The Bad Energy of Two Somber Anniversaries

Today marks a pair of disastrous anniversaries.

One year ago, on Mar. 11, 2020, the World Health Organization (WHO) declared Covid-19 a global pandemic.

And 10 years ago, Mar. 11, 2011, Japan was hit by the Fukushima earthquake, a tsunami and related atomic plant meltdown.

Both events nuked the world — one quite literally and the other merely figuratively.

Absolutely, they touched your life in one manner or another: Covid obviously, and yes, even far away Fukushima as well, whether or not you’ve ever been within 5,000 miles of Japan.

Today, let’s look at Covid and Fukushima through the lens of energy. That is, how did these two disasters reshape the global energy structure from the gas pump to the light switch?

It’s worth pondering these somber anniversaries because they both generated a lot of bad energy and issues that’ll play out in your life for many years to come.

Let’s dig in…

No doubt, you’ve been affected by Covid. Just think back a year to last March.

Did you ever suspect that life would be so disrupted? That you might get sick and die from some exotic molecule? Or that your family or friends might get nailed?

Did you think that you’d be ordered to stay at home, to live under an open-ended political-social-cultural lockdown?

That you’d wear a facemask to go out? Or that nosy, busybody strangers would look at you cross-eyed if you didn’t wear a mask while walking down the street?

Did you anticipate empty shelves in supermarkets and drug stores? The scramble for items like toilet paper and sterilizing wipes?

Or that elementary schools, high schools and colleges would close their doors, send the kids home and pretend to teach via full-time distance instruction?

We could go on with a long list of impacts because there’s all that and more. But you get the picture.

Let’s focus on one particular angle of Covid over the past year, the massive decline in global oil use. Beginning last March, people suddenly began to drive less, fly less and even sail less as all those laid up cruise ships and airliners show.

jets grounded

April 2020: American Airlines jets grounded. Courtesy Pittsburgh Post Gazette.

Fewer engines turned and burned. And oil prices tumbled as we see in this chart of prices over the past decade, which illustrates how the bottom dropped out of the market last spring:

Oil prices

Oil prices, 2011 – Present. Macrotrends.net.

Lower prices quickly disrupted the U.S. oil patch, where high costs and tight margins are more the rule than exception. In consequence, output fell dramatically in many regions, as we see here:

oil production declined

U.S. oil production declined in 2020. Courtesy Energy Information Agency.1

Look at those decline rates from Texas, North Dakota and the Gulf of Mexico. They reflect tens of billions of dollars of capital investment, now offline in a relative flash. It’s a complex story, but much of that output may never come back, especially in what’s called the “shale” side of the oil patch. It’s just not as easy as turning a few valves.

Meanwhile in 2020, the U.S. lost over 120,000 jobs in the oil and gas industry.2 Often as not, these were well-paying jobs, many of them in the six-figure range.

These job losses came before President Joe Biden showed up this January and killed off more energy jobs by cancelling the Keystone XL Pipeline on his first day in office. Since then, Biden’s administration has generally declared war on fossil fuels.

Which brings us to now, when oil prices are rising again as the global economy appears to be in recovery mode in tandem with Covid coming more under control.

More to the point, from oil under $40 per barrel in January, it was up over $70 earlier this week. That’s quite a move in a relatively short time. And there’s talk of $100 oil before too long.3

What a difference just one year makes, depending on events. With Covid, oil fell from the $60s per barrel into the $20s. But it’s now back to the high $60s, with talk of $100.

Looking back, it’s also clear that in 2020, the U.S. lost a large measure of its former energy security.

Right now, U.S. production is down as oil prices rise. And prospects for future oil development are dim across the U.S., considering the new president and his handlers in the White House.

The immediate and near-term impact is that gasoline prices have risen in the past couple of months, with the prospect of rising more as events play out.4

You may have stayed healthy over the past year. And you might get vaccinated against Covid. Heck, you might get a “stimmy” check from the Treasury, depending on your household income.

But looking ahead, you’ll definitely pay more at the gas pump.

And you’ll pay more for many other goods and services as higher energy prices work their way through the economy, from food on the grocery shelves to whatever else you buy in the rest of your excursions.

It’s out of your control. Happy anniversary, Covid Year One.

And then there was Fukushima, a decade ago in 2011.

An earthquake occurred offshore eastern Japan. The seafloor literally heaved up and down beneath the oceanic water column, which generated a massive tsunami. That is, an energy wave sent a giant tidal surge shoreward.

The wave hit the shoreline where Tokyo Electric Co. has six nuclear power plants sited in proximity. Water cascaded over a series of seawalls, which were not constructed high enough, a point of engineering now obvious in retrospect.

This flood knocked out generating and pumping equipment. And without power and/or working pumps, three nuclear reactors went critical and melted down. It’s a total mess there, with radioactive water and waste blowing in the wind and washing into the sea.

It’s an ongoing wreck, while cleanup efforts track out for a century and more.

ALTTAG

Satellite image, damaged nuke plants. Courtesy Stanford University.5

Within days of the disaster, Japan shut down its entire nuclear power complex. Other nations scrutinized nuclear power as well, including Germany, which determined to close down its nuclear sector.

