I am a HUGE fan of Steve St. Angelo. He might not know it from some of my follow up questions on Twitter on some things. This piece is a discussion about a lot of what he says – and I pose things here to question the hypothesis. I am not questioning it as a matter of being disagreeable. I can be that, at times. I’m doing this in the name of science/academia. I have said here in my blogs and a few times on Twitter that I think Steve should fully develop his thesis and write a book on this. What I know of his thesis is from maybe 3-4 longer interviews he had, as well as a ton of his Twitter posts. In this case, I believe his THESIS is worthy of a lot of consideration – and with this, from my understanding of it, I’d like to probe it more to find where there may be holes. Not to prove him wrong, but to fully understand the idea – and furthermore – what to do about it – and IF anything can be done about it. IF there’s nothing that can be done, how should we prepare? How can we profit from it?

Thesis – as best I can tell, Steve discusses a concept called EROI (energy return on investment) where the amount of barrels to produce energy are more than you are getting out of the ground. Therefore, it makes no sense to spend 4 barrels to get 3 out. If he sees this and has a more concise definition of the thesis, I’d like to put this in and edit below. I’ll mark the edit if it happens.

(edit 10/31/2022 1044 EST) – I think I’d like to come at this is – what EXACTLY is the energy cliff, and what CAN be done about it, if anything, and IF things can be done, what can be done, how much does it cost, and who needs to do what? IF not, what are the consequences. If so – how much can we kick the cliff down the road?

/End edit

Supporting ideas – This is the part of his argument I think makes up several chapters of his book, which is a great basis. He talks about the ends of civilization in aspects of energy. Steve talks about how many trees were chopped down during the Roman empire. He talks about how it could have contributed to the end of the Bronze Age. I believe he even talked about how around a lot of important things in Greece there may be no trees as building this stuff may have required a lot of energy. He will show charts on EROI, and discusses the economics of things like fracking in respects to EROI. This can then lead the reader to assume that our energy issue could lead to a crisis in our society today.

Challenge of thesis – Below, I wanted to try and “BRIEFLY” build out ideas that might either delay or challenge the energy cliff ideas. I could probably write a massive blog about each – but this is to capture the main ideas at a summary level. This is not to disrespect Steve – it’s to consider other ideas that can then help him harden the thesis or answer legitimate challenges to the thesis. A lot of times when I listen to him on these shows, I’m like – “I wonder how X might affect this?”, not, “he’s wrong about X”. A few times on Twitter I tried to ask a little, but the questions were kind of dismissed. Part of that is that Twitter only gives you a few characters to write, and you cannot fully write out questions/comments without probably sounding like a jerk. As mentioned, I think Steve has a really good book in this, and if I can help get him some content or chapters presenting evidence to support the thesis against challenges, I’d love that. Some items I present could perhaps push the cliff a few years, and others might take a few years to kick in, and then could push it further from there. So my contention here is – “how could these variables – IF TRUE – affect the thesis”?

No one has a crystal ball on the future. I see where Steve is going with this, and I think it could be cool to give him things to think about that could harden or alter his overall thesis to build on. If there was any scholarly journals out there who might consider this, let me know if any of you have interest in this. Most of those submissions are 8-12 pages long, and the problem here is I just scratched the surface here with maybe a 15 page blog. It has a book in it, for sure. From what I wrote here I could probably fill 100-120 pages in a book with these ideas and the research deeply investigated.

Someday, I would love to have a conversation with Steve about this – a friendly chat, and no “gotchas” with the source material and big picture ideas below to prepare. It wouldn’t be a debate, but a discussion about what the thesis is, and that things out there that could either harden the thesis or push it to the right.

Background and Sourcing – I tried to look for what Steve’s background was and didn’t find much. I am not asking to disrespect in any way – there is no “precious metals” major in college. There may be geologists. There may be finance. I know there are petroleum engineers. Most of the guys you see probably have some sort of background working in the world of finance/trading/financial advisor and understand how money works and flows. But you have a lot of other guys that come into this as a hobby from other careers and then can transition out of their existing careers to work in the PM space in some way. I don’t care if Steve was a mailman, roofer, delivery driver – etc. The reason is to understand perhaps if he was a petroleum engineer 30 years ago to add weight to his research and background. My background is that of a PM enthusiast with an MBA and 27 years working in IT – the first 16 as an engineer (building things) the last 10 or so in management (planning things). My understanding of a lot of this is with numbers, risk mitigation strategies, and trying to gain a better understanding – that IF the thesis is true, then my further questions would be “how to profit or prepare for it”. I feel if I start down a road of chemistry or physics and he had a PhD in physics – there are terms we can discuss that we share an understanding of. He had made mentions about being “self-taught”. I have been “self-taught” in PMs. And, given I have had 10 years of school and can attest to no PMs ever discussed in college – I can tell you there’s a TON of source material out there everyone can teach themselves a ton on. Generally speaking – any thesis also probably has to have some sort of approach/understanding/credibility to the source of the material for serious consideration. Consider the below.

“Nate says silver will hit $30 by end of 2023” or “David Brady says silver will hit $30 by end of 2023”. I don’t know what David has called for here, the premise is that I’m a blogger who writes a lot of research, and David has worked in the world of high finance for decades. HIS background lends credibility to the thesis. When I write, I may then quote David in his thesis and use him as source material to lend credibility to my thesis as part of a body of research. When you read a lot of what I do – I do macro and charting – but I use research and support to strengthen my arguments. Sometimes, a source is spotty, and I have to do my best to vet a source. This is predominantly why I think Steve should write a book on this. Even if he was a Burger King manager – and he spent 1-2 years writing this book with source material and research that is documented, his Burger King background means very little. I spent 4 years working at a Burger King, so don’t besmirch “The King”. My point is that I think Steve has a very, very, very good thesis here to build out and he would get a ton of eyes with a book to fully build this thesis out.


