Just when you thought oil and coal were mere relics of the past, and that going forward energy would be plentiful, clean and cheap - surprise, surprise, it ain’t like that after all. In fact, the outlook is the opposite: Some regions of the world are experiencing very serious shortages of energy and prices are rising sharply. These developments are making inflation worse and could even lead to political unrest.
If this sounds like fantasy or wild speculation, it isn’t. It’s the opinion of Stephen Schwarzman, CEO of Blackstone, one of the world’s leading investment firms with $732 billion under management.
In a recent interview, Schwarzman told CNN International that soaring energy prices could set off social unrest around the world. “We’re going to see a real shortage of energy, and products are going to cost more -- probably a lot more.”
This is not the kind of talk that people, already struggling with rising prices and supply chain shortages, want to hear. Nevertheless, this is the reality of our times. “You are going to get very unhappy people around the world, in the emerging markets in particular but in the developed world, too” Schwarzman said. “What happens then is you’ve got real unrest.”
“The Most Painful Crisis”
Schwartzman’s pessimistic outlook and the events adding credibility to it prompted one news commentator to opine that “We are potentially heading into the most painful global energy crisis in modern history.” Those of the past certainly were painful enough!
The idea of producing pollution-free energy and environmentally-friendly vehicles has always intrigued some people, and it really caught on earlier this century. New technology was making these kinds of products a reality and falling prices affordable to large markets. Growing concerns about global warming accelerated this trend.
Meanwhile, oil and coal were falling out of favor, and not only with investors; financial institutions were becoming reluctant to finance projects that could contribute to global warming or climate change. Some oil companies actually slowed production and switched their efforts to renewable energy, including powerhouses like British Pete, Royal Dutch Shell, ExxonMobil, and Chevron.
Although politicians and companies began celebrating the death of oil and coal, their euphoria was premature because the technology and systems that could produce green energy in large and reliable quantities were not yet in place and in fact not even fully developed.
Why numerous political leaders in Europe watched quietly as winter was approaching and their countries’ energy reserves were plunging is a question that will certainly demand answers. Meanwhile, utilities and other companies are using all the oil, gas, and coal they can get hold of.
A perfect storm of problems is making it more difficult to find solutions. Severe shortages of natural gas, combined with nuclear outages, declining wind power output, and freezing weather have driven the price of natural gas to record highs. On Dec. 21, the benchmark gas price in Europe soared 10% in a single day; European natural gas was trading at the oil equivalent of $340/barrel.
In the UK, natural gas prices hit a record high. Numerous energy firms and industry groups called the situation a “national crisis” and called on the government to protect consumers. At the same time, gas flowing into Europe was plunging, as Russia’s energy giant Gazprom was reducing shipments.
According to Zero Hedge, the energy crisis in Europe is getting worse. “France, usually an exporter of power, has been desperately seeking imports and even restarted fuel-burning generators as the country’s top power utility, Electricite de France SA, halted four nuclear reactors accounting for 10% of the country’s nuclear capacity.”
Europe’s energy woes don’t end there. At least 30% of France’s nuclear capacity will be offline in the coming weeks, Germany will lose half of its nuclear power capability in 2022, and power output from its wind turbines is already plunging as demand strains power supplies.
Whose Headache Is This?
Anyone taking the attitude that these problems are unfortunate but belong only to Europe is mistaken. Many Americans have relatives and friends on the Continent and are concerned about their wellbeing.
There’s a financial aspect to this issue, too. “Unbearably high energy prices are forcing many firms to curtail and/or temporarily close plants because energy prices have increased 4 to 5 times and made the cost of operating them uneconomical,” Zero Hedge adds.
Representatives of at least 11 industrial and consumer sectors are warning that “A prolonged period of (these) high energy prices could lead to severe losses, relocation of European companies and an increase of carbon leakage.”
Meanwhile, Americans have their own energy problems. Consider oil, for example. Although far below the recent high of nearly $84/barrel set in mid-October, it is also substantially above the $45/barrel it was selling for in the beginning of 2021. And it may go a lot higher. Analysts at JP Morgan Chase recently suggested that oil will rise to the $150-$200/barrel range.
Coal had been shunned as recently as a few months ago, but since then has dramatically reversed course. The amount of electricity generated worldwide from coal is surging toward a new annual record in 2021, and overall coal demand potentially could make an all-time high in 2022.
If current energy trends and shortages continue, the US and the rest of the world will soon be facing an unprecedented nightmare. The cost of electricity, natural gas, gasoline, heating, food, and virtually everything else will skyrocket to unimaginable levels. Could these things really happen?
Have you ever heard of Murphy’s Law? Murphy was an armchair philosopher, and his First Law states that anything that can go wrong will go wrong. Murphy’s Fourth Law states that if there is a possibility of several things going wrong, the one that will cause the most damage will be the one to go wrong.
O’Toole, another philosopher, had something to say about that. O’Toole’s Corollary says that if there is a worse time for something to go wrong, it will happen then.
I never met Murphy or O’Toole, but they sound like very smart people who had a good understanding of life. What do you think?
Sources: angelo.edu; bloomberg.com; iea.org; nytimes.com; zerohedge.com