In the U.S. nuclear power became even more of a hard sell than previously, considering the nuclear accident at Three Mile Island in 1979 (which occurred on March 28 of that year by the way; there’s something about the month of March and energy disasters).

In the U.S., since 2013, 10 nuclear plants have closed.6 Only two are making progress towards construction, although numerous plants have license extensions in the works.

Globally, the fastest growing country for nuclear plants is China (yes, I know; surprise!), with 46 operating plants and something like 20 others officially planned or under construction. Numbers are iffy because China keeps quite a bit of its nuclear program under wraps.

Meanwhile, for much of the past 10 years, uranium prices have been in the doldrums because of the closed Japanese plants and due to a general lack of enthusiasm in the West to build new ones.

This brings up an odd correlation of circumstances, regarding China versus the rest of the world.

Obviously, China is aggressively moving towards more and more nuclear power. Along these lines, Chinese businesses and government organizations are making deals across the world to secure future supplies of uranium, from Namibia to Kazakhstan. It’s a full court press.

Meanwhile, as uranium miner Cameco matter-of-factly notes, “Uranium does not trade on an open market like other commodities. Buyers and sellers negotiate contracts privately.”7

That is, when it comes to existing nuclear plants, most of that world’s uranium is already under long-term contract with price terms that are generally confidential.

But also, over the past 10 years, many Japanese electric utilities have been reselling uranium into the “spot” market because they can’t use it while their plants are shut down. This has created a glut of low-priced uranium.

The long-term effect is that for 10 years, we’ve had low prices and global under-investment by Western mining companies in future uranium supplies.

Right now, we’re living in a world where the spot market price is about $27 per pound. But the cost to build new mining and processing capability is more like $100 per pound. It’s a setup for serious, expensive problems to secure uranium for any future nuclear systems.

One key takeaway from the Fukushima 10th anniversary is that the West has lost a decade in any effort to build out nuclear energy. Some in the U.S. and Europe may think this is a good idea for a variety of reasons, although clearly the Chinese differ on the point.

If/when the West gets serious about nuclear power, we’ll face a myriad of problems. These range from scarce and expensive uranium supplies to lack of deep industrial capability to do things in the nuclear arena, all the way to severely shrunken pools of human talent, meaning people who can do the math, physics and engineering to make it work.

Again, happy anniversary, Fukushima Year 10.

So where does this leave us? Well, I hate to be too negative; and yes, some readers have emailed me and accused me of being “too negative.”

I simply prefer to think that I’m just following the facts. And those facts indicate that there’s a strong, built-in inertia in U.S. governance and policymaking to pursue failure.

Right now, we’re staring at rising oil prices and little flexibility when it comes to petroleum supply from the ground, and refined fuel for about 99% of the moving vehicles on America’s roads, rails and runways. We’re going to pay painfully at the pump.

Meanwhile, we’re looking at a new energy paradigm from the Biden administration, for a Green New Deal (aka Green New Disaster). Somehow, per these visionaries, we’re going to rebuild America’s energy system using materials and machinery that the country doesn’t produce at all, or in any significant quantity on the best of days.

Under Biden, America will redo energy based on visceral, uber-enviro policy opposition to fossil fuels, which might be okay if the country had the industrial wherewithal to pursue the next level of technology pipe dreams. But something as elemental as copper might become a problem.

Meanwhile, at the level of inspiring confidence, America’s new Secretary of Energy majored in political science and French in college. Her resume includes a stint as a contestant on the “Dating Game” television show and as a tour guide at Universal Studios.8

Frankly, I’d feel better if we had former nuclear submarine captains making energy policy, but perhaps that’s just my parochial nature. On the bright side, Winston Churchill once famously observed that Americans will always do the right thing, only after they have tried everything else.9

Along the way, there’s money to be made in all manner of technology metals, but only if government policies in the U.S. (and Canada, hint-hint) actually allow these kind of plays to move ahead.

As a country, are we serious? Or are we just fooling around, pretending that we want to see all this great energy rebuild and reindustrialization? At root, are we just playing games with monetary policy, regulation, lawfare and a general lack of entrepreneurial attitude?

These are serious questions. We’re going to find out the answers, and it won’t come cheap.

All of this, and it’s only March 11…

On that note, I rest my case.

That’s all for now… Thank you for subscribing and reading.

Best wishes,

Byron King

Byron King
Managing Editor, Whiskey & Gunpowder
WhiskeyAndGunpowderFeedback@StPaulResearch.com

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1 U.S. Crude Oil Production Fell by 8% in 2020, the Largest Annual Decrease on Record, U.S. Energy Information Administration

2 The U.S. Lost 120,000 Oil & Gas Jobs In 2020, OilPrice.com

3 Whispers of $100 Oil Return as Crude Shakes Off Covid’s Clasp, Bloomberg

4 Why Gasoline Prices Will Continue to Rise, OilPrice.com

5 Stanford Researchers Calculate Global Health Impacts of the Fukushima Nuclear Disaster, Standford

6 Reactors Are Closing, Beyond Nuclear

7 Uranium Price, Cameco

8 Jenifer Granholm, Wikipedia

9 Ref: Churchill

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Byron King

A Harvard-trained geologist and former aide to the United States Chief of Naval Operations, Byron King is our resident gold and mining expert, and we are proud to have him on board as the managing editor of Whiskey & Gunpowder.

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