopoly, Gazprom, has just reported its lowest output levels since 1978.
Sanctions targeting piped natural gas have effectively cut off supply to Europe, and the exisiting infrastructure cannot be easily redirected. While Russia has alternative natural gas sources and facilities, the limited workforce and technical challenges make these options difficult to maintain.
European sanctions are working well, and these efforts may permanently sever ties to Russian natural gas with little impact on their own systems. The Russian natural gas industry is facing an unprecedented fall from grace, but not all industries have been impacted equally…
Oil, however, is a completely different beast. We will deal with that tomorrow…
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Hey everyone. Peter Zeihan here coming to you from Colorado. And the news today is that Gazprom has announced its full year output levels. Gazprom is the Russian natural gas state monopoly, and it is the lowest that it has been since 1978. So. Well, pre-dating the Soviet collapse. And the reason is pretty straightforward. The Europeans have tried to cut their dependency upon Russian natural gas to zero.
And at least in terms of the piped natural gas, they’ve been pretty successful. Now, this is something that is not exactly a shock to people who are familiar with the industry. There are many aspects of the sanctions that are working better than others. This is one of the ones that definitely working better. And the reason is the nature of natural gas itself.
Natural gas is a gas, and it takes a specialized system to produce it, to transport it, and to export it. And if there is a gap anywhere along the system, whether it’s insurance or the pipes or the pumps or the legalities or whatever it happens to be, the whole thing stops and it can’t easily be redirected. And in the case of the Russian stuff that goes to Europe, almost all of it comes from an area called Uruguay, which has been in production now for a half century, goes down a couple thousand miles of pipes through Ukraine and Belarus, into Poland, Germany, Slovakia, Hungary and the rest.
And since this can’t be redirected. When the Europeans stopped taking deliveries, the Russians had to, bit by bit by bit, shut everything down. There are other natural gas options that the Russians have. There’s some that comes from eastern Siberia, well east of the Urals, that goes south into China. There are a couple liquefied natural gas facilities, one on Sakhalin Island, primarily, which goes to Japan and one of the small peninsula, which primarily gets shipped to Europe.
And those are still working mostly. But we should expect even those to go off line in the not too distant future. The problem is, is that those other facilities, the Yol, Yamal, LNG, Sakhalin, LNG, and it’s called Comvita, which is a field in the general vicinity of Irkutsk out near Lake Baikal. Those are all much more technically challenging, and the Russians didn’t do any of the work to bring them online.
That was almost exclusively done by foreigners with British major BP being the single largest player. But the Japanese Mitsui Mitsubishi are involved in Stockland as well as ExxonMobil, and most of those companies are now gone. The Japanese are still involved in Stockland, but ExxonMobil and BP are just cut their losses and left completely. And the Russians do not have the technical skills necessary to maintain those projects in the long term.
As for whether or not the Russians can come back, you know, that’s an open question. The Russians used to be the best in the world when it came to ice production and tundra production. But that was in the Soviet period. And the Soviet industrial educational system collapsed around 1985 and the Russian birthrate collapsed in a similar timeframe. So not only do they have a significantly fewer people who could theoretically be trained up in engineering the system that trained them is born.
So the youngest people who have the full suite of, say, petroleum engineering and reservoir management experience are now in their early sixties, and there just aren’t that many of them left. And for the last 20 years, most of the meaningful maintenance work that has been done in places like here in Hawaii, most of the worked on improving recovery rates has been done by foreigners with BP and ExxonMobil and to a lesser degree, the Germans and the Dutch being the major players.
That’s all gone. So Uruguay being a mature zone could probably be brought back as a significant production zone if you applied shale technologies in mass. But as the Americans have shown, shale works in areas that are relatively close to population centers because it requires a significant amount of labor. And it doesn’t work very well in places that freeze solid because you need a lot of water.
