Energy Dominance Isn’t Just a Trump Obsession

Energy Dominance should be the catchphrase of the day. It’s on the minds of every political figure, and the focus of every economy.

This is especially true of those vulnerable to a change in the status quo, namely Saudi Arabia.

While some continue to believe the gyrations of the oil market over the past few months are evidence of our running up against the limit of the petroleum based global economy, I disagree.

The world is awash in decades of easily-extracted oil and gas. The supply of it has been kept off the market due to its centrality in the grand game of geopolitics. But, it has nothing to do with the amount of oil and gas out there.

Peak oil has become a religion among its adherents. Decrying the U.S. shale boom, rightly, for its profligacy has more to do with it being a consequence of disastrous central bank inflation rather than some grand plan of the ‘cabal’ because we passed peak EROEI some time ago.

When you drop interest rates to zero and flood the world with liquidity that can only find a home in equity markets, the natural result is malinvestment into unsustainable business practices.

The first wave of the shale boom in the U.S. occurred during this period and created the dynamic we have today. It’s groundwork was laid when oil prices spiked during Greenspan’s post-9/11 reflation and the Iraq War took a lot of marginal supply off the table.

That sparked a gold rush mentality and a huge boom occurred as oil prices kept rising after “Bernanke saved the world” with trillions in liquidity and multiple rounds of QE.

Properties were bought based on sky-high valuations which were the result of searching for yield in a yield-free world.

Does anyone think fracking would have happened post-2008 with the 10 year at 6%? If so, then you are, frankly, a religious fanatic.

Once the financial juice runs out the bust occurs. Financing costs are always the story with the pigs at the easy money trough. But, that’s the same in any industry. It doesn’t mean the oil isn’t there or extractable at prices which are relevant.

But, much of the second wave of fracking has removed a lot of that financial froth. Liquidation of the first wave means a lot a the unconventional wells in Eagle Ford and the Permian are being fracked profitably at $35 to $45 per barrel or, in some cases, lower.

Sure, there are still plenty that are not. But, no new well goes into production today without using plug and perf, which results in more oil over a longer period of time with a much lower initial rate.

Add in pulsed plasma technology to revitalize legacy conventional wells, tie-back schemes for offshore drilling and what was once too expensive and terrible EROEI now become profitable.

Multhusians come in many forms, including adherents to Peak Oil. It’s nothing new. It’s simply people who falsely apply linear models to cyclical processes that the market understands implicitly and compensates for through investment in new technologies.

So, the Peak Oil crowd kept thinking it was rising EROEI and the world would crash because of it. But oil prices cannot be analyzed in the vacuum of the Gibbs Free Energy Equation. I wish it could be.

Oil is political. And artificial restrictions on supply are part and parcel of what we euphemistically call foreign policy.

That’s why everyone is playing the Energy Dominance game. Russia and Germany are playing it over Nordstream 2, the pipeline that will guarantee German industry cheap gas and Germany some secondary political leverage to countries defying her edicts within the EU, namely Poland.

Poland is playing that game by trying to stop Nordstream 2, cozy up to the U.S. and Donald Trump (who loves the flattery) while refusing to negotiate with Russia.

The Saudis continue to try and wriggle out of the trap of their own devising, by trying to sell bigger, better OPEC to Russia while trading an alliance with Israel for long-term protection from the U.S.

India and Turkey dance around U.S. sanctions by defying the U.S. over Iranian sanctions and horse-trading for other concessions.

Even eastern Europe realizes that they have to play their part in this game if they are going to survive. Bulgaria just green-lighted a spur off the Turkstream pipeline which crosses Serbia. Serbia is ready to begin construction next month.

Hungary is also part of that discussion while they actively court Exxon-Mobil to develop assets in the Black Sea off the Romanian coast.

Trump’s Energy Dominance plan is predicated on keeping control of the flow and pricing of oil around the world. This is why he’s meddling around in Venezuela, a project more than twenty years in the making by the U.S. but which he philosophically agrees with.

He has no ability to stop the drive within our government to keep the Middle East a powder keg because Israel acts as if peace is an existential threat.

But none of that will change the trend that now dominates, which is that the U.S., despite Trump’s spastic flailing about, is losing control of the world’s oil pricing. From the petroyuan contract in Shanghai to the strong relationships Russia is building across Europe and Asia there is little the U.S. can do that it already hasn’t done to alter this trend.

Every day we see small instances of defiance. From Iran creating a gold-backed cryptocurrency to transact oil business outside of the U.S. dominated SWIFT system to the EU’s flawed but symbolic INSTEX vehicle to keep trade relations between Europe and Iran open.

