I wanted to make some commentary on this discussion for you, the reader, on this – and then piece together some ideas I have about this.
First, Steve St. Angelo was a big part of this discussion, from what I heard so far. I’m about an hour and 50 mins in, and I have to tip my cap to Steve as this being perhaps one of his strongest performances on any podcast/interview I heard, up until about 1:40 in where I had some disagreements with him. I have had some Twitter spats with Steve – nothing terribly bad – but they were disagreements about points, nothing personal. I have to tell Steve that in this discussion – he was absolutely brilliant. I’m a HUGE fan of Steve’s work, and when I came into metals, the SRSRocco YouTube videos I watched ALL the time.
A lot of these guys I follow, I hope to be someday. I love my career, but can see down the road a second act. Perhaps writing about this stuff while being a real estate/PM mining investor? You have the David Morgans of the world who started in one career, and ended up in another. I’m not sure what Steve’s background is – at one point I tried digging a little, and didn’t come up with much. It was nothing nefarious, I just wanted to know about the education background, perhaps what industry he had worked in. Meaning – I just wanted to see perhaps the lens he was approaching things from. Lyn Alden came from engineering. I work in IT systems management, and with this, have a highly analytical background. I understand IT at the bit/byte level, have an MBA, am a real estate investor, PM investor, and to boot, I have a cybersecurity master’s degree which is part of my career – but unfortunately, a lot of the cool stuff going on these days I can’t talk about. I am NOT an industry insider, so I am careful to mention this in my discussions – as I am more of an analyst that looks at these things from a different lens.
I bring up all of this because I wanted to note that I could listen to Steve talk about energy history for hours. I would love to perhaps buy a book written by him someday on this. He could put out a book called “The energy cliff” and go over the history of the civilizations and how history dealt with energy. I might disagree with some of his conclusions only because I have heard other sources say things different. I would not mind offering a chapter or two in there about how I see things going which could stave off the energy cliff. But I find his discussions on the ancient times and energy just something terribly fascinating.
I watched something on the end of the Bronze era after Steve got me interested, and the end of that era was something of a mystery as a roving band of people over the course of like 50 years took out the civilizations – but there was no mention of trees/energy. He also mentions how lack of trees led to the debasement of currency with lack of silver – but Maloney had showed how this was due to the rising costs of the empire they could not afford. Regardless, I would LOVE to see his stories/anecdotes about all of this written out in chapters. Then – these lead to the current mess we have, and he could tie it back – and what could then be presented is the cliff and how that may have an effect on future generations. What I would like to add is – how could there POSSIBLY be a way out of the mess? I don’t contend that the answer would come…in time…but the only real answers out there are nuclear and improvements in battery storage.
I find his cadence and delivery fascinating in these interviews, so I enjoy listening to him – even if I disagree with him on a few things. I would also love to see this stuff written out so I can visit the sources and see how I may differ from conclusions. Having 6 years of grad school, I’m big on sourcing. In THIS forum, and on videos, sometimes you can play it fast and loose. A LOT of my sourcing here is “I saw a video that said” and sometimes you hear a video with guy X and you think it is guy Y and unless you took notes at the time, it can be virtually impossible to give a proper source – so you do the best you can with IDEAS in the blogosphere. I did that a month or two ago when I conflated a Morgan interview with a Neumeyer interview and had some egg on my face, but my overarching point was that if you create a company to get silver from toasters, you will go out of business. If you want to extract silver as a byproduct from gold mining of circuit boards that have gold, that’s a different story. Point is, graduate papers/books – you need to source a lot of stuff thoroughly. With what you see here, I try and discuss big picture ideas and source where I can on details. So I’m pushing Steve towards a book because I would be screaming at him to take my money – and he now has a ton of contacts in this world to then promote the damn thing. Steve – give me a chapter at the end after your doom and gloom 🙂
The energy cliff
Steve is warning about an energy cliff to come. He discusses EROI, and a guy who talks about it a lot, who I was not able to take note of while I was driving. Many of us learned in grad school 20 years ago about “peak oil” coming – so this concept is not new. He has a slightly different spin on it, however. Steve more or less discusses a concept where (big picture) you don’t want to use 2 barrels of energy to get 1 barrel out of the ground. I’m exaggerating his point to show you the bigger picture concept of EROI. His numbers are different, but to simplify, I am using that.
