The word ‘peak’ has been a favorite to place in front of commodities as oil, gold and more. There are plenty things written about peak oil, peak gold and many more. Peak oil or peak gold is suggesting scarcity by a destruction or serious shrinking of supply of a particular commodity.
Now comes the irony: I like to introduce ‘peak government’. You may be wondering why the heck I’m introduction this crazy idea. To turn the world upside down? Well yes, that is what I want to point out! Are you already confused? Don’t worry, read on.
What is ‘peak government? It is the opposite of the real economy directed by supply and demand in markets. Peak government doesn’t point to a scarify of commodities, goods and services. It points to an opposite, to an abundance of cheap credit and regulations that replaces and overrule basic economic laws as supply versus demand and thus can fix scarcity. The world of peak government denies economics laws and replaces these with ideologies and infinite money supply. Ideologies are leading economics in this area of peak government. Green, ‘renewable energy’ is one of the main topics that is currently directed by peak government.
The ideology of green, renewable energy is focused on the idea that fossil energy sources as oil and gas are finite and are polluting the earth. By replacing fossil energy by renewable energy sources as sun and wind, fossils are are no longer necessary to provide energy. Depletion of finite oil and gas reserves can be avoided is the idea.
As a result of this ideology it became a complete ‘no go’ in recent years to invest in Western oil and gas companies and these companies themself seem to be ashamed of their own oil business as they neglect to invest enough in exploration. An example of current state of Western oil companies is illustrated by BP selling coffee.
Current sentiment is that oil and gas are becoming obsolete. But how accurate is that assumption?
The chart below shows that consumption of fossil energy keeps growing, and that renewable energy is only a very small piece of current energy consumption. Fossils aren’t obsolete at all. Reality opposes ideology.
According to green renewable ideology, the transition of energy supply should result in an accelerating growth of sun and wind sources taking leadership over from fossils. Applied on the graph above, that means a complete opposite of current projection: renewables above, at current fossils positions (oil, gas and coal) and fossils below, where renewables are now. So far the theory. Again how does this wishful thinking fits into reality?
Lets first compare fossils against wind and solar. Here is an important insight from an earlier blog posted at July 5th 2020 where I shared insights by Art Berman an oil exploration geologist:
“Renewable energy as wind, solar electricity are less efficient and effective because the energy they generate has a lower density. The energy density of renewable energy sources are around 10% of a barrel of oil. The question is if technology can make solar, wind and electricity as efficient as oil so they can generate as much energy as a barrel of oil. The answer is no because technology doesn’t create energy. Technology only converts energy into work”.
This is important information. The green ideology says that investing in technologies that are 90% less effective versus traditional fossils are an attractive investment opportunity? What the heck do they smoke?
The Primary Energy Consumption By Source graph above shows economic reality. As fossils have a much higher energy density, it’s not more than logic that they take for about 90% of the consumption of energy into account versus the tiny bit of renewable energy consumption. The real world is still the place where economic laws rule despite efforts by green ideologists trying to deny and abolish them. Economic laws do respect efficiency and scarcity, not wishful thinking.
Lets highlight another perspective on the question how attractive the renewable investment thesis actually is. If investing in wind mills, solar panels and batteries are so lucrative then you would expect that metals as iron ore, copper, nickel and other rare earths (REM) are in a raging bull market by now. The amounts of metals and rare earths minerals needed to replace fossil fuels to build all those wind mills, solar panels and batteries and to replace current 90% of fossil energy consumption are immense. If the investment thesis for renewables would be really so attractive, wouldn’t that translate into huge demands for metals? So far there isn’t. Reality sets in again when you take a look on charts of a few main iron ore and copper producers. They have been in a bear market since at least 2011, some since 2008. Hmmm.
Estimations of amounts of metals needed to build wind, solar and battery/storage utilities to replace fossils are rare and not easy to find. That means not many people have any idea of the real world consequences translating the green energy day dream into real world consequences. Here are a few links to information I found.
“Investing for the greenwash bubble” is a recommenced read on the environmental impact of renewable energy and the required mining for all those needed minerals and metals. We frequently hear the green ideologists say how bad the fossil energy consumption and drilling are. But what about the impact of all those (mining for) wind, solar and battery/storage utilities? It isn’t a nicer picture for sure.
I started this post connecting ‘peak government’ and green energy by the notion that ideology tries to replace economic law of supply and demand. In the words of famous commodities investor Jim Rogers: “in the real word the controlling factors are those two politically incorruptible economic players supply and demand.” These 2 players haven’t confirmed the attractiveness of the green renewables investment thesis so far.
Smart money hasn’t bought big into the green investment so far far as they are focussed on real returns on investment. What returns do green projects give when they need government subsidies? Another issue here in the Netherlands is than banks don’t lent out money to home owners that want to transform their homes to green energy. That is telling. And take a look on charts of American and European banks, shocking to see the depressed price levels they are currently.
My take on this that green ideologists are blinded by cheap credit. As supply of cheap, printable credit is infinite, the availability of all the required metals and minerals needed to build a tremendous amount of green energy utilities are not. Their mistake that they don’t (want to) see it. Just as with finite oil and gas reverses, minerals and metals to build renewable energy utilities are finite. Peak government and infinite money creation may lead to even more scarcity of commodities and a more extreme commodity bull market. That is a topic for a next post.