And Uruguay is a thousand miles from anything that matters. So that will probably never come back online because the Russians can’t do it themselves. And the technologies that might allow it to work simply are inappropriate for the geography in the case of exports to Europe. They are now down by 85% compared to the start of the war. What is left is just a trickle that is going to three countries Czech Republic, Slovakia, Hungary, who really don’t have any alternatives to taking natural gas supplies from the Russians, which is one of the reasons why Hungary, Slovakia and to a lesser degree Czech Republic have been the three countries that have been most opposed to the sanctions
regimes in general, and most of the exceptions that have been carved out of the sanctions regime involve those three countries. That’s not going to change this year. That might start to change next year as the Europeans are building up lots and lots of lots of interconnections so that they can cut their links to Russia. Natural gas for good.
And when that happens, all that will be left of the Russian natural gas industry is what’s going through the domestic markets. And perhaps cyclin LNG because the Japanese are involved there. And that’s completely separate political question. But that is crazy because you’re talking about the world’s largest producer and largest exporter of natural gas vanishing from global markets in less than four years.
And that is absolutely unprecedented. Honestly, it’s more than a mild shock that the price shocks that the Europeans have felt at this point have been so mild. They really have been able to bring in liquefied natural gas from other suppliers, most notably a Persian Gulf in the United States. This has put a lot of price pressure on everyone else who used to get natural gas from those locations.
But to this point, I got to hand it to the Europeans. They have put together a sanctions regime that at least in part, is doing exactly what they hoped. Jeremy. Russia now exports, cutting Russian income without unduly shocking their own system. I honestly did not think they could pull this off, but so far so good.
Is the hydrogen economy really the future? Or Is it all a farce? I don’t want to get too far ahead of myself, but it’s somewhere in between…
All the math and science behind using hydrogen checks out. And yes, it removes the carbon question from the equation, but where do you get the hydrogen from? Ideally, we would use clean energy sources to separate water molecules, but that’s too energy intensive for solar and wind to get us there this century. We could source it from fossil fuels, but it would be more carbon-intensive than what we do now. So no utopia for us quite yet.
Some bridge technology uses ammonia to create hydrogen, but it’s not all sunshine and rainbows. Ammonia comprises one nitrogen and three hydrogen atoms; unfortunately, nitrogen is critical for much of the world’s fertilizers. And when you have to choose between having food with dirty energy or starving to death w/ clean energy…the answer is pretty straightforward.
So while this is interesting technology and SHOULD be experimented with, that does NOT mean we should start implementing this tech at scale. We’re working with finite resources here, so the tech needs to be thoroughly vetted and proven before we take that next step.
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Today’s video comes to you from the peak of Mount Evans.
Is the superconductor of every Green’s dreams finally here? I hate to burst your bubble, but the LK-99 is just too good to be true.
Despite their claims, these ‘new’ studies on LK-99 have largely been dismissed by the scientific community due to inconsistencies in the methodologies used. In reality, we haven’t gotten any closer to the superconductors we’ll need for the green transition to stick.
One of the big problems with green energy comes down to transmission. Once your solar panels or wind turbines generate all this power, you still need to get it to the people who will use it. If you can’t do that, then what’s the point?
While this might not be the answer to our superconductor needs, at least this topic will get some new eyes on it and much-needed attention. And who knows, maybe it will even kickstart policy reform…
Prefer to read the transcript of the video?Click here
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Hey everybody. Peter Zeihan here coming to you from the peak of Mount Evans. Behind me is Mount Bear Start and Square Top. And behind that, Geneva and Silver and Decatur and treasurer and all the others. Today we’re in talk about something a lot of you have written in about, and that is the 99 superconductor information that has recently been leaked onto Twitter and Reddit.
The idea of a superconductor is it doesn’t lose any of its throughput regardless of distance. And if you can do that over long distances, you can transfer power from anywhere to anywhere relatively easily and cheaply. That’s the idea anyway. The short version for Elk 99 is that it’s probably nothing. The reports in question date back over 15 years, and the only thing that’s new is that they were leaked and they were put online and a number of institutions within Korea, because that’s where the first tests were done.
