In 1519 as Spanish Conquistador Hernán Cortéz prepared to launch an invasion into Aztec territory, he turned to his men and ordered them to burn their ships. (So the story goes.)
Whether or not he burned them or sank them or just scuttled them on rocks near the shore, isn’t important. What was important was the message it sent to his crew… There’s no going back. No retreat. No plan-B. It’s all or nothing.
It’s an “all in” bet at the poker table. It means either your trip-sevens win the hand, or you’re going home. It’s a bold bet for a player in a poker tournament.
But when it comes to something like betting on our energy security — it’s insane. Yet candidate Joe proposed that very strategy on the campaign trail in 2019.
On new year’s eve, at a town hall meeting in Peterborough, New Hampshire — one that got little if any media attention — he got a question on the subject of climate change:
Question: If we don’t stop using fossil fuels…
Biden: We’re all dead…
Question: …We’re all dead! So any other issue is secondary to that. What do you plan to do about climate change?
In his rambling response he listed a number of items including rejoining the Paris Climate Accord. But what was most noteworthy and largely most ignored was this…
The third thing we have to do is set down guide rails now. So between the years 2021 and 2030, it is irreversible, the path we have set ourselves on.
Putting the country on an irreversible path toward a renewable future. No Plan B, just in case the inevitable unintended consequence rear its ugly head.
It’s hard to quantify the economic impact energy has on our economic growth and security. But consider what might have happened back in the 19th century if the same energy concerns we have today had shut down the railroads or coal mines or steel mills.
I could be wrong, but I doubt we’d be enjoying many of the modern conveniences we take for granted today.
My point is that Biden’s “burn the ships” strategy puts our entire way of life at risk if it doesn’t play out as expected (which, of course, it won’t). I don’t mean to be alarmist, but energy and its production are central to our economic survival. Today and next year.
We can plan for and worry about the existential threat that’s looming “12 years” down the road — we’ve been doing that since the 1970s — but to shove your chips all in on one big bet… is downright dangerous.
And yet this appears to be the one promise the Biden administration is bent on keeping if you judge them based on their actions. (Actually the entire government is culpable if you’d ask me.)
Let’s look at a few of the things he’s done to deep-six our current energy landscape (and security) and put us on the path to long term energy inflation in the name of being a leader in the green-up the world movement.
Kill the Business
On day one he canceled the Keystone XL pipeline. Pipelines are the safest, most efficient, most economical way of transporting oil and gas.
He ordered a 60-day pause in the issuing of drilling leases on federal lands, cutting oil companies’ ability to produce.
He reinstated methane regulations calling for “substantial reductions in U.S. methane emissions.” It’s estimated compliance with these regulations will cost the industry $600 million.
He’s looking to eliminate tax deductions and regulatory advantages to hydro-carbon based producers including intangible drilling cost deductions and “depletion tax breaks.”
And most recently they have floated the idea of imposing a fairly arbitrary “windfall profits” tax on oil companies’ profits.
None of this is friendly to the business interests of the oil and gas industry. (Let’s not forget, they are businesses.) And prices responded to the uncertainty like you’d expect… They headed north.
And then, as if almost on cue, Russia invaded Ukraine and threw a bucket of gas on the fire of rising energy prices. The ensuing sanctions on Russia spiked economic uncertainty around the world. Which, in turn, spiked energy prices further.
And with prices as high as they had been in 40 years, it was time to…
Demonize the Bad Guys
This unfortunate turn of events gave the administration an opportunity to lay some blame by calling US oil producers money-hungry profiteers…
Mr. Biden then looked at the camera and issued a stern warning to the oil industry: “Russia’s aggression is costing us all,” the president said, “and it’s no time for profiteering or price gouging.”
…And demonstrate their complete and total ignorance of how the industry works (my emphasis)…
(Energy Secretary Jennifer) Granholm, who has been quite vocal in her support for renewables replacing oil and gas, told the oil industry that a short-term increase in oil and gas would not go counter to the White House’s energy agenda. “We can walk and chew gum at the same time…”
Translated for the energy industry, she basically said, “We’d like you to help us out until we get through this crisis… then it’ll be back to screw you.”
