Wilder, Wealthy, and Wise

“No, Jonny. It consumes them. It eats energy – sunlight, electricity, the energy in a living body – anything it can get.” – Jonny Quest

I went into a room with a negative person in it, and then there were no people in it.

Energy is freedom.

Energy allows one person to do the work of hundreds or thousands.  I sit here typing this in Stately Wilder Mansion, it’s near freezing outside, yet a nice and toasty 61°F (43 and 2/3°kiloPEZ®) inside due to natural gas piped directly to my heater.  I like it cold in the house, just like my heart.

My computer is running, the television is running, and because I am apparently the only person in the house who knows how to use a light switch, at least 32 lights are on in the house are on.  It’s winter, so a light left on is (at worst) a little inefficient heater, so all is not lost.  I will tell you that when I die, though, I will walk to the light.  And turn it off.

Our energy costs aren’t all that high in winter, especially since I can keep warm by rubbing my thighs together like a cricket.  I go and fill my gas tank about every two months, so gasoline isn’t even that much of an issue.  When your commute is four miles a day (two miles each way) and takes four minutes (if I get caught at the one traffic light), well, it’s hard to use a lot of gas unless I pour it all over the truck and ignite it to look like a cool meteor while I’m driving.  Again.

But energy is freedom.

I started bench pressing again.  That’s a huge weight off my chest.

When energy prices are low around the globe, freedom increases.  As I’ve discussed in previous posts, high energy costs act like a tax on nearly all physical goods.  Sure, it won’t make the cost of a Kindle® e-book go up much, but it will increase the cost of a physical book – that has to be manufactured using energy, moved using energy, and delivered using energy.

So, what’s up?  Why are prices where they are?  Where are prices going?

I’ll start with “what’s up?”

We can’t create additional energy just by turning a knob:  the process is a bit more complicated than one of Joe Biden’s coloring books.

Let’s take oil.  In the 1930s, oil in Texas was so plentiful that it crashed the price.  Pools of the stuff would show up if you stuck a McDonalds straw too deep into the ground in East Texas.  Oil was so plentiful that people could barely tell the difference between water and gasoline.  Of course, in Flint, Michigan, you can get the gasoline unleaded.

I hear their swimmers are always in the lead.

What happened then is the Texas Railroad Commission decided it was in charge, and it limited the amount of oil that could be produced.  It was OPEC® before OPEC™ was even thought of – their idea was to stabilize the price of a seemingly limitless resource.

It worked.

But the era of oil abundance in the United States ended in 1973, and the Texas Railroad Commission (which still exists but no longer regulates railroads, seriously) ended allocations.  Texas could no longer control the price of oil in the United States by restricting sales.  The hunt for the next big oilfield was on.

We had then to hunt for oil in more and more distant places.

• Alaska.
• The Middle East.
• Deepwater offshore.
• Johnny Depp’s hair.

Also?  When exposed to pollen, bees develop hives.

Then we hit the jackpot – fracking.  Fracked oil is different than conventional crude.  It’s hidden in tight rocks that aren’t as porous.  That’s where the fracking comes in – the rock has to be fractured to let the oil out.  To keep the cracks open, high-pressure water and sand (and chemicals) are forced into the cracks.  The grains of sand remain and keep the cracks open.  There are so many jokes I’m not going to do here.

When this process started, it was inefficient.  But smart people spending billions of dollars will tend to make progress over time.  Dumb people with billions of dollars?  We call that the opposite of progress:  Congress.

There are three problems with fracking:

One – fracked wells are most productive in their first year of production.  Oil companies often run a rejuvenation process that increases flow after a few years, but mostly the later years are just a trickle in comparison to the initial years of production.  So, to have a continuous supply, you have to keep drilling, which is not boring.

Two – you have to keep drilling.  If the price drops and drilling stops, then the quantity of oil available drops quickly.  Then the price goes up.  Then everyone drills.  Because everyone is drilling, then the prices drops again.  And everyone stops drilling.  This acts like a “crack the whip” on the economy, since, as mentioned above, high oil prices act as a tax.