Here, my attempts are to plug holes in this. To ask questions that may have merit – but also can be discussed within his book to argue against these things. Some of these he may or may not have considered, but if he understands challenges to the thesis, he can then research the rebuttals, get the numbers, cite the research, and harden his thesis more. When people are going for their PhD, they have a doctoral thesis, then a bunch of people on a board challenge that thesis before someone is granted a PhD. This is called “defending the thesis” as best I understand (I have never taken the PhD route). What I’m writing here is what I think to be an excellent thesis, but I’d like to poke holes to help him further harden the thesis. At the very least, if a few holes DO exist, he can then shape his thesis somewhat differently so 95% of the thesis remains, but perhaps timelines shift or the EROI items are slightly adjusted to account for variables. For example, in business you may have “fixed” costs and “variable costs”. With his thesis, he can have the “base” case, then a “variable” case. This can present the arguments for – and then use the variables to help the reader come to a timeline of their own understanding. Meaning – there’s X amount of oil in the ground and at our CURRENT burn rate, only Y amount of oil can be extracted with a positive EROI, but if globally we all teleworked W% of the time, this might slide it to the right Z years”.

I’d also like for him to spell out the differences between “peak oil” and the “energy cliff”. Back in 2001 or so we were all learning in grad school about “peak energy”. I believe this is where we hit an area of diminishing returns where “cheap” oil is gone and we have to drill deeper at much higher costs – Steve contends with his thesis that drilling deeper then requires more energy, and with this, you have an “energy return on investment” that may have been 50:1 but might be like 2:1 in certain areas now. At some point, he contends, if EROI is negative, it’s a real problem. Part of the thesis I challenge below has to do with using other forms of energy than petroleum to get petroleum out of the ground – and conservation efforts which might push the cliff further to the right. These are not ironclad evidence of anything – only items to consider within the thesis.

My background to present challenges

I have two master’s degrees, but this subject material – for the most part – was not in my academic wheelhouse. Many bit parts of my MBA can be part of this, as well as perhaps the physics/chemistry classes I had as an undergrad that I mostly forgot. I bring this up because many moons before I was blogging, I was writing 25, 50, 100 page papers with significant levels of sourcing with APA. There are different weights to different kinds of research. For example, one of the least credible is “anecdotal”. This is where “I heard from my aunt Janet, who is a grocery bagger, that the economy is going into the gutter”. There is some merit to these to tug on, to then further explore a topic and explore what macros might support this. But the credibility as a “source” is not so great. Now, “I heard from my aunt Janet, who is the Secretary of the Treasury, that the economy is going into the gutter” may have a different weight for anecdotal evidence and be presented as research. On the far end of this, is “double blind studies”. This may be where you get into more of a pharm or medical type of weight of evidence – but there aren’t double blind studies that exist around the energy cliff – so perhaps we need to use numbers from the energy industry, scholarly journals, and scientific research. With this then, you have different levels of sources here – a 50 year old industry journal on energy that is highly credible is light years over “Nate’s blog”. I may have numbers, but where did I get them? In my research papers, I’d add research from the journals. On my blog, due to time, I might say “I think I heard David Brady talk about this last week on Palisades – but it might have been another guest”. Occasionally, I will link sources from relatively credible sources like newspapers. However, my blog is NOT an academic resource, but I can cite research or evidence for you to then use that.

The challenges

So I look at Steve’s thesis at the moment as EXCITING to listen to. I find the entertainment value high BECAUSE, as an academic, I’d love to do nothing more than to sit down with a guy like him and some other nerds and discuss this stuff for hours. What I do NOT want to do is belittle Steve or his thesis in ANY WAY. I want to talk shop with him and be like, “what about this – how might that affect EROI”? The DANGER I may run into is appearing disrespectful in any way. This is not the intent. I am looking at this from a purely academic position and feel there’s a LOT of good stuff with his thesis, but I’m starting at the root of how anyone would defend their thesis – the author’s credibility as well as the quality of the source material. Bill Gates did 2 years of college and did not graduate. Zuckerberg did not graduate. Both are billionaires many times over – so do NOT mistake my ask for background with trying to undermine the thesis. It’s simply a matter of understanding the background of the author. I then might ask “what if” challenge number X below happens?

Now that I got that out of the way, let’s look at some challenges. These aren’t necessarily to REFUTE the thesis, but have they been considered in the thesis, and if such, how were they considered? What evidence supports or refutes the challenges?

Challenge 1 – “green energy”. Starting with a softball, of sorts. I have a very good idea where this is going with his response, but to the common Joe who might believe everything he sees on the news, he believes that solar and wind will be the end all/be all. What he may not realize is how absolutely dirty mining the materials are, and Steve has talked about the shelf life of how long things like solar panels and wind turbines might last. This also might allow him to bring up the EROI of the “green” energies.

