Streetwise Professor

April 9, 2024

To Call Biden Administration Energy Policy “Schizo” Is an Insult. To Schizos.

Filed under: Commodities,Economics,Energy,Politics,Russia — cpirrong @ 3:13 pm

Not surprisingly given its avatar, the Biden administration is a picture of drooling incoherence. This is especially true when it comes to energy policy and the Russo-Ukrainian War and especially the intersection of these.

Case in point. The administration constantly asserts that it is a vital US interest for Ukraine to prevail and Russia to lose. Secretary of State Blinken went so far as to promise that Ukraine would join Nato, despite the fact that this is akin to waving a red flag in front of a bull (in the form of Putin). Ukraine must win! We must provide massive military aid! UKRAINE MUST WIN! FREEDOM AND OUR DEMOCRACY ARE AT STAKE!

But not if it raises the price of gasoline in an election year, apparently. In recent months one of Ukraine’s most successful gambits has been drone attacks on Russian oil refineries. These attacks focused on distillation units, the disabling of which sharply cuts refinery output. As a result, Russian refined product output is supposedly down around 10-15 percent, exports of gasoline have been banned for six months, and the country is desperately seeking imports of gasoline from Kazakhstan. This is a serious economic blow to Russia, and also crimps military efforts which are obviously dependent on fuel supplies.

Further, the impact is likely to be long lasting because repairs depend on foreign parts and foreign expertise that Russia cannot readily obtain due to sanctions.

These attacks are also mirror images to Russia’s relentless bombardments of Ukrainian energy facilities, especially electric power generation.

Especially given the trivial resources devoted to the campaign (which is carried out using drones), this is arguably one of the most effective measures that Ukraine has implemented in the two plus years of war.

So given the allegedly existential stakes in a Ukrainian victory, the administration is gung ho in its support for these attacks, right? Right?

Wrong! The administration, first in the form of the execrable Ichabod Crane doppelgänger Jake Sullivan, then in the form of the utterly embarrassing Secretary of Defense Lloyd “AWOL” Austin, is intensely pressuring Ukraine to cease its campaign against Russian refineries.

Why? Because it might raise gasoline prices. It’s an election year dontcha know:

The incoherence is only compounded when you consider the administration’s antipathy for fossil fuels in its obsession over climate change. The administration thinks that fossil fuels are really, really bad, m’kay, and wants to reduce sharply their use. What better way to do that but to make them more expensive?

Now that I mention it, none, actually. Demand curves slope down. So for the climate change obsessed, burning Russian refineries and the consequent increase in fuel prices is a good thing. A great thing, according to the theory of the second best! And something that harms our alleged arch enemy to boot! What could be better?

Well, what could be better to someone who thinks logically is the real question. The freak out over the refinery attacks is clearly symptomatic of people who refuse to think logically. People who apparently elide the word “foolish” from Ralph Waldo Emerson’s epigram that “a foolish consistency is the hobgoblin of little minds.”

The administration’s draining of the Strategic Oil Reserve is another example of its foolish inconsistency.

There are many other examples. One that also checks the Russia and energy boxes is the insane pause on US LNG development approvals. This will also “impact global energy markets,” and not in a good way. And in particular not in a way that helps those whom we hope will help Ukraine.

When European natural gas prices reached stratospheric levels in the immediate aftermath of Russia’s invasion of Ukraine, Biden proclaimed that the US had Europe’s back, and would replace Russian gas with good ol’ ‘Merican LNG.

Suckers!

The administration’s obsession with keeping down the most visible price of energy (that paid at the gas pump) also clashes starkly with an array of other policies that will dramatically increase the cost of energy. The push towards electrification of everything, with the electricity generated by renewables, is just one example. Renewables are not cheap. They are expensive. Hella expensive–just look at how much higher electricity costs are in jurisdictions here (e.g., California) and abroad (e.g., Denmark and Germany) where renewables penetration is highest. Driving up demand (e.g., by penalizing the use of ICE vehicles) of a high cost resource is a recipe for higher energy costs. Much higher.

The force feeding via vast subsidies of high cost efuels and hydrogen will also inflate energy costs, though here (not coincidentally) the cost will be concealed in your tax bill and higher interest rates (required ot get people to buy US debt).

In sum, to call Biden administration energy policies “schizo” is an insult. To schizos. It is full spectrum contradiction and incoherence that simultaneously strives to lower energy costs and raise them, and to protect Russia while demonizing it.