Why fracking?  Because I hear drilling is rigged.

Three – there’s more than profitability at stake.  Let me give an example:  if I have to walk to the grocery store to get food, and then I walk back home, that sounds healthy, right?  Sure.  I’m burning energy to go to the store.

But what happens if I burn more energy to go to the store than is contained in the food that I buy at the store?

I lose weight.  I’m actually spending more energy to get food than the energy in the food I’m consuming.  Plus, I’m rubbing my thighs together so I can stay warm.

What might be good for me is devastating as an economy.  At some point, it will be so difficult to get energy from oil, that, just like my trip to the store, we’ll be spending more energy to get the oil than the oil will provide us.  The energy return on energy invested will actually deplete the amount of energy available for us to use.

The more energy we use?  The faster we run out of energy.

I spent an hour on the treadmill yesterday.  Tomorrow?  I might turn it on.

Our primary energy source is that thermonuclear reactor that shows up every morning.  Our secondary source is tens of millions of years of stored sunlight from that same reactor, which just happens to show up in the form of oil, natural gas, and coal.  But the sunlight striking us every day has a problem:  it’s so diffuse that it’s difficult to make profitable use of it.  Sure, it warms us, it tans us, it makes the wind for our turbines, the photosynthesis for our corn, and the rain for our hydroelectric.  Energy is only useful when it becomes concentrated in some way.

You can’t generate energy with a tan.  Unless it’s a really, really good tan.

Are we at the point where it takes more energy than it’s worth to get energy?  A wind turbine in a good location will return 10 to 20 times the energy it took to make it, though that’s over the course of 20 years.  In a bad location?  A wind turbine will never return that energy, though I hear they love music:  they’re huge metal fans.

So, are we there yet, where the production of energy costs more than the energy we get?

I don’t think so.  Not quite yet.  When we do get there, it will become a cascading failure – every bit of energy we produce will actually dig us deeper into a hole.  Just like the Red Queen I mentioned last week:

“Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”

Never take a racing snail’s shell.  That makes it sluggish.

To keep a world of 8 billion people alive and with enough energy to consume Doritos® and Disney™ and Facebook© takes an ever increasing amount of energy.  2020 was an aberration – people stopped driving and energy prices (temporarily) went down faster than Kamala Harris’ . . . approval rating.

The last question was “what happens next?”

Currently (today) oil is about $70 per barrel.  The analysts that JPMorgan® have chained up in the basement of their skyscraper say that oil will jump to an average price of $125 per barrel in 2022, and then pop up further to $150 per barrel in 2023.

Double today’s prices.  Yikes!

What about the Energy Information Agency (EIA, a .gov that seems to be actually interested in energy)?  They say that in 2022, oil will average about . . . $72 per barrel – nearly the same as today.

It’s funny, because to know the price of oil, you have to know what is happening with economic growth, oil demand, and inflation.  If any of us know any of those things with certainty, we could make bets and double our money or better in six months.

Why did Biden win the golf tournament?  Because he finished it with one big stroke.

If JPMorgan™ has that genie in a bottle, they certainly wouldn’t be sharing it with mere mortals like you and I on the Internet – they’d make private trades and be zillionaires.  The fine folks at the EIA probably don’t make nearly as much as the analysts at JPMorgan©, but they do have the abject despair of working at a government job every single day.

My prediction?

• If the economy crashes and the stock market implodes, oil will follow. People who aren’t working don’t need to go to jobs.  Will oil hit $40?    Depends on how low the stock market goes.
• But! If inflation spikes and the government keeps shoveling cash like coal into a train firebox, well, $150 per barrel oil might seem like a bargain that would be cheap enough to take a shower in.

Crappy prediction, right?

It is.  Because with all of the difficult issues we simply don’t know.  The easiest bet is that oil will be more expensive because once inflation is unleashed, it’s hard to put back into the bottle.  The 1970s looked like this, so that would be my best bet.

Regardless, expensive energy has almost always been the enemy of freedom.

Prepare accordingly.