My question mostly then centers around what people like myself have done. I bought solar for my home, with 2 Tesla powerwalls. In California, new homes are required to have solar. Two years ago, only 1 house in my development had solar, now about 6 of us have it. The idea of solar farms may not be viable, but what would you say is the impact over the next decade of homes like mine being able to source their own power? I store extra I produce during the day in my batteries so I can then use my battery overnight. One physics variable here is V=IR, or Ohm’s law. When you have solar farms 50 miles from the town they are supporting, you lose a lot in “heat” over the copper for that many miles. If you take those same panels and slap them on your roof, it’s a more efficient way of getting solar as you are not losing anything in transfer. In this case – most readers do not understand what solar panels are made of, and it might be a good time to discuss what material go into these and the energy cost to produce them, and then factor that with the EROI over a 25-year lifespan. Considering Ohm’s law, you may find EROI over 25 years might be much higher on a residential roof (and capture extra) than a solar farm. In his book – this may be a great place to then put a table with EROI calculations. You could, reasonably, have a ballpark energy usage by looking at a silver major and consider their energy bills and diesel usage. There’s a lot more factors like the metal to make the machines, and that energy cost. For this reason, we then may have to look at “energy to create and produce” and not factor in the CapEx in equipment and building the mine – or we can then have a reasonable energy cost to construct mines and divide that number over the life of the mine to get it spread out over 15 years. Point is – anyone who mentions green is not factoring in the energy needed to produce. As long as this is a positive EROI, life is good. This isn’t “cost” in dollars, but perhaps a measure in watts and kWh. I sourced below how a single mining truck can use 2200 gallons of diesel in a 24-hour shift. It can haul so much weight at a time. This can then perhaps give you an energy cost of so many joules of energy used per truck, per day – you then times it by how many trucks to get just the truck number. Then there’s the kWh they may buy at the local hydropower plant at maybe $.12 per kWh and may show up on the books as a power bill for them to crush the rock and melt into dore bars.

Considerations – my solar panels are supposed to last about 25 years, the Tesla PowerWalls are Lithium Ion batteries supposed to last about 10. If more and more houses get what I have over the next 10 years, it could be a significant reduction in how we draw from power grids at the home levels. I realize industrial takes up a big chunk of power used, and many more of them are trying to add solar. Obviously, energy intense industries where you may melt metal could not get a reliable solar generation – and there may need to be massive farms to even get the amount of energy needed. But if the US is one of the leading energy USERS in the world, and over a decade a lot of homes add solar/convert to it, we may see our energy usage at the grid level as flat or lower. I sell extra I generate back into the grid. I realize this is not a 100% solution – but maybe we use X amount of energy now from the grids, what if in 10 years it is X-20%? One has to factor in how residential solar installations can reduce energy consumption over time. How does that potentially affect energy cliff timelines? Other considerations the green people might need to comprehend is the sheer amount of mining for materials needed for all of this solar and wind. I believe you had stats on the EROI for things like wind – as it uses petroleum to make the blades, grease the turbines, move them. Also – perhaps comment on the 20g of silver paste needed in each panel. Current PV demand is about 200m oz per year. If we were to go solar on most houses in this country over a decade – what are some of the supply considerations that might be needed to get all of the metals to build out this energy? What kind of diesel usage is needed?

Investment implications – this has me very bullish on silver for solar panels and its usage in EVs. One can clearly see silver mine production going down (I think Steve said 800m oz in 2022) while their grades are decreasing (Steve had great charts on this a few years ago) indicating there is a supply/demand deficit that is happening. You can also perhaps see this in the draw down of silver stocks in the LBMA and COMEX. While “silver squeeze” has been dismissed at the banker level, one can see how a short squeeze is upon us, perhaps a nickel spike, or perhaps a palladium like move. While we may not be able to “stop” green, we can perhaps make a lot of fiat paper profit off of the move. Are there solar companies that might be worth investing in? Is there a major concern that a lot of solar panels are made in China, and may use a lot of coal to melt the metals and refine them?

Challenge 2 – “batteries”. I believe that the root issue with “energy cliff” thesis might be the evolution of batteries. IF we had improved battery tech over the next decade, this could absolutely change hearts and minds. What I mean by this is – look at what I did with my roof. I have solar, and I produce more than I use. I’m able to store it for overnight usage. This is the main gripe about “green” as it cannot be used for baseload due to not being able to sustain wind, or the sun going down overnight – or having cloud cover. I had read a thread the other day which was killer, in which the guy mentioned that they can only melt the metal using cheap solar because they may produce so much during the day that end users may have cheap costs at these times. Now we can consider some big thinking solutions here. What if that company was able to charge up industrial sized batteries during the day to then draw down overnight? This might be a considerable amount of energy, but think about it – if the drawback of solar is that the sun goes down at night, why can’t you do what I did – add a battery to then draw this down overnight?

I also worked for a hydroelectric company for 4 years called Voith Siemens Hydro. The Voith part made the turbines, and the Siemens part dealt with the control systems – it was a JV company. What I learned when I was there was that perhaps overnight, when energy usage decreased, they might shut down turbines off peak hours. Electricity generation is a “use it or lose it” situation, and may have issues where too much energy generated could create overloads. So companies have to be careful about how much they generate. One cannot even fathom how much energy is being created at these hydro dams – and the amount we let slip through our fingers because rather than capturing the excess generation capacity, we shut down the turbines. Imagine if we were able to capture all of this with batteries – bank it – and then sell it back during peak times? This could prevent rolling blackouts in some areas.

Considerations – is the tech there today to do this economically, or at scale? If not – could this be in 10-20 years? How much do batteries cost at the industrial level, today, and is it even economical to do? The technology may be there, but is this able to be produced at scale to drive down costs? Lithium has done a 6x or so the last 2 years, and I was just reading how Musk may have problems with sourcing more Lithium at the cost he was paying. I know Tesla had a giant battery they installed at a town in Texas, how has that performed? IF you are a California company and you fear rolling blackouts, which it not make sense to have battery backup? IF we are to add a LOT of batteries in the next 10 years, how would this affect the ability for green to store extra energy and sell it overnight via battery backup?

Investment implications – This concept has me considering battery metals like lithium, nickel, copper, cobalt, and silver. What might be interesting then is discussing the best major companies that produce these materials. Where are the sources located, and in what jurisdictions. What supply might be the most in danger of running out in the next 5-10 years with mining implications not being able to source all that is needed? Could an argument be made that IF this agenda continues to press on, that we as retail investors can skate to where the puck is going and get in early on some of these mines? Perhaps we need to understand companies that have recent discoveries, those who are exploring, and those who have near term mines coming online?