The big question then is – what if you aren’t using fossil fuel energy to extract minerals/resources/oil? Does that negate his cliff argument?
Where I differ from him is how we can address this in the future. I am more optimistic, in a sense. I see leftist lawmakers who seem to want to break down society in order to pass a radical green agenda. This can sort of go hand in hand with the Great thinking and the WEF eating bugs way of life.
Here is a snippet of the logic that the tinfoil hat rightists think is going on….
The left states that “global warming” will make waters rise everywhere, creating massive coastal flooding while also creating droughts and higher temperatures that will eventually kill life as we know it. They see carbon usage as energy as the silver bullet to this thesis, and will do anything to reduce the usage of carbon (fossil fuels). Part of fringe thinkers point out how the global population is increasing, which requires more cars, more energy, and more food (using fertilizer). A leftist-type of solution is to reduce population, eliminate the usage of fossil fuels, and only use “renewable” sources of energy. Cow farts are causing these problems, and with this, people should no longer eat animals, but consider protein sources from bugs as a cheaper and more sustainable protein source which does not require millions of acres of land to raise animals on.
Now, whether every leftist agrees with this agenda or not is debatable, but all of the above has evidence of truth based on what faction you are looking at. So if you understand what the PROBLEM is (based on the views of the left), you can then reasonably understand the policies you are seeing unfolding.
- Destroy all forms of profit from fossil fuels, the extraction of them from the ground, and the ability for humans to use fossil fuels for energy or transportation, even if it creates blackouts.
- At all costs, promote “green” energy in the form of wind and solar – even if it causes rolling blackouts.
- Create an enemy of nuclear due to environmental concerns, even if it creates rolling blackouts.
- Create a situation in the west where inflation prevents the ability to have larger families and due to higher costs, prevents families from having larger number of children and essentially forces them to marry later.
The last might be a stretch, but when you look at my family tree of farmers and coal miners, you see many of them had 5-10 kids, easily. Some had 10-15 kids. These kids helped on the farm, pitched in with chores, and perhaps only the man of the house worked in the office with the woman taking care of the house and kids. With no parents in the house now, we must pay for expensive day care, and with college perhaps costing $250,000 here for 4 years, it is extremely expensive to have multiple children unless you have strong support structures.
That all being said, malinvestment in energy has been rampant over the last 2 decades, and it is clearly apparent major oil and gas discoveries are down, exploration dollars have evaporated, and the shale energy exercise may be over for awhile unless we have higher and sustained oil prices for a long period of time.
But to Steve’s overall points – there may be a future coming where the lights go off – and you can see this in the policies in 3 of the 4 items above. He also supposes that diesel disappears, mining halts. Let’s tug on that.
In this discussion, I think it was Doomberg who disagreed with Steve when it came to uranium – where it doesn’t matter the cost of the uranium, it will need to be extracted. Steve’s point kind of is that the pumps are dry at this point. Doomberg I believe is rightfully pointing out that the pumps will never go dry, costs just go up. Jim in the discussion also rightfully pointed out about the elasticity of gasoline and other things, which I think Steve needs to look at a bit with his thesis to make it stronger.
With Jim’s point, you can see extraordinarily higher gasoline prices – but people still need to go to work, making that inelastic. However, summer travel may be reduced – so you do have relief on the fringes. However, Biden is talking about price caps with gas – meaning, once you introduce price ceilings, you then deal with shortages. Why? Because if gas costs $7 to get to your gas station, and you want to charge $7.25 to get the profit you need to keep the lights on, but the government tells you that you cannot charge more than $6, you then cannot sell gas.