I’ve already come out and saying that at best they’re flawed, but none of them have ever been replicated, including by the team that did the original report. So there’s probably nothing here. It’s just that it’s getting a little bit of fresh air all of a sudden. Now, if you want to bet on semiconductors, I welcome you to to it.
It’s one of the materials science breakthroughs that we really need if we’re going to make the green transition stick. One of the problems we have with the green transition is that you can generate a lot of solar in the southwest and a lot of wind power in the Great Plains, but that’s not where most of the American population lives.
And even in the United States, where people only, only live, a couple thousand miles away from those zones, that’s much better than you’ve got in, say, Europe, where you’d have to basically go to the great Eurasian steppe for wind and into the Sahara for solar. So if you can solve the semiconductor and the transmission problem, great. There’s also another issue in the United States, because it’s hard to transmit power.
And, you know, very, very, very, very loose rule of thumb. If you transport power about 500 miles, it costs almost as much to do that transmission because of the loss as it does to generate the power in the first place. So you’re generally not going to send electricity very far. What that means is in the United States, most electrical concerns, all the utilities are local.
So each town or each county has their own. There are very few large utilities in the United States. And if you want to make solar and wind work at scale, you either need larger and larger and larger entities, or you need the ability to transfer power across jurisdictional lines, especially state and grid boundaries. Superconductors would, in theory, allow us to do that technically, but we still need the legal structure to do it.
Now you can do high voltage lines, which will double, triple, maybe even quadruple the distance. You can send power in an economically viable manner. But until you can cross those boundaries, it doesn’t really matter. So what we need now, even before we get superconductors, is a multiple acts of Congress to break down the legal jurisdictions to allow power to be sent long distances.
And as soon as Congress does that, a number of states will sue. Because right now this has been a local and a state legal prerogative. So we need a significant legal overhaul before we can really do the green transition, even if we did have superconductors. So I’d say start now and get the laws changed. And then hopefully we can have that physical science breakthrough that is necessary to do this at scale and over distance.
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Our next video in the ‘Ask Peter’ series comes to you from just above Loveland Pass at about 13,000 ft. As the Biden administration piles on more drilling restrictions on public land, will America’s energy independence be jeopardized?
Quick backstory on America’s energy journey. The US was a net energy exporter until 1973. Once we used up all the “easy-access” oil, we became the world’s largest oil importer, peaking in the mid-2000s. Then the Shale Revolution changed everything.
Fracking gave the US access to a boatload of new oil (this technology has been around for a while but wasn’t popularized until the early 2000s). Fast forward to today, and the US is once again energy independent (minus a little COVID hiccup).
So will the Biden administration’s new restrictions on public land drilling set us back again? Oil from public lands accounts for such a marginal amount of the total US output that any of these regulations aren’t going to move the needle much. As long as there’s an incentive for these private landowners to be successful, this shouldn’t be a problem…
Offshore drilling is a little different. The quick and dirty is that short-term market moves aren’t the primary motivator in this space, so longer approval periods and stricter regulations aren’t of too much concern.
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Coming to you from the edge of Giants Playground in CO’s Lost Wilderness. Today we’re talking about Mexico’s energy sector.
As I was heading out on this trip, a fire broke out in Mexico’s Cantarell oil field, which has long been Mexico’s largest oil-producing asset. However, even before this fire, oil production from this field was already down to but 1/8 of peak production.
The Cantarell field was developed over a century ago and has accounted for most energy production in modern Mexican history. This meant Mexico never had to develop the infrastructure or workforce for a broad-based energy sector.
Even though Mexico has plenty of accessible oil fields, they can’t develop them due to a lack of skill and strict anti-investment laws. So energy production in Mexico is falling off, and there’s no reason to expect that to stop anytime soon. Within a few years, I expect Mexico to become a net energy importer (with most of that being refined product coming from the US).