Challenge 3 – “electric mining” – this is a bit of a long shot, but one can see how this might be the norm 30 years from now. Today, it is admittedly a unicorn idea. But, it’s one we have to discuss. In the thread I linked above from B.F. Randall, he discusses how these giant mining trucks might use 2200 gallons of diesel a day, and these giant mines may have fleets of these trucks 24×7 moving waste and pay. Then there’s the smelting, refining, and transporting of these metals.

The utopia I discuss may be 30 years out, but is one to consider. Think about what I mentioned above with batteries. IF we have advanced battery technology which might have a better energy density, perhaps we can go from these…

To these…

(these are electric)

Considerations – Consider a lot of mines today may be getting their power from hydroelectric. I think this is done a lot in Canada. However, mines in Chile with little to no access to water may not easily – or possibly – get electricity from hydro, and may have to run diesel generators for their power. But what if you had a fleet of electric trucks and drills? What if this power was sourced by batteries from hydro, hydro, or localized solar farms? Perhaps there’s a new nuclear plant stood up nearby. What would interest me is the power that would be needed to replace a diesel operation. Get out our calculators, spreadsheets – and do the math.

For example – an existing diesel truck costs $1m (I don’t know, a guess). It uses 2200 gallons of diesel a day. The trucks move X tons of rock, requiring Y joules of energy and power in Watts. The truck has a life of 20 years, so you can calculate CapEx and yearly depreciation. What are the yearly maintenance costs of the engines? What you would be looking for here is replacement costs in mining via electricity. What is the CapEx of the trucks? What is the cost per kWh for electricity? What is the cost in Watts to move the same amount of rock? What is the lifespan of the battery of the truck?

Think about a large mine who might have 50 of these trucks. That’s 100,000 gallons of diesel a day? I once thought I saw a graphic Steve put up of something like 40% of mining costs were diesel. Something crazy. With an electric truck, you might have double CapEx and it might only move half the material. Then, consider it might only run for 16 hours and need to be charged for 8. So you would need maybe 5 trucks to replace 1 traditional truck. If diesel was $4 per gallon and is now $7, how does this cost now shape a narrative about electric trucks? Could these trucks use a form of AI to move things and be driverless so you did not need to pay 5 truck drivers? If you’ve ever watched “Gold Rush”, you know that this equipment seems to break all the time. EVs tend to not have engines – obviously – and with them, less moving parts. What is the loss of downtime implications in regards to less maintenance needed with an electric truck?

What I’m getting at is there may be that red line…$8.30 diesel could be the break even cost. I don’t know. I need a PhD student to calculate this shit. But the point is that there may be a day, down the road, that using fossil fuels become cost prohibitive and miners switch away from diesel to electric. IF the energy cliff suggests there may be a day where there is not enough diesel to mine, I’d say price solves that issue of demand by creating a cheaper alternative to diesel. This would then imply that reduced supplies that are available to the market then drive people towards alternatives and thus crush demand of diesel.

The challenge item below may help more with refineries and smelting.

Investment implications – this is a major reason why I’m big on battery metals and EVs. Today, some of this is ludicrous. If you live in an apartment complex or inner city, how the hell are you affording a $70,000 EV, and where do you charge it? But I can see how over a time of 20-40 years all of this stuff works out. Electric mining may not be anywhere close to happening – but one can see bean counters finding a diesel “break even” cost with the cliff coming – where a switchover to non-petroleum mining can become a norm. With this, it is a form of “demand destruction” in that the amount of mining done with petroleum could drop off a cliff in a 5 year period, and with that, a drastic amount of diesel is no longer being consumed on the world stage. Then consider the EV 18 wheelers that are also a pipe dream today, that could come to fruition with higher diesel costs. I’d like to understand the companies making this equipment more. Perhaps maybe be a spec investor here and put $500 in to one of these companies to let it cook for 20 years and turn into $500,000.

Challenge 4 – “nuclear”. The concept here is that we know that nuclear here is 20% of baseload energy. We continually use more and more energy. What if nuclear baseload energy increased to 30-50% over the next decade? In Japan, we see 19 more reactors coming online after the Fukishima accident. We see an entire fleet of dozens of nuclear plants starting up in China over the next decade. Germany has temporarily suspended the shut down of 3 nuclear reactors. There are efforts in the US for nuclear advocates to get through to the “green” people that nuclear is safe and has zero emissions.

Considerations – I believe nuclear is gaining steam – pun intended – with the green circles. I think any green person would point to Three Mile Island, Chernobyl, and Fukishima. Additionally, they would point to the amount of nuclear waste and what to do with it. I wish I had it handy, but I saw a thread from a woman 3 months or so ago about how nuclear waste is handled, and how today it’s not a big deal at all. Additionally, the waste I think could be refined to plutonium to then use for other types of nuclear energy. I am wondering if a lot more baseload energy worldwide is going to this, could this move seriously reduce the need for fossil fuels to generate power? Consider in the United States, we have cheap natural gas we can use to heat our homes. We can also use fuel oil. However, we can also use heat pumps that run on electricity. One would think if natural gas prices climbed a lot higher, and were sustained, that people would switch to heat pumps if they could source cheap electricity in abundance. Nuclear COULD replace domestic needs for natural gas. With my solar – if I bought a heat pump, I could use that to heat my home in winter. Problem is – solar isn’t great in winter, with snow and cloudiness. My point is that one could see that if nat gas exploration/supplies are an issue, market forces could move us to more nuclear power for baseload energy – as well as homes buying heat pumps to replace their gas HVAC systems. I was told it would cost about $3000 for me to get a heat pump. This is a serious consideration if it lasts for 20 years – the cost spread over that time is $12.40 per month, and if your nat gas prices have doubled, this is a cost/benefit many may consider.