Which then causes a gas crisis. Now imagine creating a problem you are then telling people to solve with $70,000 EVs.
So – someone brought up a good point in that discussion or another I was listening to. Now you are a middle class person at 24, living in an apartment with 2 other people. Your gas price is double, your rents are up 33%. You are essentially being strong armed into buying an EV. Where do you charge it?
Likewise, Doomberg also has shown how diesel supplies in the northeast of the US are running low – and these pumps MAY run dry. This diesel delivers gas to gas stations, food to grocery stores, supplies to restaurants, packages from amazon, and mail from the post office. So if there is no diesel, and the pumps are dry, you cannot mine uranium. Which is Steve’s point. But with Jim’s elasticity argument, diesel prices will go vertical – and this increases the cost of shipping anything (or mining anything) drastically. Where prices can be passed on to the consumer, they will. But things like uranium then become more expensive to mine and whether it is $50 per pound or $300 per pound, it doesn’t mean a hill of beans much to the overall cost of producing nuclear energy. These energy costs can also be passed on to the consumer.
So – the energy cliff needs to understand elasticity in economics, and realize that higher prices, and drastically higher prices, ultimately curb demand and only the most crucial services that can pass on these costs can (and will) buy energy at higher prices. But it will not be empty, because the lower supply that is being sold, is being sold extremely profitably, so this incentivizes more supply to come online. But to Steve’s point, perhaps that supply doesn’t exist. To Doomberg’s point, that supply may not exist at $60 per barrel, but at $200 per barrel, the tar sands of Canada could give us a stupid amount of oil. Steve balks at the EROI of this type of supply….
So, we talk about peak CHEAP energy, relative to costs of energy and supply remaining. Steve talks about the QUALITY of the energy in respects to EROI. I get it. And – I’d love to read the chapter in his book discussing the energy needed to extract oil from the tar sands versus how much it produces. IF you have a positive EROI, it will be done. But what if you aren’t using diesel to get it? There is no doubt that at $200 per barrel, supplies across the world could flood the sector. Why?
See – I love the idea of EVs. If you now have millions of EVs driving around, being charged by nuke, home solar, hydro – you now have a lot less gasoline being used.
But before then…
I can imagine a day with $200 per barrel oil or $150 uranium or $5000 gold where the fuel costs (in diesel terms) is so high, that it incentivizes other forms of energy to substitute. Meaning, currently, we use diesel trucks. Using diesel fuel for operations. When you are doing this, your total operating costs have to do with:
- Capex (and depreciation) for the cost of mining trucks, if bought – or expenses if leased
- Repair costs of vehicle fleet. This includes costs for expensive mechanics.
- Diesel costs to operate.
- Driver costs to operate
With these, you are looking for things with larger buckets. You want smooth floors to drive on to increase fuel efficiency. But right now, the cost of the EV truck might be staggering.
What if….what if the trucks were EV and powered by solar, hydro, or nuclear? They exist. So we could pull minerals (and fossil fuels) from the earth using energy from the sun, nuclear, or hydro to then get those things from the ground. This is Caterpillar’s new truck…
The idea then is – what is the total cost of operating an EV vehicle?
- Capex/depreciation for the cost of the mining trucks. Or expense for lease. This may differ because maybe you get 20 years or more out of a standard diesel truck. Perhaps maybe only 10 out of an EV truck due to battery life?
- Repair costs. With EVs, there are no engines, and the idea here may be significant savings in maintenance costs.
- Energy costs to operate. At San dimas, you have built a hydro plant. Many Canadian miners get their energy from hydro. These trucks could be plugged in overnight. Perhaps some of these miners can get power from a nuke plant? While the energy density of the diesel is impressive, as the costs rise, the equation for cheap hydro/nuke power with a plug becomes more appetizing.
- Driver costs to operate.
Now, when the corporate bean counters start seeing $6-10 diesel, alternative trucks MIGHT start to be talked about. To me, this is part of the leftists’ plan – to make gas/diesel so expensive, that it forces alternatives. Additionally, I could see governments giving tax breaks to miners with these vehicles as they fit within the ESG narratives. Consider how a San Dimas can power these trucks.