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18 Comments »

  1. But I am being told that the Biden Admin is producing more oil than any other administration in American history!!!

    There is a lot wrong with that logic. Number one, should it be the job of a centralized government in a supposedly free market capitalist society to be producing energy? Number two, like the Great Depression, all statistics are skewed by the Covid shutdown.

    The droolers don’t understand that.

    Comment by Jeff Carter (@pointsnfigures1) — April 9, 2024 @ 4:10 pm

  2. “What all the wise men promised has not happened, and what all the d—d fools said would happen has come to pass.”

    (Lord Melbourne)

    Comment by dearieme — April 10, 2024 @ 5:35 am

  3. German and Danish (domestic) retail prices are not high because of production cost but because of government taxes which make up over 50% of the average bill. This is deliberate government policy to squeeze house-hold consumers (to “encourage efficiency”). German and Danish commercial and wholesale prices for electricity are at or below (significantly in the Danish case) European average. Anything else would be weird given how interconnected the European markets are and how much wholesale electricity trading goes on across the European grid.

    You really have a bind-spot for what’s happening with renewables. I know it’s part of the “culture war” red/blue stuff to crap on renewables. But the market has been speaking very loudly over the last 5 or 6 years where on average 90% of new electricity generation capacity installed globally has been renewable. You can write this fact of as being the result of a massive global conspiracy of democrats&hippies affecting everywhere from Texas to China and both public and private investment. But when a disparate global market is doing something I think is “wrong”, it’s usually a good indicator that I don’t fully appreciate or understand the market.

    I read your stuff because you provide insight into markets and apply critical thinking to explain its behaviour and how its behaviour reflects the aggregate motivations of the participants. I wish you’d do the same for electricity generation. It’s an interesting market.

    I was a renewables skeptic and I believe this was still a correct position until about 10 years ago. But there is one reason renewable are unstoppable – the power of mass production and the accelerated learning effect that causes inexorable drops in production costs. Batteries, wind turbines and PV panels are mass-produced and have dropped in price by 90 to 95% over the last 10 years. At the same time, efficiency (cost per MWh) and reliability and longevity has increased. While “traditional” generation costs have gone up and there are no new efficiency or operational improvements on the horizon for this tech.

    We’ve seen this before in history – if something can be mass-produced in a factory cheaply, it’s going to dominate a market where the competitors rely on bespoke engineering and large scale civil engineering/construction. Even if its operational characteristics could be argued to be inferior, the cheap mass produced tech will always win in the end. In the 1970s all the big computer manufactures produced mainframes – most scoffed at the idea that jokeshop “personal computers” could even be called computers. Indeed the mainframes they produced were superior in every way…. except price. By 1990, 90% of these manufactures went bust or at the last minute desperately tried to pivot.

    Comment by derriz — April 10, 2024 @ 3:38 pm

  4. @derriz
    You may be right, and green jobs are much fewer than old jobs (men down a mine with pickaxes). Jobs are a cost, so getting the same energy with less work is a boon.

    Trouble is, these green jobs are subsidised by the taxpayer. In the UK, this works out at about $200,000 equivalent per year for every green job, not counting the girls in billionaire funded lobby outfits. Good thing there aren’t many green jobs: they cost about five times median income.

    I’d gladly buy renewable energy if it was not expensive – through my taxes and utility bills – and could be switched on whatever the weather or time of day or night.

    Comment by philip — April 10, 2024 @ 4:47 pm

  5. @derriz

    On one side, “squeeze the consumer for efficiency”, i.e. artificially drive up the cost of grid electricity so that e.g. retail PV becomes anywhere near economical. On another side, bring the price of PV down by killing all domestic production and outsourcing it to Xinjiang slave labor camps, while, of course, voicing deep concern about human rights. At the same time, continue increasing the dirtiest generation from lignite and importing african-child-labor batteries to keep the grid stable, while, of course, calling this “transition to clean energy”.

    Then tout installed capacity as “da market hath spoken”. I wonder why the word “chutzpah” comes to mind.

    Comment by Ivan — April 11, 2024 @ 12:28 am

  6. Electricity generated by conventional power stations and electricity from solar panels and windmills are plain different things. The first sort can be generated securely whenever the demand requires it. The second sort is intrinsically unreliable, generating according to time of day, cloud cover, and wind speeds, in a way that bears no relation to demand.

    The only way to raise the second sort to parity with the first is to develop cheap ways of storing electricity in huge quantities. There’s not the least sign of success in this venture (except sometimes turning back to the old technology of pumped storage).