A narrative was built up around a lack of action on the part of oil producers regarding some 9,000 approved drilling permits. In reality that only further demonstrated the government’s ignorance of how the oil industry operates.
I laid that out in some detail in a recent post as well.
Drain Our Reserves
In November 2021, already facing soaring oil and gas prices, President Biden announced the US would be tapping the Strategic Petroleum Reserve for 50 million barrels of oil to help rein in prices.
The Strategic Petroleum Reserve is an emergency stockpile of oil maintained by the Department of Energy. It’s held in underground tanks in Louisiana and Texas and has a capacity of 714 million barrels.
In March of this year, Washington again tapped the reserve to join a 60 million barrel emergency release in response to the disruption caused by the Russia/Ukraine crisis. These efforts impacted prices negligibly.
Finally this April, with gas prices still near record levels, the President ordered the release of a million barrels a day for the next 6 months — nearly 180 million barrels in all. We can assume a couple things based on this.
One, it likely won’t have a huge impact on prices at the pump. And two — at $100-plus per barrel oil — the reserve won’t be replaced anytime soon — if ever.
A diminished reserve capacity, further weakens our country energy-wise.
Force an Option That’s Not Ready
It’s safe to say this administration isn’t really interested in helping bring down gas prices (or saving the environment for that matter). The thinking behind this anti-oil attitude is if gas prices fly high enough, it will accelerate the adoption of electric vehicles and other renewables that much more.
In another effort toward this goal, the administration increased the auto industry’s mileage requirements…
(Notice the date, but it was not an April Fool’s joke.)
The secret behind this sleight of hand is that auto manufacturers are allowed to report mileage averaged across their entire production lines. The ability to average in a few EV models they can estimate at “100-plus miles per gallon” incentivizes them to start manufacturing more electric vehicles (whether or not the market wants them) rather than try to achieve the government’s most unrealistic goals.
Of course divining into a whole new energy infrastructure will require wholesale changes everywhere. A green energy economy looks very different infrastructure-wise from a hydrocarbon-based one.
The first thing we’ll need are specific metals and minerals. Aluminum is key in the production of most green energy power sources. An analysis by the site NS Energy revealed the following:
Photovoltaic cells require aluminium, copper, silver and steel as well as other elements, such as indium, selenium and tellurium, depending on the type of technology.
Wind energy demands steel, copper, aluminium, zinc and lead as well as neodymium for turbine magnets, while hydropower needs concrete and steel for basic infrastructure, alongside copper and aluminium for power transmission.
The report highlights that a 9% increase in aluminium by 2030 would mean an extra 103 million tonnes of aluminium is to be mined. That is more than the world’s total annual production in 2019.
Presently, at least where EVs go, the US is dependent on imports for more than 50% of the eight essential minerals required in their production. (Three of those minerals: graphite, manganese, and rare earths we import 100% of.)
In addition, the costs of many of these materials, like the cost of pretty much everything else, have been soaring in recent months.
Mark Mills of the Manhattan Institute offers a 30,000 foot view of what the Biden administration’s proposed new green undertaking might look like…
…all energy-producing machinery must be fabricated from materials extracted from the earth. No energy system, in short, is actually “renewable,” since all machines require the continual mining and processing of millions of tons of primary materials and the disposal of hardware that inevitably wears out. Compared with hydrocarbons, green machines entail, on average, a 10-fold increase in the quantities of materials extracted and processed to produce the same amount of energy.
Green Energy is Not the Enemy
I’ve said this before as well… There is a place for renewable sources in our energy landscape.
But it must be up to the market to determine what that place is.
The government’s reckless and single-minded pursuit of a green future now, is murdering an industry they want you to believe is dying a slow death on its own. More than that, it’s an industry that fuels our entire country and, more importantly, our economy.
Continuing on this “burn the ships” path will only result in driving energy inflation higher whether from fossil fuels or new green sources.
In other news: We just posted a brand new Streetlight Equity research report on the members site. It’s titled How to Secure Fast-Moving Profits from 2022’s Most Disruptive Technology and reveals a new technology from a small cap player that we believe will become the new must have tech in a rapidly growing industry. It’s included in your membership and you can check it out here…
Make the trend your friend,
Editor, Streetlight Confidential