Additionally, at the home front, the Ford F150 is THE most popular vehicle in the US, and used a lot for work trucks for contractors, plumbers, you name it. The Ford F150 lightning is something I want to own someday – and entry points are around $40,000 – and these things could power your home for days.
Steve made a great point – he talked about how the amount of money in existence now is more than the energy available to produce the goods. Let’s do a FULL STOP there and evaluate that more critically.
Meaning, if you blipped $60 into existence, this $60 could buy you a meal out, a pair of blue jeans, a tank of gas – etc. The point is that if the energy is not there to produce the food for the restaurant, the plant that makes the jeans, or the fuel for $60 worth – it creates a situation in Steve’s mind where the goods aren’t there for the money in circulation. Great thinking – BUT – this is where economics kicks in. If another person has $120 they may get preference for the existing supply of these goods/services. Meaning – the monetary inflation drives up costs of all of these things until there is an equilibrium.
But Steve’s ace in the hole here for EV is how the hell do you charge all of them, and get all of the minerals to build them if you do not have diesel trucks to dig, diesel to run trains, and diesel to ship the goods?
My thinking here is the ESG is a top-down sort of thing here meant to first pressure the minerals resources people. Every miner now has a slide about ESG, which is about the most yawn-worthy slide on every presentation. They are essentially forced at gunpoint to do this by more modern-thinking countries. This significantly increases the costs to extract these minerals. But, if we are somehow to think commodity prices are easing – this doesn’t gel with the concept of diesel and ESG costs going up. This will:
- Squeeze many companies out of business unless commodity prices significantly increase. Rising energy costs are not sustainable unless the product they are selling increases in price. Additionally, IF we are entering a form of recession, demand for these products will recede, not allowing them to make up profit on volume.
- Force companies into more third world areas with less ESG.
Additionally, on the home front on many countries, we are about to see:
- Rolling blackouts all over the place, in many countries. Those who turned off nuke plants for wind/solar are about to get baptized.
- Food costs rising at an alarming rate due to the increased costs of diesel and/or the increased costs in fertilizer. Many farmers could not afford to use it, and crop yields may be down significantly. Between passing on fuel costs/transportation costs, you now have an inelastic price with food – as people need this to eat – you will see prices go vertical for what supply remains.
I believe that the pressure on the miners/commodity producers MAY yield more electric vehicles. However, I believe this grand strategy of turning off nuke plants in order to promote wind/solar/gas may run into many problems if Nat gas is $9 and hard to source. Remember, we are now promising LNG to Europe as they are shooting themselves in the foot over Russian energy.
This then leads me to believe that this summer with rolling blackouts and vertical food prices leads to a rout in the fall for red-leaning politicians everywhere. To me, there is a clear path forward for the next 10-20 years to help solve our energy cliff problem.
- Bring back nuclear plants online immediate to stabilize baseload energy.
- Increase, significantly, the idea of nuclear power plants. These take some time to build, but the idea here is the more of these you build, the less coal/nat gas you need. These nuclear plants can also be built in mining areas, and smaller, to help support mining locally.
- To improve ESG and EROI, provide significant tax breaks/credits to mining/commodities producers using EV trucks. This should drive down the operating costs with diesel trucks If the tax breaks are significant enough. This should help us extract the copper, silver, lithium, and nickel.
- Continue with providing home owners solar incentives. With my 31 panels and Tesla powerwalls financed, I have locked in my energy prices for 20+ years. This reduces the need on the overall grid. In MY location, power is sourced by 48% coal. My region should be building on to existing nuclear sites or building new ones. As more housing is needed, incentivize homeowners to get solar/batteries.
