The biggest infrastructure spending boom in history just kicked off

Last week’s Daily Reckoning got some classy feedback…alongside the usual not so classy stuff. I asked why Australians didn’t just buy their own natural gas back when it was cheap. Instead of selling it to everyone else and then moaning about the high spot price…

This reader reckons the real sleight of hand came about decades ago…

Hi Nick

You asked for some views on how Australians have come to the point where we have few decent options on gas supply.

From 1970, east coast gas was cheap and became cheaper in real terms as governments (especially Vic SA Qld) held prices down by regulation.

Industries that prosper on low gas prices flourished eg fertilisers, petrochemicals and explosives. It wasn’t until the gas market was de-constrained in the late 1990s that gas exploration became more attractive with the prospect of more realistic prices. But the major gas users continued to look to governments to keep gas prices low by regulation. With higher prices, their businesses were uneconomic and the government hates business closures and loss of jobs.

This is why major users failed to agree to long term supplies from producers – they continue to look to government to protect their uncompetitive businesses by forcing low gas prices. In the real world, gas prices in Australia should reflect the export value netted back to the Australian coast. Of course that would destroy a lot of demand from those who need really cheap gas eg the fertiliser manufacturers etc

Best Regards

N.H. [no relation]

I have always believed that at the heart of every supposed “market failure” is a political policy gone wrong.

In this case, Australia’s economy was spoon fed cheap energy for so long that we thought it was normal.

Like a drug addict who expects the government to subsidise their habit, our industries prefer failure and government bailout to paying market prices for gas. Securing gas supply at the prices Japanese and Chinese buyers are willing to pay is inconceivable.

At least our industrialists have someone else to blame for their failure. Weren’t fossil fuels and energy intensive manufacturing supposed to go extinct in Australia by now? You know, to save the planet.

But here’s what makes the above insight even more interesting to investors.

After a bust comes a boom

According to some sources in the industry, it’s not just gas that the government mucked up. A rather similar thing happened to our electricity and water industry over the past few decades. We just haven’t discovered the consequences yet.

Originally, government took on the costs of the electricity and water systems. Did a decent job of building and maintaining both. The trouble is that thishid the cost of doing both.

Privatisation meant improvements in services. But it also came along with some serious underinvestment in the underlying grid and water networks.

Our electricity grid and water pipeline networks are now looking a little iffy in the same way as our gas supply.

And the consequences are beginning to pop up as well. Especially thanks to the dirty power renewable energy produces. . I’m talking about fluctuations in frequency that triggered the blackout in Spain recently.

The point is that partial privatisation of infrastructure can go terribly wrongif it lacks the incentive to maintain the underlying infrastructure.

In the UK the train services were privatised, but the rail network was not. Companies are famous for raiding the transport museum for spare parts to fix the network.

In Japan, where the track was also privatised, things function to the second.

If I’m right, modern technology is about to expose the quality of our infrastructure as being like British Rail. It was only partially privatised. The government kept its heavy handed influence in all sorts of ways.

Climate legislation being only the most recent example. Politicians are trying to destroy the gas industry and then moan that there is a gas shortage that’s killing industry jobs…

Just as we’ve discovered we need gas and gas power after all, we’ll soon discover a desperate need to begin extraordinary and vast infrastructure overhauls in the power grid and water network. I’m talking about a spending boom that would increase our infrastructure investments by an order of magnitude.

And that’s something investors can profit from!

But how?

I wrote about this opportunity in a special report for Strategic Intelligence Australia last year:

The greatest infrastructure project in the history of planet earth has begun. It’ll cost a mind boggling $21.4 trillion over the next 26 years alone. That’s 20900% more expensive than the previous world record holder. A record which took 100 times longer to complete. And yet, the plan is to build something 3800 times larger in size.

The new campaign is so immense that almost every government on the planet is collaborating on it. Not to mention almost every large company.

It’ll be a feat of engineering no human could’ve imagined only a few years ago. A true technological revolution made possible by one of the most innovative achievements humanity has ever pulled off.

And so I bring you the technological marvel that will save the planet and deliver intraplanetary power to your door: an electricity pylon.

Yes, governments have finally figured out that renewable energy projects need to be connected to an electricity grid. And so they’ve decided to begin building one…about 30 years too late.

Sure enough, the lack of a decent grid has undermined renewable energy projects and electricity intensive industrial projects in all sorts of places around the world. Grids from New York to Spain are going into blackout under the strain too.

Since I wrote that report, the whole AI energy demand story has exploded onto the scene, only making matters even worse.

AI data centre owners know they can’t suck the local grid dry of electricity. It’s already struggling to meet demand.

Recent academic research highlighted that AI energy demand can destabilise the local grid by introducing vast but fluctuating energy demand. Precisely the sort renewables suck at providing.

And so AI data centre owners are looking to build their own nuclear and gas plants. Strategic Intelligence Australia readers booked a 675% gain and are sitting on a 574% gain as a result of my recommendations in the nuclear sector. Elon Musk is even shipping an entire gas plant to the US from overseas just to get enough power fast enough.

But all this is just the beginning as our broken infrastructure is revamped for the 21st century…decades too late.

To find out which companies will make a motza from the intersection of the AI and infrastructure boom, click here.

Until next time,

Nick Hubble,
Editor, Strategic Intelligence Australia