Commodities are volatile and dangerous. Oil has doubled in recent months. But the thing about Gold, Silver, Palladium and copper prices is; no matter how volatile they are, they are simply investment opportunities or traps, and are unlikely to kill us.
Energy is different. It can kill us.
That was conclusively demonstrated earlier this year in Texas. A swift series of winter storms crashed the Texan grid when gas infrastructure failed in the cold, renewables weren’t delivering, and the deregulation of its energy system had delinked Texas from both US power Grids – making it difficult to import energy. Over 200 people died as a result of power outages.
Fast forward to this winter, and the UK and Europe are in the direct firing line of the coming energy storm. The security of energy supplies has never looked less certain. In the UK, neglected storage means we have the capacity to story 3-4 days of Gas. The recent collapse in sterling has been linked to the panic over Petrol supplies, escalating and cascading supply chain failures impacting industry and growing woes blamed on Brexit. I would add questions about how the UK’s status as a first world economy with zero energy security will line up.
How has this happened? Why?
Well… that’s a long tale… But, it will be mightily embarrassing for the Boris Johnson Government if the first UK power outages occur during the COP26 Climate Circus in Glasgow in November.
COP26 has driven the Government’s agenda and ambition to be seen as more green, more carbon neutral and more ESG than anyone else. I’ve heard tales of cabinet ministers throwing sweary hissy fits when asked to support policies that don’t immediately square with green policies perceived as vote winners.
As I’ve written many times – ESG is well intentioned, but perhaps the most dangerous force in Economics today.
The brutal reality is we can’t decarbonise the global economy overnight. Over 30 years.. perhaps! Through the transition period we will still need power and energy derived from the old dirty hydrocarbons. Powering up EVs, making the fuel for hydrogen planes and trains, will all require hydrocarbon derived energy. That’s fact.
This winter – people are going to die of cold.
As the price of energy goes higher, the costs will fall disproportionately upon the poorest in Society. Income inequalities will be dramatically exposed as the most vulnerable in society face a stark choice: Heat or Eat.
That has all kind of social consequences. Can you imagine how the Gillet Jaunes in France will react ahead of the French elections in April? And what about the prospect for riots as fuel prices hit the poorest communities and ethnic groups in the UK?
This winter the UK is likely to be on its knees begging energy from wherever it’s available. Europe will be in as much trouble. The Middle East will be charging whatever they can get away with, and the capacity to deliver is limited. The much vaunted energy-independence of the US will be tested – it unlikely they will be minded to export. That will leave government with a stark choice – let people freeze or pay the cost, probably triggering a balance of payments crisis and a further confidence crash in sterling.
The likely source of Gas will be Russia. And Vladimir Putin can’t wait.
The coming Energy Crisis will be his grand opportunity. Remember the famous photo of him with Angela Merkel and his dog prowling in front of her? Putin knew she has a terror of dogs so he deliberately intimidated her. He won’t deal with Europe. He will invite each European leader to plead their case individually, menacingly asking each leader why he should open the Gas Taps to their nation specifically.
Covid 19 was the first big test for Europe. Its’ vaccine programme failures could have been disastrously fractious for the EU. When faced with a European Energy Crisis and Russia holding the cards, what’s to stop countries doing deals? Who will crack first? Poland? Germany? And what will Putin expect in return? Legitimacy? A free-hand to deal with domestic dissent? Sanction ending? A free hand in Ukraine or even the Baltics? It rather depends on what price he thinks he can force Europe to pay.
And what will Putin ask of Boris? That London reopens its door and markets to the kleptocracy he leads? Or something more…?
Make no mistake, this winter is going to be shocking. Be aware.
No comments:
Post a Comment