Once upon a time, I imagined there was a layer of people at the top of the world order that were supremely wise, experienced, and of the finest judgement. I assumed that the world moved with purpose as this elite crowd rolled up their sleeves and exercised their skills in a cohesive manner, instituting policies and programs that were the best and most logical choice based on finances and resources available. I assumed the west worked that way, as did the commies (the cold war lives on in my head – the movies were just the best). Ordinary people were informed of what they needed to know, when appropriate. The ruling group acted in the best interest of citizens, and sometimes if events and outcomes seemed painful it was because certain things had to happen whether we liked it or not, like getting fillings at the dentist.
However, with age comes a bit of wisdom, and I now know that the world is run by chance, buffoons, egomaniacs, pretty but dumb people, power mongers, and, ok, occasionally good and smart people. Geopolitical events can happen for good reasons but also because of bad advice (climate hysteria), bad judgement, or personal motives. Now I realize that those in power will pull your teeth out without anesthetic if it means remaining in power. They will bow to whomever holds power over them, and I now know that it is delusional to think it is the voter that holds true power. Voters are kitty litter thrown under the wheels for traction, even if politicians kiss your baby.
There’s no point in getting angry about it all, though of course you can if you want. Sometimes hurling a shoe at the TV is the best therapy. But it’s all going to happen anyway, so if you can, unclench and observe. Life is so much better in an objective state of mind.
There is no point in launching into a history lesson here because you would be exposed to the world’s worst teacher, but it is still relevant to recall the context of the last 50 years or so, because, in order to get a feel for energy, it is necessary. Yes, there is a dizzying crowd of wonderful analysts that pounce on every kernel of new inventory data or rig counts or shipping incident to recalibrate the central nervous system of the economy with new directions as to where commodity prices will go. God bless ‘em, they make the market more efficient as every single, tiny, atom-sized event is integrated, but those short-term indicators are not particularly relevant to the longer pricing cycle, which is what is relevant when contemplating multi-decade infrastructure investments. It’s not necessary to expect to land on a precise future price, but it is necessary to at least study the forest and to the trees from time to time, to see where things might go directionally. (And it is also necessary to throw in run on sentences as perhaps feeble but nevertheless necessary evidence that this is not authored by AI.) So, here we go.
The second half of the last century, after WWII, was geopolitically dominated by the ideological clash between “capitalism vs. communism”, and access to oil. In the former struggle, the US battled the USSR into ideological submission – China was communist but insignificant – and the western economic machine, boisterously celebrating capitalism’s TKO, tilted to securing the latter – access to oil. Saudi Arabia, within a decade, gained a global prominence far in excess of what one would expect from a modestly sized patch of desert, thanks to hundreds of billions of barrels of oil reserves.
That seems like a very long time ago. Energy wise, the first half of this century has seen a remarkable realignment. No longer is global geopolitics dominated by the west’s quest for oil; the US is now more or less self sufficient (heavy/light crude imbalance notwithstanding) and is one of if not the largest exporter of both oil and natural gas int the world. That is a remarkable turn of events.
Regardless, everything still turns on energy access; it’s just that it looks different now. China and India, with massive and modern/rapidly modernizing economies, represent a combined 3x the population of the golden billion in the west, and with a corresponding voracious appetite for energy. Africa, South America, the rest of Asia…all are raising living standards by consuming more and more energy. Couldn’t be happier for them.
Seventy years ago, the US consumed the most and built the most, requiring massive energy inputs. Over time, the US deindustrialized, and China became the world’s manufacturer. China navigated the path relentlessly, by brute force where necessary, and with a very clear development strategy: enter joint ventures with western firms to ‘acquire’ technological expertise, crank out engineers by the millions, capture critical industrial processes even if messy, build any and all forms of energy supply – coal, nuclear, wind, natural gas, solar, you name it. Build it all and build it fast.
Thirty years ago, the US would have been competing for the same energy, as a major oil importer, and also on the natural gas front – it is easily forgotten that the US was building LNG import terminals then. The shale revolution upended everything, including the necessity for the US to protect oil tankers across all global shipping lanes. With the US no longer feeling the need for energy, it also does not feel the need to be the world’s police force, and is thus pulling back to worry about its own interests: security, re-industrialization, control of borders, etc.
The rest of the western alliance kind of lost the plot it seems. Europe became a vast governmental institution, locked into bureaucracy and driven by ideological policy. As the ever-wise Velina Tchakarova put it, “Europe’s long period of prosperity and influence was enabled by external pillars – an American security umbrella, Chinese manufacturing power, and Russian energy – and was therefore less a product of European strategy than an unintended consequence of its own complacency over the past thirty years.” Europe’s complacency was so great that Germany actually shut down perfectly good nuclear plants for no reason other than that a green faction did not like them. Other EU countries did the same. (The EU, despite evidence piling up around them at an alarming rate, remains steadfast in their ideological rigidity; when the US recently warned that a strict EU regulation relating to monitoring methane emissions could disrupt US gas supplies to Europe, an EU energy bureaucrat stated, “…we will not change the legislation. We are very proud of this legislation.” Proud of legislation that risks your very fuel supply? Such is the thinking that has created such a hole for Europe.)