But it’s not all bad…Mexican energy production might be slowing, but consumption is also rising. And thanks to NAFTA, Mexico is tied at the hip to the US. So even without a strong energy sector, Mexico’s future still looks bright. If government officials would stop lining their pockets and put that money where it should be, Mexico’s future could be even brighter.
Prefer to read the transcript of the video?Click here
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Hey everybody. Peter Zeihan here. Coming to you from the edge of the Giants playground in Colorado’s Lost Wilderness. Today, we’re talking about energy in Mexico. Specifically, just before I left on this trip, there was a fire at the Cantarell offshore oil field, which has long been Mexico’s single largest oil producing asset. At its peak, it was producing about 2 million barrels a day. It’s down to less than an eighth of that now. And that was before the fire. Probably talking about about 150 right now as – 150,000 barrels per day that is – as they go through recovery operations.
Now, the Cantarelll was originally developed over a century ago, and it’s unique as formations go in that it’s a giant, basically a volcano with all the pressure building to the top. And so all you have to do is put a few holes in the cap rocket attack offshore and the pressure does the rest. You can see every well that taps the controls to per field from all of the other wells. And it has been the mainstay of Mexican energy production for the entirety of modern Mexico’s history. That means that we’ve got a problem here. The Mexicans never had to develop what you consider a broad based energy sector, and so they never had to really develop the intellectual capacity and the labor force to do broad scale oil production in multiple zones. And so there’s a lot of oil production in Mexico that by global standards would be very easy to develop. But the Mexicans absolutely lack the techniques and the skills and the capital that is necessary to do it themselves. In addition, they have the world’s most draconian anti investment laws. Makes it almost impossible for anyone outside the United States to play. Now, as a country that borders the United States, those laws were set up with the idea of keeping the Americans out because they see that as a geopolitical weakness. I can see that point from them, their point of view. But it does mean that Mexico has seen their energy production drop bit by bit by bit for decades, and there’s really no hope to expect it to reverse anytime soon, even though they do have some super fields, some of which are onshore, they just can’t develop them themselves.
Now, there’s another problem because of the general incompetence of the Mexican state oil company Pemex. Mexico also is one of the world’s largest importers of refined product, even though they’re still technically a exporter of crude. And every drop of that comes from the United States. It’s gotten so bad in recent years that Mexico, at least on paper, is actually using more American refined fuels than they generate for themselves. The current government, under AMLO, that’s Lopez Obrador, is his last name, is building a refinery that honestly, they probably don’t know how to operate. And even if they did, it’s kind of hard to have confidence that it’s going to work because they already have refineries that are doing horribly. So we’ve got a bit of a boondoggle where the money should have been spent on things like, I don’t know, skills development that is estén instead going on white elephant projects that are designed to make Mexico City sound good to itself.
Where this takes us is Mexico is in basically a not so slow motion collapse as an energy producer of any type. And within the next few years, Mexico will certainly be a net energy importer no matter how you’re going to run the math. Now, that’s not as bad as it sounds. It’s not just the production that is falling. It’s also consumption that is rising. Remember that courtesy of NAFTA, NAFTA to Mexico or the United States are bolted together at the hip. And. Whereas, the United States is really good at the high end labor stuff for things like semiconductors and tech design, it’s also really good at the low end stuff would use a shale revolution and turns it into things like precursor materials, plastics. Mexico’s good at everything in the middle, and it’s value add is arguably the best in the world. So it’s not that the Mexicans don’t have skills. They just don’t have energy skills in the state monopoly sector. So it’s perfectly capable for Mexico to have a successful future, even as it becomes more and more vulnerable to anything the United States does in energy. Now, with a country that is literally leaking mechanics and is excellent in middle manufacturing, should we get a change in approach in Mexico City? The idea that Mexico can get back into the energy game is not, it’s not a ridiculous idea. But the current government is definitely more interested in lining its own pockets and making ideological statements than solving any of the endemic, misaligned skills and corruption issues that have plagued the Mexican energy sector for the bulk of the last century.