Investment implications – I have been part of the nuclear fan club since I read about the case in Brien Lundin’s gold newsletter when I first signed up. It was like a 25 page investment thesis, and in there he mentioned perhaps 2023 might be the year it kicks off as contracts are re-negotiated. Sprott has created SPUT to suck up a lot of loose uranium. There are two large producers that I’m aware of. Cameco in Canada (with some mines in the US) and Kazataprom in Kazakhstan – probably loosely controlled by the Kremlin. IF there’s massive uranium shortages, most would have to source from the big producers. What if relations with Russia deteriorate even more? How are US energy companies going to source the uranium? So – while I’m majorly bullish on uranium for the next 10-20 years, it presents a massive opportunity for small to non-existence US-based uranium companies to get up and running as uranium spot prices are sustained over $50 a pound. IF uranium takes off and more nuclear is built – you could perhaps see a massive demand destruction in nat gas and heating oil.

Challenge 5 – cheap energy and electrification of it. No one thinks of Pennsylvania in the USA as an energy powerhouse. What do you think of. Texas oil fields? Alaskan oil? I live in York, PA and with this, I have been surrounded by an energy narrative here my whole life. First – have any of you ever heard of the coal regions of PA? Well, I grew up about an hour below them – and several of my great/great grandfathers worked as coal miners in Schuykill county going back many generations. We have a town that has been on fire for 50 years due to the coal mine below it that caught fire. Second, PA is second to only Texas when it comes to natural gas production, primarily by the use of fracking. Lastly – I currently live 7 miles from “Three Mile Island” right up the Susquehanna from me. I was 4 years old when my mom whisked me and my brother out of the house in Birdsboro, PA when the alarms went off and news put the story everywhere. I grew up 10 minutes from Limerick power plant and saw the towers several times weekly.

With this – I realize there are billions of tons of coal out there we COULD use to power our homes. In fact, I saw a graphic that in 2016, coal accounted for 48% of baseload energy for my power company. That has drastically changed in 6 years to the downside. But our country has 300 years of coal supply left. So the concept of an “energy cliff” here isn’t really valid. Steve makes a great point that you need diesel to mine it and transport it. No arguments there – with the exception of challenge 3, above. Consider the coal you are mining is being powered by….a coal plant. You can generate a ton of power to then charge your vehicles. Oodles of natural gas exists here, and if a coal plant isn’t your thing, we can use nat gas to power these plants to charge the trucks. Could trains at some point be electric?

Well, we have them on a small scale…

And we have them on a big scale. So we could use electric mining equipment, with newfangled Lithium Ion batteries, transported by trucks powered by batteries, then transported to trains, running on electricity, to take to power generation plants to produce more power. The question then is, what is the EROI for coal in this situation? Could market forces of high diesel and diminishing high grade oil lead to this kind of electric usage?

Investment implications – I don’t think coal is dead, not by a long shot. China has hundreds of coal plants, and while they are moving to nuclear on a large scale, they still need coal. While the US has more or less demonized coal, one can see an immediate end to our current inflation issues with a mix of oil exploitation, coal usage, and nat gas supply to crush energy-based inflation inside of a week. However, the powers that be want to tell you about “climate change” which is essentially what the hell is driving your energy costs up.

You can see pictures of Ellis Island from 100 years ago to now, and the water has not gone up 1 inch. Aside from that, one must then understand a transition to green may take time, and with this, I could see a sort of “back test” if you will with the charts where you would then see more nat gas/coal/oil here when Republicans take over in 2022/2024. Not to get political, but if you think of the Republican brand – one aspect of it is domestic energy production. This COULD hit the snooze button on the cliff if the concept of “clean coal” is not as demonized along with the greenlight of a fleet of nuclear plants. There was legislation at one point under Trump to subsidize U producers here, but I don’t know where that left off. Basically – it’s possible that coal miners and nat gas producers domestically could really launch with this. I have interest in US-based energy companies. I could also see large US oil companies start to transition to “energy companies”. If Exxon had $20b in profits, historically you might see them putting a lot of that into exploration for more oil. However, what if they started working with congress to use those monies to start as CapEx to buy nuclear plants and build new ones? What if Exxon started buying coal miners? What if Exxon started spending stupid amounts of money to acquire battery companies and spend money in R&D to improve the energy density? I think my overall take here is that IF indeed this energy cliff is coming, wouldn’t market forces of higher energy costs then make other forms of energy perhaps cheaper by contrast? Above, like the diesel cutoff price, at what point does the market then push us to electrification? Additionally – then consider IF the country is indeed going this route – how much copper might be needed? One would then want to look into copper miners.

Challenge 6 – Moore’s law and IT– With technology, we have something called “Moore’s law” – which I’ll use further below – but what this essentially states is technology process speed doubles every 18 months. This can also be used by IT managers because this roughly applies to hard drive storage space, and the cost implications of that storage/processing. Servers may last 5 years or longer, but the horsepower needed to run more advanced applications and the storage needed increase, by a lot, each year. I remember when I was once doing a massive server migration in a data center, I had to work with my manager at the time to do an analysis of heat from the servers to then determine a foot-pound analysis with my AC units to ensure we had enough cool air to keep the data center from overheating. What many outside of IT don’t see is these GIANT data centers these days where the “cloud” is. The cloud essentially is a centralized version of your company’s data center. Over the course of years, IT has evolved. 25 years ago, a company might have 100 servers. Around 2007 or so, is when I worked my first project where I was migrating physical servers to virtual servers. Eventually, they had something called P2V, where it was a physical to virtual suck. Meaning – before, those 100 servers might need 100 physical boxes. All of that heat. That is energy. Over time, you could virtualize them. This then could put those 100 servers on perhaps 2-4 boxes that are beefed up. More processor cores. More RAM. Disk space became much larger, requiring less energy to spin all of those drives. Other drives then removed the spinning disk. All of this is extremely deflationary for the work force. Not only do you need less people, but you also then need less energy to do all of that productivity.

