Discover more from Irina Slav on energy
Back in 2007, I worked as an editor for a local news service with a global focus. We were getting more and more stories about U.S. mortgage market problems that were beginning to spill over into other places as well.
It was obvious a crisis was on the way, even to me, the non-expert. One day I was talking to my direct superior about events, shortly after he and the higher-ups had instituted priority coverage of subprime debt news. Why, I wondered aloud, is nobody seeing what is so obvious. They don’t want to see it, he said. To my “Why?” in response, his own response was a shrug.
I remember this conversation because later, when the solid waste hit the fan, I marvelled at how (almost) nobody, apparently, had predicted it, including the biggest names on Wall Street, and not just because they were up to the gills in the muck. They had literally been unable to see it.
But enough about the past. Let’s fast forward to the present when, I’m dubiously happy to report, people who should see things coming still do not. Either because they are too close to what’s happening in the proverbial trees vs forest situation or because they don’t want to see what’s happening. A lot of surprise ensues. Stocks drop. Economies hit the brakes. Whole cast acts surprised.
Take this news report from earlier this week, for instance. A flash PMI report by S&P Global served a surprise to observers by revealing that business activity in the eurozone had declined this month. A true shocker, right? Except it was the very opposite of a surprise.
For months there have been reports about exorbitant energy costs for businesses. For households, too, but business costs have been in the spotlight because of fears that many would have to close down or relocate.
For months, economic data has shown things are not going well for the EU — most of its wealth and growth potential concentrated in the eurozone — only to be pointedly ignored by forecast makers and so-called analysts, and I do lament the fact I had to add “so-called”. Then, when the truth can’t be hidden any longer, everyone acts surprised. And a lot of them are probably genuinely surprised.
“The number of German firms pushed into insolvency rose in the first half of this year at the fastest pace in more than two decades due to the energy crisis, inflation and rising interest rates.”
“The latest figures from Eurostat show that economic activity in the eurozone grew less than initially estimated, by 0.1% over the April-June period compared to the previous three months.”
“Energy poverty affects citizens across every EU country. In 2022, high energy prices together with the cost-of-living crisis meant that an estimated 9.3% of Europeans were unable to keep their homes adequately warm, compared to 6.9% in 2021. Recognising the need for even more coordinated action to counter the trend, the Commission has today published a series of recommendations on measures and policies that can be adopted by EU countries to tackle energy poverty.”
These are just three snapshots of processes well underway in Europe that should have set the alarm bells going. They didn’t. Instead, they got drowned by “It’s all right, actually” reports aimed at reassuring everyone that what’s happening is just a temporary hitch. These things happen, after all. And then, after everyone’s been appropriately reassured — except those struggling to pay their bills — comes the shocking surprise.
“Euro zone business activity took a surprise turn for the worse this month as demand fell in a broad-based downturn across the region, a survey showed, entering the fourth quarter on the wrong foot and suggesting the bloc may slip into recession.”
A surprise turn for the worse. After copious amounts of evidence that this was exactly what was going to happen. Because despite numerous reports about how much cheaper gas is in Europe this year, this has not meant that it is as cheap as it was three years ago. Or that electricity is much cheaper than it was last year.
Media and politicians can manipulate TV viewers and news consumers and make them think the right things but the same approach simply doesn’t work with businesses. Businesses have to be practical, at least to some extent, and respond to realities rather than forecasts and perceptions of reality. And when they do, in a most predictable manner, it’s a surprise.
But here is an even bigger and more shocking surprise: Germany will not be able to meet its 2030 energy transition goals. Despite a Green government. Despite hundreds of billions being poured into those goals. German industry simply cannot decarbonise as fast as the government wants.
Per a Bloomberg report featuring phrases such as “carbon-dioxide pollution”, we learn that Germany will continue burning coal until 2038 “and will intensify its use in power generation for a second winter to avoid shortages.” Despite, I cannot stress this enough, the gigawatts upon gigawatts of wind and solar. Which are, no doubt surprisingly, not enough.
The solution? Well, build more, of course. But, again per Bloomberg, “Ramping up cleaner alternatives — such as more wind and solar capacity, as well as new hydrogen-ready gas power plants — requires time and investments that some companies are currently unwilling to make, particularly amid higher borrowing costs.”
What a shockingly surprising revelation, no doubt. Yet not half as surprising as the revelation that the transmission network of the country would need some major upgrades to accommodate all that wind and solar. Because nobody nowhere has talked about the grid challenges of the transition. And a lot of people have definitely not been warning that these challenges can topple the transition cart.
In this context, Germany’s 2030 transition goals have become “totally unrealistic”, per one energy economist. In the same context, it has become crystal clear that Germany can have either an industrial backbone or a transition. But this has only become crystal clear to conspiracy theorists and climate deniers. To the clear seers it will come as a surprise — just like the recession Germany entered earlier this year.
This week also brought another absolutely unexpected revelation, this time in the EV space. Hold on to your seats. Here it goes. EV demand is falling short of carmakers’ expectations and it may slow down further. Told you it was absolutely unexpected.
Per a Reuters report, the discrepancy between hopes and dreams — I mean sales projections — and actual sales is being blamed on high interest rates. But that’s all right because EV sales are rising. Strongly.
For the first time ever, we are told, U.S. EV sales topped 300,000 in the third quarter. What the report omits is the number of total car sales during that quarter, which was 3.8 million. But hey, EV sales in the U.S. this year are going to hit 1 million for the first time ever, so that’s good. As long as they have a place to charge.
In what I can only see as a hilarious — and completely unexpected — twist MarketWatch this week informed us that “America has a lot of broken electric vehicle chargers. So many, according to a new report, that there aren’t enough qualified technicians to fix them.”
So, there’s a shortage of chargers, there is a shortage of working chargers, and a shortage of people qualified to fix the broken chargers. And the Biden administration wants to put half a million more chargers along roads by 2030. I can already taste the massive surprise that will be coming in the next couple of years.
But all will be well and people will keep buying EVs and displacing oil demand at the staggering rate of 34,000 bpd per 1 million EVs, per BloombergNEF, because of course they will, if BloombergNEF projects it.
If they don’t, possibly because “EV owners told J.D. Power that about 21% of their attempts to charge in public end in failure due to broken chargers or faulty payment systems,” there will be a huge surprise. Because absolutely nobody could have predicted such a development. After all, warning signs are meant to be ignored for as long as possible and then some, to make sure when the crisis hits, it hits as hard as possible.