    It doesn’t matter a hoot how cheap solar panels may become if they are incapable of producing electricity on a level playing field i.e. without massive subsidy to obscure their limitations. It’s as if somebody announced he’d solved the buggy whip problem and could now sell them at five cents each. Suitable responses might include sniggering, snorting, or yawning.

    And, to be fair to buggy whips, they introduce no new environmental problems. How are old solar panels to be safely disposed of? Nobody has a clue.

    Comment by dearieme — April 11, 2024 @ 5:43 am

  7. “How are old solar panels to be safely disposed of? Nobody has a clue.”

    This is is a well-debunked claim of the anti-renewables lobby. A solar panel recycling plant has been operating in France since 2018 and recycled 3800 tons of panels in 2022.

    Comment by HibernoFrog — April 11, 2024 @ 5:59 am

  8. @HF: there’s no use saying that old panels can be recycled when solar panel enthusiasts keep telling me about the striking advances in technology. How are the new designs to be disposed of?

    Comment by dearieme — April 11, 2024 @ 7:20 am

  9. Cost of manufacture of solar panels and windmills (using fossil-fuel-generated energy) does not solve the problem of intermittency, the necessity and impossibility of storing huge amounts of energy, and the fact of low energy density.

    These are the fundamental problems of so-called renewables — fatal from the start — and they’ll never go away.

    Fossil fuels are the true green energy. They have a relatively tiny footprint, and the CO2 produced has greened up the entire world.

    All of that, and there’s no point to so-called renewables besides.

    There’s no observable “climate crisis.” Climate models cannot predict the climate. The supposed torrid futures have no physical basis. The air temperature change since 1850 is unknowable because the historical record is so ridden with inaccurate measurements.

    The whole global warming thing is a crock. Partisan nutters empowered by incompetent dilettantes. The argument for renewables is about which compartment to flood on the Titanic so as to stabilize the ship. Idiotic.

    The frenzy is all for nothing. Charles MacKay is the historian of our times.

    Comment by Pat Frank — April 11, 2024 @ 8:20 am

  10. Well said, Pat.

    Comment by dearieme — April 11, 2024 @ 1:02 pm

  11. @phillip – The UK government doesn’t subsidise renewable electricity jobs directly as far as I know.

    The subsidy is provided through CFD contracts – the government provides a guarantee to buy the electricity produced at a given price for a period of some years. How much this price exceeds the average wholesale price is the effective subsidy. Whether that subsidy is divided betwen a small or large pool of workers is irrelevent to the tax-payer or consumer. The subsidy is per unit produced.

    But CFDs aren’t just an renewable thing – the same mechanism is used for other new capacity developments like the Hinkley C nuclear plant.

    Hinkley C requires the UK government to pay £128/MWh (2022 prices) indexed linked to inflation for every MWh it produces for 35 years after start of operations.

    In the 2022 AR4 auction for renewable generators, the “winners” are to be paid £37.35/MWh for offshore wind for 14 years. Admittedly this was during a frenzy of bidding and recent auctions have seen prices climb but still you can see that in pure price terms nuclear isn’t even at the races.

    We can argue back and forth about the operational advantages of nuclear but I believe you’ll have a very hard time arguing that 1MWh of electricity produced by nuclear is worth 3.5 times that of offshore wind. This is the kind of price differential that allowed budget airlines, flying to crappy airports with awkward schedules, nonetheless capture huge market share.

    @dearieme – if by conventional you include coal and nuclear, then they certainly can’t be “generated securely whenever the demand requires it”. A nuclear plant takes about a day to spin up from cold, for coal it’s a few hours (and every cycle causes expensive wear and shortens life expectancy). These large 1GW+ hydro-thermal generators are behemoths and are only vaguely economical if run 24/7 (nuclear) or almost continuously (coal). Practically, neither of these can be used for demand following.

    Natural gas is competitive in this regard and with regard to cost/price. Combined-cycle plants can be spun up in 10s of minutes – for open-cycle, it’s down to under 10 minutes. In fact you can see this in global trends in new generation facilities – nobody is building anything except renewables or natural gas.

    @Pat Frank “These are the fundamental problems of so-called renewables — fatal from the start — and they’ll never go away.” I thought so too once and like I said, about 10 years ago this would be largely true except for the “they’ll never go away” bit. I don’t anymore. Grid engineering has advanced at a rapid rate to accommodate renewables. The UK, for example, has gone from under 10% renewable to over 40% renewables in 10 years – I had been convinced this was absolutely impossible without rolling blackouts, etc. In fact grid stability metrics like SAIDI show that the grid is as resilient as it ever was even with this massive expansion.