That green faction has brought the EU to its knees. By placing climate issues first and foremost in every decision, and carving the “remedy” for these issues into law, the EU hobbled itself spectacularly in all other avenues. Tchakarova again, same article (which you really should read), explains why the EU is imploding: “…each euro diverted to industry or defense undermines the European Commission’s “Green Deal” timetable. On the other side, each regulatory constraint linked to climate accelerates deindustrialization…” No one else, except mid-power countries like Canada and Australia, are even close to hamstringing their own future in such a way.
Times are changing though, and we really can’t afford the luxury of luxury beliefs. The clash of the titans is upon us. Europe is actually now, in their own words, preparing for war. The NATO/western standoff with Russia is now a fading memory; the US is splintering off to leave Europe to deal with the forever-cranky Russia, and China is quietly supporting Russia in all sorts of ways. The two have a naturally symbiotic relationship, given resource and population characteristics, and even though they probably do not trust each other one iota, they can still make it work if they share a common enemy.
The old structure is gone, and there is some chaos in the reforming of a new one. The US, Russia, and China – not just the titans of the global realignment, but the ones most clearly in a strategic mindset, with purposeful leaders at the helm – are jousting and redefining and remapping the geopolitical world as we know it. Whether we like this process, or the leaders, is a moot point. It’s happening; deal with it. Some European leaders, like the German and Finnish heads, are waking up and recognizing this.
Countries like Canada appear to grasp the significance of, say, building national infrastructure, but the cultural infrastructure that is now calcified is a mighty barrier. It remains to be seen if we can break through it, or not.
Time is of the essence; we need to have a clear strategic rationale for next moves forward. Fortunately for a country like Canada, we possess assets and resources that the world greatly needs, which gives us a real leg up, but with the rise of AI on the horizon, that alone is not good enough.
Beyond industrial purposes and efficiencies, AI will dominate national arsenals as well. Automated/unmanned drones and aircraft could become the norm, as well as anti-drone/anti-aircraft defence systems. The entire trajectory of weapons development could change, and with the paranoia of the three big players, none will risk being left behind.
That is one reason the tech war is so critical to win. At present, and for the foreseeable future, Russia and China are working together, which makes sense – China has a voracious appetite for everything, Russia has a surplus of many things. They are also both totalitarian dictatorships, as opposed to democracies. That gives them flexibility and a certain strategic advantage, because they do not care at all what the population thinks. For better or worse, democracies must. That is messy, but that is the choice we wish to live by.
But living in democracies forces us to play by stricter rules than China or Russia, both of whom tend to throw in jail those who criticize government practices, or simply do what needs to be done and damn the consequences. China, for example, has made a major business of critical minerals/metals processing because it is willing to dump the vast quantities of toxic sludge into, say, Inner Mongolia, where no one is looking (aka Baotou, China).
So the path into battle is not clear, but it is clear that without taking control of these industrial supply channels, the west will lose the AI war to the Russia/China axis (and the west could lose literal wars too – western weapons go nowhere without rare earths that come from Chinese processing facilities).
AI could well dictate who commands the upper hand in the new world order, enabling who knows what but offering the potential to offset the challenge of aging populations and shrinking birthrates. We don’t know that for sure; we have no idea where AI will take us, what occupations will be obliterated, what will be created, what the limits will be, if any. Maybe the doom mongers are right and machines take over. Maybe not. But the US and China are fighting for supremacy, and whichever way the battle goes, the only certainty is that energy is critical to it all at this point, until some technological breakthrough happens (if it ever does) that slashes energy consumption. Demand only seems to be going the other way, straight up. The energy industry should therefore consider itself fortunate and well placed for what is coming. More exotic solutions like nuclear will not be here at scale for some time.
You may get to this point in the article and think, wow what an unstructured pile of disjointed drivel, and I would be hard pressed to say you are wrong. The purpose was not to resolve anything, or prove anything. The purpose is to bring the focal point out of the weeds, to take things to a higher level, to look at the terrain and not the ants. It is far too easy to get caught up in the minutiae, the minutely market signals, the weather forecast changes that drive natural gas prices up or down by 25 percent, the rig counts, etc. All are interesting and in patchwork can tell us something. But sometimes that is all noise and it is necessary to tune it out in search of signal. And one of the biggest signals out of any such global/geopolitical analyses is: As an energy producer or provider, stand tall, little is more critical than what you do every day.
Here it is, the ideal non-denominational present. At the peak of the energy wars, The End of Fossil Fuel Insanity challenged the narrative, facing into the storm. And now everyone is coming around to this realization as well. Read the energy story for those that don’t live in the energy world, but want to find out. And laugh. Available at Amazon.ca, Indigo.ca, or Amazon.com.
Email Terry here. (His personal energy site, Public Energy Number One, is on hiatus until there are more hours in the day.)