So your data center of 25 years ago with 100 servers requiring a server team and HVAC unit that may have generated substantial heat may now all fit on a single server, and that server may now be in Utah. Your local office building can do light years of more work, with stupid low amounts of energy, relatively speaking. That datacenter in Utah may then be powered by nuclear, solar, or hydro. You are thus seeing with the “cloud” that energy requirements for IT needs continue to go down as work productivity goes up.

Considerations – this might be at the margins when you think of data centers, but you then have to consider the workforce 25 years ago I worked in with large cathode ray tube monitors (CRTs) and large desktop systems that used a decent high wattage for the power supply. The desk alone probably used 200-300 watts. Today, laptops with diskless hard drives, new coolant systems, and monitors that are eco-friendly with power probably cut the power usage at a desk by 50-80%. Think about the dozens of millions of desks in offices across the country, and the power saved by all of this.

Investment implications – Because I understand where the cloud and the like are going, I do like AWS and Azure (from MS) to more or less source a lot of IT all over the country in their warehouses. While you can see Amazon making the move to “renewables” you can obviously tell from this subject that a wind farm may not produce consistent baseline energy for your data center.

That being said, the current thought is that if you have wind and solar, you need baseline energy. However, remember what I said about batteries? Data centers have something called UPS, or uninterruptible power supplies. This is meant for perhaps a time when the power from your local provider goes out, you can still run your data center. The one I worked in 20 years ago had about an hour of time, which was essentially so you could sustain a 10 minute blip and then look to shut down everything gracefully. IF we have a situation where they are using solar/wind – would it not make sense to have a super battery of sorts, in addition to an UPS – where you could feed the wind-solar into your battery and capture excess capacity there to then provide a baseline power source when the wind/sun dies down? Could a switch only flip to the commercial needs via nuclear/nat gas when the Big Battery is depleted? This could help smooth this power generation out.

I am interested in Amazon/MS for their datacenters. I saw Amazon’s latest numbers had losses on like $54b in sales. However, the AWS portion of their company still remains highly profitable at about 30%. I would be interested in these companies at deep discounts during a market collapse, as when the rebound happens, these companies are going to launch quicker than others due to the cash flows. I’d be more interested if AWS split into its own company so I could invest in that, but it looks like AWS is propping up Amazon currently. Also of interest may be companies that are making progress with quantum computing, as this type of technology could also make an entire data center somewhat obsolete. Zero trust security models and top cyber companies out there are also of interest. While I’m way off the energy topic – I wanted to discuss technology is here/coming that uses a lot less energy, and that has an impact on the energy cliff, at the margins.

Challenge 7 – Telework. Anybody that saw -$27 oil realizes that at times, oil demand can plummet – and supplies cannot just sit around forever as new supply is constantly coming in. If your facilities are topped off, when this new supply is on a ship heading to you, you needed to slash prices to move it. With COVID lockdowns, we saw not only demand destruction by no one driving, but we then saw how a lot of offices then were able to telework. I believe now that “COVID is over”, you see a lot of companies trying to get “ass in seat time”. This is going to end very, very badly for a lot of these companies. Many of these companies adapted well, and with this, were able to flourish with a full time telework force. I am a hiring manager and with this, I interview a ton of people every month. Everyone today is expecting near full time TW. The amount of people who don’t want to come back into the office is staggering, and companies that offer this will get preferential treatment by prospective employees over those who don’t. You could probably offer $5,000 less or more – and people would take it. I personally have a 90 minute commute, and if I can avoid spending $400-800 a month in gas, that can be $5,000 to $10,000 a year I was pocketing when fully teleworking.

Considerations – my workforce is now back 3 days in the office. Some are still full time ass in seat. Some are now fully remote. What if we consider a scenario where many companies start to downsize their office spaces. Pfizer is doing this. Companies then make a ton more money with less overhead. Instead of hiring someone local to NYC, they can hire someone from Oregon to work remote, probably at half the cost. What if a lot of people over the next 3-5 years drove less to work, as many workforces revert to perhaps 50% TW? Think about all of the gasoline not used with this. If the avg commute is 26 mins one way, that is 52 mins a day. 5 days a week is 260 mins. Times 52 weeks is 13,520 mins. That’s 225 hours. At avg speed of 40 mph, that is 9,013 miles driven. At avg of 25mpg, that’s 360 gallons of gas. Consider there are 100m Americans working that could telework (out of 164m working) that means they currently use 36B gallons of gas per year for the US. Consider each barrel of oil produces about 20 gallons of gasoline, you are looking at 1.8B barrels per year on US commuting from those who could telework.

Ballpark, they could force 50% TW and you’d roughly save 1B barrels per year on gas. Assuming that there are 250 work days per year, that’s about 4m barrels of oil a day you would not use. Considering the US has had to release 1m barrels of oil per day from the SPR to reduce oil prices, what would 4M more barrels per day of supply do?

Considering we use as a country just shy of 20m barrels per day, we would roughly reduce our oil usage as a country about 20-25% immediately. Let that one sink in. All of this bitching and griping and the US would be able to compel max telework where possible and we could reduce our oil demand by 20% at the minimum and perhaps 40% at the max.