So at a minimum, we need a change at the top before we can get a change in the energy sector. I don’t see that happening this year. We can talk about it next year or the year after.
What are my thoughts on Environmental, Social, and Governance (ESG)? It is the idea that business has a role in pushing society towards certain norms and positive outcomes regarding environmental and social issues. We must look at what ESG should be, what it is, and what it is not.
What ESG should be…Until now, American business has played a minimal role in the political system. With the American political system in flux, it is only natural that companies would reevaluate their place in society and create policies that align with the ESG mission.
What ESG is today…The new policies businesses implement can be equated to attempting to climb Mt. Everest before ever learning to walk. Without benchmarks or industry standards, these companies can’t even make it Everest base camp; this process will be long and iterative.
What ESG is not…It isn’t a global conspiracy to destroy the US economy. When Elton John gets invited to a week-long confab in the Alps, you know the WEF isn’t plotting with the Illuminati…they’re just partying.
To this point, most ESG has been influenced by activists pushing policy from the outside OR activist investors making policy from within. The international stage doesn’t have much say, making ESG a domestic conversation of politics and culture.
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Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Hey everybody. Peter Zieihan here. The clouds have become a little bit more serious. Well, on the upside, it means that all the mountain bikers have bugged out. So I’ve got to turn to myself. But my ears bailout points five miles. So who? Who? This is the latest in our Ask Peter series. And today, the question is about ESG. What do I think about it in general?
Do I think it has a future? Is it a conspiracy to destroy us all? ESG, at least nominally, is called, is short for environmental and social governance. And the idea is that business has a responsibility to play a role in society and push it towards certain norms or positive outcomes. As regards things such as environmental issues or racial inclusion.
And so each corporation should have a series of ESG policies that help them achieve those goals. So let’s talk about what it is or what it should be, then what it actually is and then what it’s not. So first, what it should be and why we probably should consider some form of ESG. For the longest time, American business has really only been involved in the political system when it comes to, say, developmental policy, civic expansion, contracting or regulatory discussions.
They’ve tried to stay out of all the social issues, the get loud especially thing regarding the culture war, because it’s not something that they have the aptitude for. And they have a wide array of shareholders and investors and managers and employees and customers who are all going to have radically different opinions on really anything that matters. So why get involved in it?
Well, for those of you who’ve been following me for a while, you know that our political system is currently in flux and all the factions that make up the parties are in motion specifically for the business community. The Trump administration kicked them out of the Republican coalition. So they’re swing voters right now. So if you look at where the business community is in the concept of ESG, the idea that now when they’re not part of the political process, when we’re going through all of these changes, when our political system looks like a washing machine, it makes sense for them to reevaluate their place in society.
And coming up with policies as they struggle with that fits very nicely with the very concept of ESG. Now we can argue about whether they want to or whether they’re adopting the right policies. And that’s when we get to what ESG actually is today, because this is something that’s done at the corporate level on an ad hoc basis, company by company.
There is no overarching structure. There’s no regulatory guidelines for this. It’s just what individual companies have decided to do. And as you know from your personal life, there are things that you’re good at and there are things that you’re not good at. And if you have spent the last century assiduously not paying attention to cultural or environmental issues, and then all of a sudden you want to redefine your personal life based on those, you’re not going to get it right on the first try.
And I would argue that no company in the United States that had gone down that route has really put together even remotely productive or coherent set of policies to implement the supposed goals. The environmental ones are probably the ones that have been the worst because they equate things like adopting electronic vehicles with being a good but based on who you are and what you’re doing and where you are.