    Wind and solar obviously will never provide 100% on their own, but I’m starting to believe the grid engineers who say 70% to 75% is possible without any new technological break though.

    Whether you believe in climate change or not is irrelevant. Renewable technologies are killing it globally – 90% of all new capacity added for the last 5 years – across cultures, political climates and geographies because of they are cheaper, simple as that. The revolution in electricity generation is driven by greed (maximizing returns) not concern for the environment.

    Comment by derriz — April 11, 2024 @ 2:46 pm

  12. @11 derriz — you’ve avoided the point. Wind and solar can’t compete, and society can’t function at all without spinning dispatchable backup to repair “renewable” shortfalls.

    Given the grotesque inadequacy of wind and solar, any grid engineer who advocates for 70% wind and solar makes a prima facie case for incompetence.

    because of they are cheaper” No. Because they are subsidized and mandated. A diffuse energy source cannot compete economically with a concentrated energy source.

    The whole boondoggle is about climate change and nothing else. Net Zero is a recipe for general misery; except for the monied class.

    And climate change — the human-caused sort — is an utter crock. I know that because I’ve done the work.

    Comment by Pat Frank — April 11, 2024 @ 3:34 pm

  13. @Pat Frank – what point have I avoided?

    It’s you that have missed the point from what I can see.

    I’m talking about growing market dominance of a bunch of technologies – explaining that the key is the fact that they depend on mass-production – while you’re stuck on discussing “which is better”. It simply doesn’t matter which is better! I’m saying Ford sells huge numbers compared to Ferrari – you’re stuck on “Ferraris are way better than any Ford so that can’t be true”, I’m taking about SouthWest airlines is eating into market share and instead of treating this as a fact of interest, your response is “can’t be – Southwest sucks compared to private jet”, etc.

    I’ve shown the price differential – when the UK government went to the market and asked “how much for a nuclear power plant” the best answer they got was £128 per MWh for 35 years. When they went to the market and asked “how much for an offshore wind-farm”, a multitude of parties lined up to say £37.35/MWh and you only have to sign up for 14 years. Both nuclear and offshore wind were “mandated” in a sense – the UK government ask private interests to bid to provide both – so that has nothing to do with how wind can compete so fiercely. If you think more than a 3 times price differential has nothing to do with why the market has swung for wind and the rest, then there’s little more I can say.

    Comment by derriz — April 11, 2024 @ 5:06 pm

  14. I’ve written too much but before I shut up, I meant to say that I wholeheartedly agree with the main point of the prof’s piece. Ordering the Ukrainians to stop attacking Russian energy infrastructure is despicable and is particularly outrageous from a moral perspective that this has been done because of some internal domestic political calculation.

    Comment by derriz — April 11, 2024 @ 5:13 pm

  15. @13 derriz — in #11 you wrote: “because of they are cheaper, simple as that.” They’re not.

    It’s clearly you who is claiming ““which is better”.” You’re claiming wind and solar are cheaper = better. They’re not. They’re unreliable and they’re expensive.

    Wind and solar are not “emerging technologies.” They’ve been around for decades. They’d have no place in large scale energy generation except for government mandates and subsidies. All driven by activist nutters and political posers claiming to Save the Planet!!! from a fake climate crisis.

    When I pointed out that solar and wind are intermittent, require energy storage, and are of low energy density, your response was about grid engineers. That’s changing the subject = avoiding the point.

    Nuclear has been made artificially expensive by enormously onerous regulation. Wind has been made artificially cheap by subsidies and the fake accounting called Levelized Cost of Electricity.

    Large scale wind power is nonsense to the core.

    The whole energy market has been screwed over by partisan large-scale government intervention. Were governments to back off and let free markets decide, wind and solar would crash in 24 hr.

    Comment by Pat Frank — April 11, 2024 @ 6:40 pm

  16. @dearieme: Well now you’re just making things up. New panels are made of the same things as old ones: Glass sheet, silicon cells, backing sheet, glue, frame.

    Comment by HibernoFrog — April 12, 2024 @ 7:19 am

  17. @HF: but what’s in the glass?

    Comment by dearieme — April 12, 2024 @ 8:36 am

  18. @dearieme: It’s just tempered glass. You can google the ingredients if you like…

    Comment by HibernoFrog — April 15, 2024 @ 8:13 am

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