You’d see a $1.x handle on gas prices next week, and with this – you are using less oil and therefore taking less out of the ground faster – which could push the cliff to the right.

Investment implications – You could perhaps short oil companies. If we think the energy cliff is 1-2 years out, you would think to go long oil companies. But IF this was a legit energy crisis and oil production was to drop off, you would think a measure like this could drastically reduce our oil usage – thus crushing demand.

If I was someone that was interested in an EV and drove to work every day, if I only needed to be in the office 1 day a week, I would cut my gasoline usage by 80% and thus it wouldn’t make economic sense to get an EV. Perhaps short EV companies. You would have consistently more TW, which leads me to zoom/Microsoft Teams as primary TW tools and invest in them. If lots of companies like Pfizer were to reduce their office spaces, I’d be looking to short ETFs/REITs that had commercial properties.

Challenge 8 – deep recession/depression – IF we are running into a situation where all of this debt leads to a breakdown of Exter’s pyramid, you could consider that demand destruction meant to curb inflation actually could unwind the whole damn thing and cause a global depression. This is primarily why you would not hike rates into a recession, which we are doing. You are throwing gasoline on a fire to put it out and making it worse. One can consider then, in this scenario, people would first cut back on vacations/travel/cruises. This craters oil prices. Additionally, less people are buying shit. This leads to layoffs and company closures. This is less energy used up and down the chain – from less digging things out to the ground, to less refining, to less factories running, to less trucks delivering, to less office spaces using energy, to less people driving to the stores. Deep cutbacks in spending COULD lead to a spiraling deflation which was caused by fighting inflation with the wrong set of tools.

Considerations – when you look at energy usage during recessionary times – you can most likely see a direct correlation. I don’t have these numbers, but I have seen charts over the years of this type of thing. This is also potentially a worldwide depression, and not focused solely in the US. It would be prudent to then consider worldwide demand for oil could collapse. While we might not see a -$27 number ever again, one can see how a $20 or $30 handle could exist. Given the Russians and Saudis can produce oil at these prices, and we cannot – with a profit – it would stand to reason that whatever little demand was left, it could absolutely bankrupt Western oil companies, IF this was a sustained move down. You would think prices would just go up at the pump, but it might be a pump running dry type of scenario.

Investment Implications – One could see in this scenario with a much cheaper diesel cost, mining can be pretty profitable, even at lower metals prices. While we would not see a Dent-like $900 gold price – a DEPRESSION could see numbers drop off the page. You would think that only the largest miners with the best balance sheets and highest margins that pay a dividend would survive. While I love my mid-tiers, their cost of production is usually higher than the big ones. Juniors could all go insolvent. So in this case, IF I liked PMs, it might be prudent to buy Newmont cheap. But a lot of things would probably be shorted. Including oil companies. Especially any and all who have a higher cost of production.

Challenge 9 – biofuels – I really don’t know shit on this subject, but I remember many years ago there was a push for biofuels. Specifically, I believe with corn ethanol. I believe the early issues with it were that it was cost prohibitive, and the government had to subsidize it.

Considerations – is it cost effective? How much land is needed to grow all of the corn? What is the EROI with this, considering we need tractors, fertilizer, refining, and transport of it. I know a lot of engines could run on 15% ethanol now. If oil becomes more scarce, it would indicate higher prices. Would it not make sense then to have a 30-50% ethanol fuel? A 100% ethanol fuel? I don’t know the numbers here. I did see some sources that state it costs about $1.10-$1.20 for a gallon of ethanol, but unclear how reliable that is or hold old the data is. I did see this, however.

“How much corn does it take to make 1 gallon of ethanol? Through research performed at Cornell University, we know that 1 acre of land can yield about 7,110 pounds (3,225 kg) of corn, which can be processed into 328 gallons (1240.61 liters) of ethanol. That is about 26.1 pounds (11.84 kg) of corn per gallon.”

Above, I showed perhaps the avg driver might use 360 gallons a year. That seems a bit low to me, but let’s just use that for reference. That would mean for just me, you would need about an acre of corn per year. This shows that there are about 96m acres of corn per year. If ALL corn was only meant for ethanol fuel, that means there is enough corn to make ethanol for only 292,682 cars. Let that sink in. If we took ALL corn in the US, and turned it into ethanol, it’s only enough for 1/3 of a million cars. Now, biofuel also means things like barley and other items – but you get the idea. There’s 272m cars in the USA alone. So if we ALL of our corn just make ethanol, it’s about 1/800th of our gasoline needs.

I think I debunked this one ahead of Steve, but this is the type of analysis I’d put in a book to answer challenges.

Investment implications – It doesn’t seem like biofuels will upend fossil fuels anytime soon – IF my math was correct. If I was to write any chapters on this stuff, I’d do a deep dive with multiple sources and spreadsheets. At face value, 96m acres….360 gallons per acre….3 cars per thousand gallons. 1,000 thousand in a million. 3 cars in the first thousand, so that’s 3,000 in a million and about 100m acres, is 300,000.

Challenge 10 – Mass transit. “If people just rode a bus” – person in NYC packed in like sardines. Where I am, in suburbia, there’s no real mass transit. No real train either. I would have to drive 25 minutes to Lancaster to get on a SEPTA train to Philly for a one hour and 6 minute commute. I can get to downtown philly with no traffic in and hour and 40. For many people who live outside of cities in this country, there’s no options. Anyone in Europe probably cannot relate, but the entire size of Europe is about the size of the US. Texas and Alaska alone, each, are bigger than most of your countries. In the US, we are very, very, spread out. Take my home state. In PA, we have major cities of Philly (1.6 m) and Pittsburgh (300k last I checked), then maybe a dozen smaller cities of 30-100k. Our major cities have dozens of suburban towns in the immediate region, with no real immediate access to mass transit. Our smaller cities have small towns all around them, with access to the city, but not to mass transit. Between all metro regions is stupid amounts of forests, rivers, lakes, and vast amounts of mountains and farmland. While our Northeast is relatively densely populated – families like mine have been in PA since 1732. This has allowed for perhaps 15 generations to multiply. Our midwest, west, southwest, and northwest are far more sparely populated due to people only really living there for perhaps 5-8 generations. The exception is California, who had seen vast numbers of people migrate there for the weather, jobs, or rich farmland.