That may be one of the most environmentally damaging things you can do. So like if you get an electric truck and you’re running around the northeast, which is mostly fossil fuel powered, and this is a vehicle that has a huge carbon footprint to build in the first place. You’ve actually made the situation significantly worse, but by your scheme that works, you’re right on the path.
What we need is a little bit more coherence and intelligence and regularity for these sorts of regulations, for them to make any sort of sense. And we’re not going to get that on the first try. And it’s difficult to see us getting that within a decade without some sort of benchmark. And since by its very definition, this is not a government initiative, it’s hard to see us getting that benchmark.
So ESG may be a great idea, at least in concept. It may fit the times for business community. That doesn’t mean it is or will be done very well. Now what ESG is not, it is absolutely not some global conspiracy to destroy the United States. I’ve heard that a lot of late kind of pisses me off because, I mean, think about this.
Most people point towards like the world economic Forum and the build back better and all that good stuff. No. Okay. So the World Economic Forum is not a shadowy cabal of international Illuminati who are seeking to push their will on the United States. A majority of the people there who are matter are American, for one from all political stripes.
In addition, whenever you see Elton John going to a week long confab on international affairs, you know it is not a week long confab on international affairs. It’s a party. Klaus Schwab, the guys who are in charge of the World Economic Forum, I know he’s got the great hair that makes him look like a villain. But really, just think of him as a deejay for the rich and everyone getting together in Davos, Switzerland, for a week of body shots or their equivalent for rich people.
It’s not that WEF is pointless, it’s that it’s entertainment. And to think that there’s any sort of policy coming out of that is kind of funny. Most ESG to this point is a product of one of two things. Number one, the activist culture in the United States that protests and tries to get impose policies on the business community from the outside.
And then secondly, activist investors who are within the company probably have minority stakes who are trying to get the company to shift its policies from within. That’s almost every little bit of it. The international pressure has almost no impact. And you can tell that because the international companies generally have less aggressive ESG policies than American national ones. This is a domestic, political and cultural evolution.
If it was really strong internationally, you would expect the international companies to be the ones that are leading the way and they most certainly are not. Okay. Ooh, that was lightning. Well, the next one might be really exciting.
Democrat Joe Manchin managed to sneak a few clauses into the debt ceiling extension deal for the completion of his Mountain Valley Pipeline. Environmentalists are pissed, and fossil fuel lovers gave Machin a double thumbs up. So who’s right and who’s wrong?
For those who think wind and solar are the future and there’s no use case for fossil fuels, you might want to check the math. For wind and solar to be viable, they need a complimentary energy source…and natural gas is the best option.
For those natural gas lovers who think green energy can only work with massive subsidies, your math needs some checking too. In the right geographies, solar and wind are the cheapest energy option on an hour-by-hour basis.
While the Mountain Valley Pipeline might seem to benefit only one side of the aisle, Manchin moved us one step closer to the inevitable future of American energy. It’s not green. It’s not fossil fuels. It’s both. And I’m okay with that.
Prefer to read the transcript of the video?Click here
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Hey everybody. Peter Zeihan coming to you from the ever increasingly foggy Docman Trail. This is the next in our Ask Peter series that was born out of my airline delay. Today, the question is about Joe Manchin, the Republican excuse me, the Democrat, from West Virginia, who has managed to insert a couple of clauses into the deal with the White House to extend the debt ceiling. Specifically, it’s something that it mentioned has been after a while, which is permitting and federal approval to get a new pipeline built through West Virginia to ship natural gas. Environmentalists hate it because it’s natural gas, pro fossil fuel folks obviously think it’s okay. The truth is that everyone’s right and everyone’s wrong. So let me kind of lay out what it means.