- Invest BILLIONS in battery tech, sort of like the space race. Private industry is doing all they can, but I do believe this is one thing that hundreds of billions of dollars should go to. Why? You have a ton of energy that is lost because it cannot be stored for later, and the prohibitive costs/life span of batteries in cars, and the lack of areas to charge reduce the amount of people who wish to adopt. Imagine if EV charging was universal to all makes/models and the government invested in putting these all over the place. At gas stations across the country, the government installs these charging stations and splits profits with the gas station owner.
- Require telework, where possible by incentivizing companies to do so. In the 2 years of COVID, most companies who could telework, did, and many of them realized that they can do it and save a ton of money in commercial space. Now that many of us are being forced back into the office, you are seeing companies advertising positions – for the same salary – but 50-100% telework. Companies that are blindly putting asses in seats at the direction of a corporate overlord are about to get their asses handed to them by employee abandonment. Additionally, if you are on a firm fixed price contract, you then see your costs of labor rising in order to attract talent and you face breach of contract by not being able to provide personnel. If a government could incentivize companies to reduce their overall emissions and tie this to tax breaks, you will significantly decrease the amount of traffic on the road. Think of the billons spent in road work yearly we could also save by decreasing traffic.
I believe Steve’s dire energy predictions are mostly accurate, but I do not believe in a cold winter of 50 years as we go back to horses and buggies. I believe that there will be a dire time, and those that created some of the dumbest policies, like shutting down nuke plants, will get removed and replaced with more pragmatic people. This will reduce the rolling blackouts in places that have nuke for baseload power. You will see the red people talking about “clean coal” in order to use some of our 300+ year supply here. Makes sense, if it’s cheap. But the bigger question then is how to reduce gasoline usage while increasing the need for EVs? I believe ESG means well, but until they incentivize people to use expensive EV trucks which are powered by hydro or nuke plants, mining will be a dirty business using diesel. I can imagine a day where an ESG-savvy uranium company shows they are using EV trucks powered by nuclear plants and having a zero carbon footprint as some sort of rock star breakthrough that politicians then need.
By incentivizing companies to have a remote workforce, we also can reduce the pressure of commercial spaces in large cities which drive up these costs. I would not want to be in commercial real estate now, that’s for sure. But if we can add more nuclear, and store a lot of excess production capacity, this allows us to produce a LOT more energy. I worked at a hydro electric company for nearly 5 years, and you’d be surprised at how often then have to turn off production due to not enough demand for it. Instead of doing that, they can store this excess in massive batteries to then feed back into the grid the next day.
Overall, I think the next 3-5 years can be very, very, very bad. But I do believe that bad policies can be replaced with better ideas, and with this, turn the corner on energy reduction needs from the grid, as well as gasoline consumption decreases as we are teleworking more and adding more EVs to the road.
I believe the whole revolution needs to start with how we produce commodities at a diesel level. While the Energy Cliff may be a thing, we do not have a society that will just throw up their hands and go back to horses and buggies. We have policies that can be changed, ideas to pursue, and conservation efforts that can help oil last for a few hundred more years. The EROI problem can be solved by extracting resources with cheap energy from the sun on devices that do not run on fossil fuels.
June 17, 2022 at 2:39 pm
Nate: Thanks for this. Good analysis. As a miner for 35 years involved in raising financing, ESG is far uglier than you state. Western banks and lending institutions must follow the Equator Principles of the World Bank before they lend money to a miner. So it does not matter if the mine is in Canada or Timbuktu. When the mine is in a remote developing country there is no infrastructure to raise funds locally. So it is only China that refuses to follow Equator principles and thus why they have gained such a stranglehold on African mining.
This has been planned by the Left for much longer than people think. I believe the first Equator Principles came out around 2007 but it was not until about 2014 that lending institutions must follow. I can tell you that in the old days the banks depended upon engineers to assess a feasibility study for financing. Today it is almost 100% ESG and all the banks employ young tree huggers to make the decisions or at least tick the boxes. Complying with ESG is a huge cost. Most ethical miners ( Listed on public exchanges) already follow the best practices because of fears of shareholder revolt. Nonetheless the cost of documenting the practices has created another industry.