Considerations – in SUPER large cities all over the world, you can see significant population density. While only one US city stands in the top 20 or so, in all of these cities you can see lots of mass transit. South Korea has a population of 50m people, and half live in the Seoul metro area.

China has a lot of cities – AND most of their population is along the East coast. So it could be relatively easy to see how you could have bullet trains to large metro areas, then buses/trains when you arrive.

In this country, the distance between NYC and LA is about 2800 miles. The distance between NYC and London is 3400 miles. So the vast amount of high speed track to do this is astounding. One could make the argument IF a serious energy cliff hits us, plane travel would become far too expensive. Perhaps. But the CapEx to build high speed rail here is not something anyone can really understand.

Investment Implications – I’d stay clear of any high speed bullet train talk in the US. I believe it is now DOA here. I don’t believe there’s any hope here of this inside of the next 30-40 years, unless we get to a point where plane travel doesn’t work. Because there are 272m cars here, any of us can get in our car and hit major population centers within about an hour or two at most. There are outliers, of course – but where I live in PA is 2 hours from DC, 45 min north of Baltimore, 3 hours from Pittsburgh, 100 minutes from Philly, and about 3 hours from NYC. Why would I need to use a bullet train? However, it would be of interest to see MAJOR cities connected via high speed rail. I hate flying. I love Florida. Could I drive to Baltimore, park, and take a bullet train 900 miles south to Orlando and get there in 3-4 hours? Would love that. At a cost of perhaps $30m per mile on the cheap side, that is $27b. If you are Florida, can you imagine the amount of people from the Northeast would visit you? There is a case for it. Not anytime soon.


I would like to probe Steve on the premise IF the energy cliff is to drop, then what risks do we have? In the risk management business, we have “accept, avoid, transfer, or mitigate”. So for argument’s sake, IF the energy cliff was to happen, what are the implications? For each one of them, you would either to decide one of those four. For example, if you are expecting stupid high gas prices of $10-$12 a gallon with this, you can mitigate the risk by trading in your Escalade for a hybrid that gets 40-50mpg. While costs of gas may go up 3x from here, this essentially has to hedging against this upside risk by investing in a car with high MPG. Not that you WILL do this, but this is an example.

What I would do here then is build out a complex spreadsheet that might list the top 15 or so risks to my thesis. I listed about 10 here that I could think of. The LAST section of this book, I’d defend the thesis to the challenges. It’s possible some of these things could happen, and the energy cliff could go from 3 years out to 15 years out IF some of these things came true. I’m not saying they will. But what is the implication IF if any of these items come true? All of the things I mention are risks to the thesis. Most of what I mention don’t NEGATE his premise, but most may push things to the right. If things like 7 and 8 could push this to 10 years out, it’s possible batteries by then are much better and perhaps push it out another 10 years to 20 years.

Meaning – I think it’s important that people understand what an energy cliff is, as opposed to “peak cheap energy” which many of us were talking about 20 years ago in grad school studies. And, it’s important to give a baseline of what can happen in the next few years if nothing is done – but then it might be important to evaluate IF certain items are done, how much it could push it to the right.


I agree with Steve’s hypothesis, but perhaps not his timeline and I think the end game might be muddled IF we have means of thinking our way out of this. I think the conversation is something I’d love to discuss with Steve for hours on end – not to prove him wrong, but to fully develop his thesis into something that is as close to bulletproof as you can get. For example, someone in the crowd might be thinking “but what about mass transit” – Above, Steve has the type of argument that could refute the challenge, but also allows him to address – “but if by some miracle they do implement this, the only real change to energy consumption may be 1% and be at the margins”.

It would be interesting to game this out. If none of the above happen, what is the timeline of the cliff? How would the cliff play out – like what would be the first signs of it? Would people go back to horse and buggies – or what are the implications of it? While the DANGER light is there, it would be interesting for Steve to put further implications in a book. Really use some game theory and walk us down a path of what would happen IF the energy cliff hit. I’d then posit something like – “If NOTHING is done, it could start in less than 5 years. IF we do the items above, we could buy 10-30 years if not more”.

Overall – this type of thesis sounds like doom. What might be interesting is to try and use mental gymnastics like I did above to see what might refute the theory, and what items could humanity do to push this 10-100 years down the road? While I know many things like plastics need oil – a vast majority of it – I believe – goes to fueling machinery and cars/buses/planes – or means of transport. IF we can drastically cut the energy usage in this category, and soon – could it then allow us to use plastics for another 100-200 years?

If you are then trying to get oil out of the ground to make plastics using solar/wind/nuclear/batteries – it’s NOT about the EROI, it’s about the dollar cost to extract a resource to produce a good. EROI may be a measure better used for oil’s use in locomotion to account for the ratio of extraction versus consumption. The torque that can be produced with oil fuels with regards to energy density is the attraction to oil as a fuel to be used with locomotion. IF we can significantly reduce/eliminate the amount of oil used for locomotion, we can then conserve what oil that does exist for plastics. This element of oil extraction is agnostic of energy therefore EROI is not relevant to this portion of oil drilling.