A news item from Tuesday. OilPrice.com reports: ‘Diesel Crisis Deepens As Inventories Fall To Dangerous Levels’:
‘U.S. buyers are snapping up diesel cargos originally planned for Europe as the crisis deepens.
‘Reuters reported earlier this month that at least three tankers carrying diesel from the Middle East had changed their course mid-journey and were now traveling to the United States. And this new competition is about to intensify.
‘…Europe is in for a major diesel supply shock because of low inventories and strong demand. And the level of inventories had a lot to do with the unplanned outages at European refineries before maintenance season, including the four-week drop in French fuel output amid the workers’ strike.’
Why are supplies running short? Because of the US’s proxy war against Russia? Because virtual-signalling investors have taken their money out of the energy sector? Because oil and gas companies are not investing in new refineries, new wells, or new pipelines? Because governments are declaring war on fossil fuels, and pledging to exterminate them? Because inflation has made long-term investing (the kind you need in the energy sector) too uncertain and too risky for most investors?
Of course, it is all those things. A real ‘cluster’, says a friend.
This is not the first ‘cluster’ for mankind. Many have come and gone. But this threatens to be the biggest ‘cluster’ ever seen.
One giant step backward
Perhaps it will turn out like China’s Great Leap Forward…a giant step backward for those involved. But this time, the disaster won’t be confined to a single country; it will be worldwide.
Of course, Mao probably didn’t intend to kill 30–50 million people. It was an ‘accident’, said some historians (others regard it as cold-blooded murder).
‘Collateral damage’, might be a better description.
Mao and his henchmen were right. In 1961, China needed to industrialise.
But after a few years of Mao’s policies, Deng Xiaoping, who had barely avoided torture and execution, realised that instead of catching up with Japan and the West, China was falling further behind. He saw the secret, too — that real wealth cannot be created by politicians and bureaucrats…and real prosperity cannot be led by central planners and central bankers. It has to arise, naturally, from the bottom up. A real, successful economy is vernacular, in other words. Not anti-vernacular.
A prosperous economy only needs the government to allow it to exist, by recognising and protecting private property (including savings and capital wealth) and by giving people the freedom to innovate and do deals with each other. Otherwise, it should stay out of the way.
‘To get rich is glorious’, said Deng in 1979. Thereafter, a lot of Chinese did get rich. It was the largest, fastest build-up of wealth the world had ever seen.
No one was tortured to make it happen. No one was killed. No one starved to death. No decrees from the government told people to make steel or to build skyscrapers.
Businesses were created. They paid wages. People from the countryside moved to the city for jobs and income. Chinese earnings soared. Average wages went from almost zero in 1979 to more than 100,000 Chinese yuan per year (about $14,000).
That’s the difference between an organic, bottom-up economy…and one where the people in charge make the important decisions. The first works; the latter doesn’t.
Theory versus practice
Which brings us to the point of this series. The idea of the Green Revolution is to move us quickly into the future — at least as some people see it — whether we want to go there or not. And the people behind it have their ‘scientific’ studies, their theories, and their PhDs to prove that it is the way to go. Whether they are throwing virgins into a volcano, outlawing alcohol, or invading Iraq, the know-it-all busybodies are always on board.
Each time, they’re wrong. And each time there’s collateral damage. And this time, we risk collateral damage on an epic scale.
China’s Great Leap Forward gives us an idea of what could happen. Trying to move the country, by force, into a new kind of economy, things soon got out of hand. ‘Mistakes were made’, said the communists later. But that’s the story of all major government crusades. They attempt to replace something that works in practice, with something that only works in theory.
Today, Europe is leading the way. Germany has put up windmills and solar panels all over the place. It’s also decommissioned its nuclear power generators. This left the country dependent on Russian energy.
Then, it joined the US’s proxy war against Russia in Ukraine, hitting Russians with ‘sanctions’ designed to cripple the economy and force Russian troops out of the Russian-speaking areas of Ukraine. That might work in theory too, but not in practice. The Conversation: ‘Sanctions on Russia are increasing, not decreasing, its revenue’:
‘The European Union has just approved new sanctions against Russia, including a price cap on oil sales, following the United States’ Sept. 30 announcement of new economic sanctions. Both announcements are in response to Russia’s annexation of four regions of Ukraine.
‘[But] there are still countries willing to purchase Russia’s petroleum products, sanctions are increasing Russia’s revenue, not decreasing it.
‘Worse yet, the sanctions are driving up global oil and natural gas prices, causing spikes in inflation worldwide and, ironically, reducing the world’s access to the metals and minerals necessary for the transition away from oil and natural gas.’
In Europe, already, streetlights have already been turned off. Thermostats have been turned down. People have been urged to bathe in cold water. Supplies of firewood are running low.