But, the biggest slap to Trump is Germany’s insistence on the Nordstream 2 pipeline. Under Angela Merkel Nordstream 2 is a purely EU-centric project, designed to strengthen Germany and weaken the rest of Europe by bypassing Ukraine.

But in the larger picture it is the watershed moment where Germany begins throwing off the yoke of the post-WWII institutional order created and maintained by the United States and the U.K.

Nordstream 2 will likely outlive the European Union and maybe even the U.S. itself. It will certainly outlast Trump. And the energy it provides will be the means by which Europe will make the choice between its neighbors to the east or its overlords to the west.

For 2019, oil will be trapped between the political flux of Europe, the paralysis of Washington D.C. and the comeuppance of putting off the effects of the 2008 financial crisis for eleven years.

With the Fed punting on normalizing rates to placate the market you can expect the shale drillers to go right back to the trough of low debt and low equity cost of capital. It won’t do them any good in the long run but it’ll keep their personal ponzi schemes running a little while longer.

But that too will come to a bad end as the political promises of the past two generations catches up with the reality of what they actually cost. And then we’ll find out who truly dominates the energy markets.


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9 thoughts on “Energy Dominance Isn’t Just a Trump Obsession

  1. Pingback: Energy Dominance Isn’t Just a Trump Obsession - Free World Economic Report

  2. Tom,
    I have just signed on as a patron to show my appreciation of your column.

    I am writing you because of your current piece on energy. I believe their is a new source of energy that has just become commercial that will change the game.

    Here an extract pf a a recent piece I wrote (not yet published).

    A NEW SOURCE OF CLEAN, CHEAP ENERGY IS NOW AVAILABLE
    By Adrian Ashfield

    Interest in LENR (Low Energy Nuclear Reactions aka Cold Fusion) was started by Fleischmann and Pons in 1989. Early efforts to replicate their results failed, getting the subject a bad reputation. Although it was later replicated a hundred times, the damage had been done. See https://lenr-canr.org/ for hundreds of scientific papers proving LENR is real.

    Dr. Rossi and his E-Cats
    Andrea Rossi started experimenting in LENR using nickel and hydrogen in 1996. Meeting with some success, he teamed with Dr. Focardi in Italy. Dr. Rossi developed a number of different reactors that were shown publicly. These prototypes were hard to control and took hours to start up.

    The breakthrough came with the fourth generation E-Cat QX (Energy Catalyzer), which I described in the Delco Times at the end of 2017. This tiny device, the size of your little finger, produced 5 kW of heat and started up immediately, using a plasma for the first time. Those interested in the details should read technical reporter Mats Lewan’s excellent book “An Impossible Invention.”

    This past year Dr. Rossi and his team have worked hard to develop three industrial versions called E-Cat SK5, SK20 & SK100. The SK5 and SK20 were developed as industrial versions, while the SK100 (100 kW) is still in R & D. Sometime in 2019 he settled on the SK20 as his first production reactor and has built a factory to mass produce them.

    What is LENR?
    LENR is a nuclear reaction of a different kind than fission or fusion. It has a very high energy density well above any chemical reaction, doesn’t use radioactive materials nor produce ionizing radiation. The core temperature of the SK is around 8,000 degC . The heat is transferred by electromagnetic waves, with a frequency above ultra-violet light, mainly in the range of 300 to 350 nanometers. It uses common elements like nickel, hydrogen and lithium as fuel. Depending on the heat exchanger, it can provide heat up to 550 degC. It only requires refueling with a few grams of material once a year.

    Live demonstration by video on Jan31, 2019
    Dr. Rossi unveiled the SK20 reactor as a sealed blue box that was heating a plant of around 3,000 square feet. That had been in operation since Nov 19. The demo showed the SK20 working and was followed by some two hours of questions and answers. Having had throat surgery recently, his voice was a little hard to understand at times.

    All the main parameters were given. The size of the SK20 reactor itself is only 4” in diameter by 4” long. The output was 21.9 kW of heat. The control panel used 380 W, most of which was recovered. The COP (coefficient of performance) was 57. This calculated value was confirmed by looking at the energy required to heat the building.

    Rossi’s business strategy is to sell metered heat at 80% of the cost of any other fuel. That way the customer does not have to pay for the reactor and Leonardo can better protect their intellectual property. Fraud is very unlikely as the customer would know how much heat he is receiving.

    Conclusions
    The SK20 is available now from info@LeonardoCorp1996.com, with a delivery time of a few weeks, depending on the application. Dr. Rossi thinks his initial customers will be in agriculture. He is also working on a LENR powered turbine with a company in Japan that should provide the best way to get electricity.
    If things work out as expected, LENR may also power things like ships and trains. Automobiles will take at least a decade to develop. But LENR should replace most fossil fuels in two decades and end the concern of global warming.
    This may well be the start of a new era of plentiful clean energy.