Let’s start with the green side. For those of you who think that solar and wind is the future of energy and that any sort of fossil fuel is just antithetical to that future. You’re clearly very bad at math. Just think of every day in your life when the sun goes down. Solar. No longer works. And while you can’t use batteries a little bit, the United States right now has less than a couple of minutes of battery storage and there is not enough lithium on the planet for the United States to get to 4 hours of battery storage. And we don’t have a battery chemistry that would allow us to go not just through the night, but through the winter and through periods where there’s usually not a lot of sun, which, if you live in the American Northeast, is the vast majority of the year. So you need a complementary power source that can work with solar and wind. And the best way to do that is with natural gas. You basically use solar when it’s available and you have a combined cycle natural gas plant that can spin up in 10 to 15 minutes whenever it gets cloudy or whenever the sun goes down, you know, every day for the foreseeable future, until we have a better, better technology or better solar or probably better wind is what would get there first. This is just where we’re going to go. So if you want to build solar and wind without a complementary system, you’re then basically forcing anyone who needs emergency power to use a diesel generator. And as we’ve seen in the case of Germany, they have used Lignite coal as the backup. And you can’t spin that up and down in ten or 15 minutes. You have to leave that on the whole time. So despite $2 trillion in green tech build out, Germany’s carbon emissions have actually gone up. So, you know, there’s a problem.
Now, for those of you on the fossil fuel side who say that intermittency of solar and wind means it’s not a viable power source and it can only exist with subsidies. You’re not very good with math either. Solar and wind in the right geographies are now the cheapest way of generating power on an hour by hour basis. Now, hour by hour being the key word there, there’s something that some folks like to use called the levelized cost of operation, meaning that you average the cost out over the 24 hour, three, 24 hour day three in a 65 day year period. That’s really not a great measure, because when the sun stops shining, the power goes down to zero. You still need it. And that’s not reflected in the levelized cost, or at least not sufficiently, in my opinion, because, you know, when you don’t have power and you need power, you will pay whatever you have to do to get power. There are parts of the country that can do more of one or the other. So if you’re in the American Northeast, which is neither sunny nor windy, you know, fossil fuels are going to be a much bigger part of your power mix going forward than it can be in the rest of the world. However, if you’re in the southwest, you’re in a place that has great sun, and if you were the Southwest overlaps with the Great Plains, you’ve great, great sun and wind. And that means ultimately more and more and more things like what Manchin is after. Keep in mind the pipeline he was so much in love with the way he wants to get this done is not just a one off approval for a pipeline across a state line; he wants that for all energy infrastructure. And obviously the green zealots think this only means pipes, but it also means power lines, because if we’re going to move to a cleaner, greener future, we have to be able to move electric ones from where they can be generated with solar and wind to where we actually live. And since the single largest concentration of population is on the American Northeast coast, and that’s where none of the green power comes from, we’re ultimately going to have to run this in by wire from other places. So we need more and more transmission, more than we need something like batteries right now, at least with today’s technology.
So the future of American electricity isn’t green, but it’s also not fossil fuels. It’s both. I’m okay with that.
There’s one massive hole we’ll need to fill if the green movement will ever work in the US…mineral resources. Thankfully we just struck a deal with our Aussie allies, who happen to have many of the key minerals and resources we need.
This deal will enable the Australians to contribute mineral resources to the American greentech industry in a way that will allow them to benefit from the incentives and subsidies in the Inflation Reduction Act (IRA).
While Australia is a significant producer of many necessary Greentech resources, it’s not a one-stop shop for everything. They’re also great at producing the raw ore, but the value add component isn’t their thing. Thanks to subsidies from the IRA, there will be an opportunity to bring value-add capabilities to the Outback.
But what about all the other US allies? Will they be able to tap into this deal? We must remember that there is an inner circle and an outer circle of allies…for now, only the inner circle gets to play.
Prefer to read the transcript of the video?Click here
Here at Zeihan On Geopolitics we select a single charity to sponsor. We have two criteria:
First, we look across the world and use our skill sets to identify where the needs are most acute. Second, we look for an institution with preexisting networks for both materials gathering and aid distribution. That way we know every cent of our donation is not simply going directly to where help is needed most, but our donations serve as a force multiplier for a system already in existence. Then we give what we can.
