The modern reality divorcees

"The amount of solar that Mexico has, how they could power themselves ten times over. What do you do with that extra? You could create clean hydrogen which the rest of the world is looking for. And be able to use that as an export opportunity. The opportunity is just so amazing and positive. And the energy reform is an impediment to that."

“Russia has a “very one-dimensional” economy focused on fossil fuels that would be impacted by such a package of sanctions.”

“If Russia invades -- that means tanks or troops crossing the border of Ukraine, again, then there will be no longer a Nord Stream 2. “We will bring an end to it.”

You may or may not have seen all of the above quotes, which I’ve arranged in ascending order of dissociation from reality, from the charmingly naive assumption that where there’s sun there shall be solar power through what can only be called classic ignorance all the way to what I would impolitely call delusions of grandeur because I’m done being polite. In all three quotes, however, what we ultimately see is a divorce from reality that could potentially do a lot of harm.

The first quote belongs to U.S. Energy Secretary Jennifer Granholm. In comments on talks between the U.S. and Mexico regarding Mexico’s legislative push to return more or less full control over the country’s energy market to the state, Granholm said she was worried this would affect wind and solar projects in Mexico, after which she proceeded to say "It is so enviable and mind-blowing how Mexico could lead North America, Mexico could power North America with clean energy between solar and wind and geothermal."

This is an irresistible trigger for an energy cynic such as myself. What about during the night? I want to ask. What about when, you know, it’s overcast? What about, if we’re being honest, energy storage?

This is not Granholm’s first statement of this kind. The U.S. Energy Secretary seems to genuinely believe that where there’s a will (to go renewable) there is a way (just build more wind and solar). Considerations such as the supply of raw materials necessary for this buildup of renewable capacity seem to remain outside her attention although she does recognise the U.S. needs local metal and mineral supply, to be mined sustainably. Sustainable mining is my new favourite buzzphrase, by the way.

One might see an opportunity here for an attack on the Energy Secretary’s dissociation from reality since responsible mining, besides less mining, would also mean more expensive mining, ergo more expensive batteries, ergo more expensive EVs, which would be a kind of self-sabotage for the Biden administration with its priority of EV penetration. I’ve got another two reality divorcees on the list, however, so I’ll overlook this opportunity for now.

The second quote, about Russia’s economy, belongs to the president of the European Commission, Ursula von der Leyen. She was, of course, commenting on the gas price situation in Europe and she was, of course, blaming Gazprom for it, despite the concession that it was delivering contractual volumes.

Now, what’s naivete in Granholm is a somewhat insulting ignorance in Von der Leyen and I don’t mean that Russians would be insulted. I mean that it’s basic decency to do some research on the topic you will be discussing with the media, no less, instead of relying on your own assumptions.

The Russian Federation’s gross domestic product comes from agriculture, industrials, and the service sector. One might assume that the industrial sector, which includes oil and gas, of course, would be the biggest contributor to GDP but it isn’t. The biggest contributor is the service sector, accounting for about 62% of GDP. The industrial sector, which, besides oil, also includes “mining, manufacturing, construction, electricity, water, and gas”, contributes about 35% of GDP. The rest comes from the agricultural sector, whose contribution is about 5%.

But perhaps Von der Leyen was referring to Russia’s export makeup, which is, indeed, more than 50% oil and gas. In fact, oil and gas made up 60% of Russian exports in 2019, according to the BBC. The thing to remember about exports, however, is that no economy is obligated to rely on them for its growth and Russia is no exception. Incidentally, Russia is also the world’s largest wheat exporter. It clearly has a flair for commodities, doesn’t it? What do we do if it stops the wheat flowing?

The point here is not Russia and its economy. The point is the EU’s complacency in energy matters because Von der Leyen’s comment effectively says “We’re more important to Russia than it is to us, so it will play by our rules.” It’s painfully obvious that this is not the case. But what’s sad as well as obvious is that the EU failed to learn anything from the current sanctions it has against Russia.

Contrary to expectations, Russia did not collapse, far from it. And yet the EC’s President is speaking like Brussels has Russia’s fate in the palm of its hand rather than the other way round as evidenced by the flurry of media coverage of the Ukraine situation along the lines of “Ohmygod, what do we do if Putin turns off the gas taps?”.

This brings us to the third reality divorcee, none other than President Biden himself. I have tried heroically to stay away from the whole Ukraine narrative but this latest joint press conference with Olaf Scholz crossed a line and I felt the urge to comment on it, not least because I felt second-hand embarrassment for the U.S. president and it is not a nice feeling.