    I would prefer to communicate by email if you want more details as my eyesight is now poor,
    I am a retired engineer who has headed engineering for three major corporation. So this is not idle speculation

    ‘Adrian Ashfield

    • How interesting. I just read some on this. One of the obstacles would be the oil industry and the article I read makes an excellent point about that. It stated that bringing these systems to the commercial market rapidly could disrupt the energy industry. The problem would be in getting safety approval. That could take years.

    • I’m aware of the Rossi invention. I was reading about it in 2008. It was viable even back then. And therein lies the problem. Nobody wants to touch it. I, like anyone, would have expected a huge groundswell of support and major investment. That never happened. Why? Not because the system isn’t viable. As a physicist the theory behind it sounds totally watertight to me, and it has been demonstrated beyond the shadow of a doubt. But the entire Oil industry was never going to pack up and go home. And despite the magnitude of this invention, Rossi doesn’t seem too eager to progress it or promote it. Your post was the first thing I’d heard about it in years. Think about that, somebody invented COLD FUSION. It will power a factory for a year from a single, actual Nickel. And despite hearing Global Warming alarmism 24/7 you hear nary a peep about this breakthrough. My best guess is that Rossi has been a long term VIP guest at the Saudi Royal palace for the last 5 years. The Oil Cartels have enough money to reward Rossi for his invention with money and luxuries beyond anything he ever imagined, then shelf it to keep their oil game going. It’s a story that has been repeated again and again for 50+ years. A guy in the 60s invented a perpetual energy machine using only a metal alloy and a bowl of water. You can make one yourself for like $20. He disappeared shortly after but nobody thinks he died. I’d guess you’ll find him wherever MBS keeps his harem, hanging out in 24k gold foil pajama pants and smoking a hookah.
      Oil is the great game in the world. Analyze the economics of it and you’ll only understand it less. This is why I respectfully disagree with Toms position on Venezuela. You can cry ‘non-interventionism’ all you want but SOMEONE is going to get their hands on that oil. It represents the leverage-quantity in the game for energy dominance. And if it’s not us, the USA you’ve known your whole life will be gone forever. The US dollar as the world reserve currency is the only thing separating us from financial Armageddon. Maybe that makes for a ‘propped up’ economy, but I assure that is far better than a collapsed one. Whether or not that collapse vindicates a few libertarian talking heads. I’d rather be wrong and rich than right and poor. You and Rossi would too.

  3. The first thing is to get confirmation from a customer(s) that it works as claimed.
    Rossi is taking a low profile approach so there will be time for the energy industry to adapt. Renewable energy should die off fairly quickly as it st intermittent and not economical.
    Countries that rely on oil exports will be in trouble.
    There will be plenty of short term jobs doing the conversion.

    I would not be surprised if the betterment regulatory bodies slow things down. I have tried to get DOE interested in LENR for a couple of years without successes.
    DOE supports the $25 billion hot fusion ITER that offers lifetime employment for many. Their physicists lied to Congress claiming the COP would be 10 when in fact it will be 1.3 and never economical. (ref Krivit)
    One senior scientist let a paper on LENR drop to the floor rather than touch it.

  4. Mr. Luongo, I really enjoy reading you. I have 40 years in the oil and gas industry as a major company employee and as an independent. I happen to believe in peak oil and think that unconventional oil and gas is simply scrapping the bottom of the barrel.

    Until, I read your column, I had not heard a peep about “plasma pulsing” and neither has most of my production engineering contacts. I remain very scepticable because ever stripper well operator in the Permian Basin not to mention the lower 48 would be all over this technology if it worked.

    Let’s hope that LENR works better than Plasma Pulsing. Cause we are gonna need it. Badly and very quickly!

  5. You can buy neat from Rossi now. He says that no one has tried to stop him. He says he has enough capital to make the reactors.

    He has had a checkered history that included a 1 MW plant built with Industrial Heat, that ended up with Rossi taking them to court because they did not pay him the agreed $90 million at the end of the trial. They settled out of court with Rossi getting his IP and sales territories back.
    I don’t believe that 3rd. generation plant was commercial yet. Rossi had to spend his life theer keeping it going and said it was completely worn out at the end.

    Not only is Rossi’s E-Cat on the market, there are several others such as BLP’s Suncell apparently close to being ready.
    Mainstream academia still doesn’t buy LENR and it will be some time before the media takes notice.

    I have macula degeneration so when I look at 1234 I only se 1 4. I can only read large black & white text and can’t navigate the stack. I can’t read colored fonts nor white on black.
    So I can only continue here, or by email at a dot ashfield at verizon dot net.
    Please excuse the typos.

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