Today, our chosen charity is a group called Medshare, which provides emergency medical services to communities in need, with a very heavy emphasis on locations facing acute crises. Medshare operates right in the thick of it. Until future notice, every cent we earn from every book we sell in every format through every retailer is going to Medshare’s Ukraine fund.
And then there’s you.
Our newsletters and videologues are not only free, they will always be free. We also will never share your contact information with anyone. All we ask is that if you find one of our releases in any way useful, that you make a donation to Medshare. Over one third of Ukraine’s pre-war population has either been forced from their homes, kidnapped and shipped to Russia, or is trying to survive in occupied lands. This is our way to help who we can. Please, join us.
Hey Peter Zeihan here coming to you from chilly Phoenix, where it’s a balmy 102 at ten in the morning. I don’t know how people do it. It’s only May. Anyway, back on May 20th or 21st, you’re gonna see this a few days later. The Americans strike a deal with the Australians that will allow the Australians to contribute their mineral resources to the American greentech industry in a way that they will benefit from the incentives and the subsidies that are part of the Inflation Reduction Act.
There’s a real hullabaloo of late about which countries can get access and which can’t, and Australia is a tight ally. It’s part of the inner circle and most importantly it has a preexisting free trade agreement with the United States. And so they are the source of roughly half of the world’s lithium. And they are a significant producer of rare earths and zinc and copper as well. So this definitely scratches a lot of it, just not all of them. They don’t do molybdenum, they don’t do silver or they don’t do a huge amount of bauxite, although they have some. No chromium. So, you know, it’s not like this is a one stop shop for everything The United States needs, but it’s a real big step in the right direction.
Kind of two follow on thoughts from here.Number one, while the Australians are great at producing the raw ore. They do very little value add themselves and one of the things that the IRA is attempting to do is to build up a parallel supply chain that’s independent from China for processing of these raw materials into metals and then on into intermediate products. Australia is a logical place for a lot of that. I mean, yes, Labor costs are high relative to other places in the world, but since the minerals are right there and the energy is cheap, especially if you want to do stuff with solar in the freaking outback, there’s a lot of upward potential. They just need the investment and a decision that they want to move up the value added chain and the IRA will probably help with that, now you’ll have some American Australian fusion projects that are located on both sides of the Pacific. The second thing are the countries that may be able to join the Australians in kind of this inner circle. The United States has a handful of free trade agreements. Obviously the most famous one is NAFTA, and obviously they already qualify for these incentives. But the U.S. also has trade deals with the Koreans and the Japanese and in the world to come. These are countries that are involved in manufacturing. They’re going to do one more and more processing in the value add for things like battery chassis themselves. And so it still needs to be negotiated, but it’s starting from a very strong position and we should expect those to join.
Who’s not going to join is the European Union. Getting a free trade deal with the European Union has always been something that on both sides of the Atlantic has been flirted with, but it’s never really gone anywhere. A lot of the European countries, most notably the French, are highly protectionist, and the idea of exposing themselves to the American market at all is just not something they are even willing to consider. But more importantly, Europe is in demographic collapse and they’ve simply run out of people who are under age 40, the folks who normally do the consumption. So the United States no longer has any sort of economic rationale for an economic partnership over the long term with Europe, because it would just mean that Europe would be product dumping on the Americans. Similar situation for Korea and Japan, but there’s a big strategic argument that these are allies that have to be kept close as part of maintaining a presence in the Asian theater. In the case of Europe, in many cases, it’s a little bit more of a problem than it’s worth. And while there are independent European powers like the Brits or maybe the Swedes or in the Poles, that may be worth it. If it’s all part of a network of the EU, then the cost is simply too high. So there’s definitely an inner circle and an outer circle among the allies. And when it comes to greentech, only the inner circle can play. Alright, that’s it. Everyone take care.