This is just the beginning. To the hearty Teuton householder, so far, it’s little more than a nuisance…or even an adventure in virtue. Germans can feel good about themselves; they’re ‘saving the planet’ even as they shiver.
In the US, too, rising energy prices have yet to cause a crisis. But diesel fuel is already running low.
Energy is food; Food is energy.
When you eat, you are eating energy. The Sun’s energy produces fruits, grains, and vegetables. These are fed to animals to produce meat.
But even before a single sprout appears in a field, energy has already contributed to the production. Soil has been tilled, usually by giant diesel-fed tractors…it has been raked…it has often also been treated with herbicide, insecticide, and fertiliser, made, delivered, and applied using oil and gas.
In Saturday’s news is the following headline: ‘A Bill Gates fund invested $50 million in a startup that’s building a massive refinery to turn alcohol into jet fuel’.
Where do they get the alcohol? From corn and sugarcane, produced and distributed by diesel fuel. But what a feeling of satisfaction it must give Bill Gates. Now, he can fly over the heads of millions of desperately poor people, with great peace of mind. His jet will not be powered by evil fossil fuels — but by the food of the hungry people beneath him.
Without fossil fuels, crop yields collapse. In 1850, in the UK, harvests of oats, barley and wheat averaged about two tonnes per acre. Now, they’re three times as much. Corn yields per acre in the US have increased, too, by about two bushels per acre since the 1950s. And since the 1960s, yields for sugar-beets and potatoes have approximately doubled.
There’s no need for complicated maths. Today’s harvests, at today’s prices, achieved with all of today’s fossil fuel inputs, feed eight billion people. Take away any of the inputs — fertiliser, herbicide, fuel for tractors and delivery trucks, refrigeration — and food output will go down. How much? We don’t know. But since output and consumption now match up, when you reduce yields, someone is going to go hungry.
In Germany, one of the most prosperous countries in the world, there are now three million children living in poverty. In Italy, shopkeepers put their gas and electricity bills in their windows to let customers know how much they pay to keep the lights on. In France, fights are breaking out in long lines of people waiting to buy gasoline. People in Prague are demonstrating to force the government to subsidise their energy bills. And the Poles are loading ‘brown’ coal in the trunks of their cars…building up a stock for the winter ahead.
The world burns about 100 million barrels of oil per day. That’s what powers our economy…puts food on the table…and electricity in our sockets. Could it be reduced? Of course, it could. But at what price? And who will pay it?
Forward…into the past
In 1973, war broke out between Israel, Syria, and Egypt. The US took the Israeli side. The Arabs were the Russians back then, and they cut back on oil production by 5%. The Nixon Administration nevertheless authorised US$2.2 billion in aid to Israel.
This further annoyed the Arabs who retaliated with a total embargo of oil exports to the US. Prices soared. The US economy went into recession.
We recall those days. The gas stations would run out of fuel in the morning. The only way to make sure you could fill your tank was to line up in front of the pumps early. We got up at 4:00am, hoping to be the first in line when the station opened at 7:00am. But there was already a long line. What else could we do? We got into line, curled up on the seat and went back to sleep.
The embargo was lifted in March 1974.
It was this experience that led to the Strategic Petroleum Reserve in 1975. We pumped huge quantities of oil into vast salt caverns, where it would be available in an emergency.
It was into that reserve that Joe Biden dipped his straw earlier this year. Biden feared that high gas prices would cause his approval ratings to sink even lower and Democratic candidates would suffer losses in the November midterm elections.
Even without a real emergency, in other words, our reserves have been depleted of about 300 million barrels — or nearly half the total.
And what will happen in a real emergency? If oil production were suddenly halted altogether, our SPR would last about two-and-a-half weeks. That’s why the production of new oil is essential.
But the US Government is systematically strangling the industry that makes our standards of living possible. Spending in the old and gas sector dropped more than 60% from 2010 to 2020. Investment in the shale sector fell by more than 70%. The total cutback in capital spending was more than US$1 trillion.
Why? The answer is another question: Would you want to invest your money in an industry the government wants to put out of business? And not just your government — almost all governments are gunning for it.
Globally, oil and gas investment has been cut in half since the 2014 peak.
Meanwhile, existing wells run dry — at the rate of about 8% of output per year. Since the US uses 18 million barrels per day, that means it needs to find an additional 525 million barrels of oil each year. If not…we’ll soon be sleeping in our cars waiting for gas stations to open.
In other words, the elite in Europe and the US are preparing another Great Leap Forward. They will stifle the vernacular, energy-based economy and replace it with their own centrally controlled system. Europe has already made clear that it intends to ‘correct market mechanisms’.
Yes, they will correct the choices made by millions of their citizens with choices of their own.
What will that mean? Hang on…we’ll come to that next week.
For The Daily Reckoning Australia