The perception that the United States can tell every other country in the world what to do is neither new nor exclusive to the U.S. itself. A lot of countries have benefited from the “global policeman” role the U.S. has taken upon itself to play. Many others, being at the receiving end of punitive action made possible by the American financial system, have not had reason to be fans. Yet until recently the discourse about U.S. power to tell countries — and businesses — what to do was kept more or less decent.

President Biden’s “We will bring an end to it” quote threw decency out of the window even more effectively than anything President Trump, John Bolton or Mike Pompeo said during the Trump presidency. This is quite an accomplishment in itself but let’s look at the facts.

The U.S., of course, could impose more sanctions on Gazprom and other companies involved in the Nord Stream 2 project. Congress can always find a reason good enough even if Russia pulls back all the troops it amassed near the Ukrainian border (though that would be such a putdown). The problem is that Germany will not be happy with more sanctions against Nord Stream 2.

There have been assurances that the U.S. will help Europe find more natural gas in case Russia turns the taps off. It is beyond me why someone else should help the EU find gas suppliers as if it was a toddler unable to fend for itself, but this is besides the point. There have been heroic reports of “Biden scouring the globe” to find more gas for Europe as if gas just lies around waiting to be picked up by a lucky passer-by.

The facts, admitted grudgingly, are that Qatar is producing and exporting at capacity and it has long-term contracts. U.S. LNG producers have long-term contracts, which they needed in order to get their future projects going, too. Australian producers have long-term commitments. The spot market is thriving not just in Europe. Besides, what nobody wants to admit is that a lot of global LNG is simply too expensive to replace Russian pipeline gas. Meanwhile, Norway can’t help because it is, too, pumping at capacity and can’t boost that in days.

That Europe has painted itself into a corner with regard to gas is clear. In fact it has painted itself into a corner with regard to more than gas. That Europe will be basically helpless if Russia decides to suspend gas deliveries is also clear. That Russia has no interest — political, reputational or economic — in suspending gas deliveries for Europe could be made clearer but it won’t because the media is milking the “if Russia invades” narrative to the fullest. And that President Biden made a mistake with his “We will bring an end to it” would become clear soon enough. But it won’t erase the embarrassment.

Now, here’s a bonus quote that tackles the most challenging sort of reality divorce: the conflict between “I want it” and “I don’t want to get it the way it’s got”.

"The federal government’s reversal of its position on the mineral leases that Twin Metals Minnesota and its predecessor companies have held for more than 50 years is disappointing, but not surprising given the series of actions the administration has taken to try and shut the door on copper-nickel mining in northeast Minnesota. We will challenge this attempt to stop our project and defend our valid existing mineral rights. We expect to prevail."

The quote is from a statement by Twin Metals following the revocation of two licences the company had for copper and nickel mining in Minnesota. The revocation was motivated with environmental considerations. A classic “Not in my backyard” situation, the Twin Metals licence revocation shows the major internal conflict climate change warriors in positions of power would need to somehow resolve if they are to make any progress.

The energy transition will require metals, lots of them, especially copper. The Biden administration has already started disbursing money for EV infrastructure: $5 billion so far, to be used over five years to build chargers. Meanwhile, the same administration is stopping a copper mining project that would have hopefully reduced the States’ dependence on imported copper at a time of intensifying competition for increasingly scarce metal resources. The message seems to be “We want the result but we don’t want to put in the work because it will hurt the environment.”

This is a good example of how inconvenient facts may be ignored for years but they always surface. In this case, the inconvenient fact is that low-carbon energy generation depends on metals and minerals just like high-carbon energy generation depends on oil and gas. You can’t call these metals and minerals with a prayer or make them in a lab. They have to be mined. You can’t get something for nothing and every human activity has an environmental cost, including attempts to protect that very same environment. And I haven’t even mentioned the solar panel waste problem.

There are many more reality divorcees in positions of decision-making power. This is bad news — if it is news at all — for all of us who foot the bill for these decisions. I can’t suggest a solution to the reality divorce problem, unfortunately, except the hope that as reality reasserts itself, as in the Minnesota mines case, those who can still think with their own brains rather than their media would question some choices that were made and are about to be made in the future.

Here’s one bit of recent news that could be the sort of information to get those brains going, as reported by the FT: SSE, the UK energy company that has faced break-up calls from hedge fund Elliott Management, has raised its full-year earnings guidance as a strong financial performance from its gas-fired power plants is helping to more than offset a steep drop in output from its wind farms.