Europe’s Energy Suicide
European leaders just did something I doubted they would do, which was to immediately ban most imports of Russian oil.
Because this is such a self-harming move, I had thought it was a distant possibility. But, here it is. It has happened.
First, this will be a lot more problematic than officials are letting on. Mainly because “oil” isn’t a thing like potable water is a thing. Oil is a catch-all term for a very wide and diverse set of ancient residues from bygone eras.
Some oil wells produce very light and sweet oil. Some produce heavy, sour oil chock full of sulfur and other impurities that have to be removed during refining. Some don’t produce oil at all but rather a heavy tar-like substance that has to undergo a lot of pre-treatment and subsequent refining steps before it can be consumed.
The relationship between large diversified markets and their need to specific quantities of various refinery outputs is one that has developed very carefully over the past 100 years. The grades and types of oil any given refinery can even process is rather narrow compared to the total oil universe, and many refineries were actually built for the specific output of a given oil field.
Somehow, European politicians are of the mind that they can simply stop buying Russian oil and can replace it elsewhere on the open market. Perhaps that’s possible, but my prediction is it won’t be easy. There will be disruptions.
Second, horrible, terrible, no-good monetary decisions within Europe have already ignited raging inflation. Any additional strains due to oil or gas shortfalls will pile-drive onto an already weakened European economic and monetary situation.
If you live in Europe, please do whatever you can to prepare for a hard landing. Plant a garden. Get a country spot. Insulate your home. Buy sweaters. It’s going to be a long year…
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Europe’s Energy Suicide
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220531_EP63_PART-1_Playing Russian Roulette, Europe’s Energy Suicide
Dr. Chris Martenson [00:00:00] Things just went from bad to worse in Europe, and it’s coming soon to a theater near you. I’m talking about the banning of Russian oil.
Dr. Chris Martenson [00:00:14] Hello everyone. Dr. Chris Martenson here with another episode, episode 63, by the way. Really important stuff going on right now. As you know, I’ve been talking about COVID, I talk about energy markets, I talk about market markets, financial markets, that is I talk about it all because they’re all interconnected events. So we have to talk about these things. I think that what just happened in Europe in the banning of Russian oil is going to have extraordinarily huge impacts. And of course, that comes to us courtesy of politicians who are mainly unserious people in the sense that they’ve never seriously been responsible for the production of anything. They don’t really understand how things work, but man, they’re glad to legislate it and regulate. And of course they’re going to do what’s right from a political standpoint, which increasingly is wrong from an environmental standpoint, increasingly wrong from an energy standpoint, increasingly wrong from an economic standpoint. So let’s go there.
Dr. Chris Martenson [00:01:09] Let’s take a look at these slides. I think that cutting off its own energy, this is not too strong of a term Europe self-destruction. This is what they’re doing. They are self destroying their economy, their people, their households. If you’re one of my European listeners, please, you have to get ready. If you’re listening from somewhere else, you might have to get ready just a little sooner or a little later than Europe, because this is the new normal of what we live in. We have leadership that does not understand what it does. So today we are going to be talking about oil, oil markets, how it functions. This is critical knowledge for you to understand. Now, it all begins here with this news that just came out on the 30th of May and today is the 31st of May. So this came out on Memorial Day in the United States, just in EU, to impose an embargo on Russian oil. So more than two thirds of imports are going to be cut immediately in as if that wasn’t enough. Well, a little addition, a little something, something on top of that. More. In addition, Spare Fairbank, Russia’s largest bank, will be cut from the swift payment system. So you can clearly see that Europe is very pushing, hard to put a lot of pressure on Russia. And, of course, is this going to work? Is it not working? We’ve been fed a lot of stories about how badly things are going in Ukraine for Russia. Clearly, we’ve had a change of heart in that, seeing the newspaper articles with a cloud of late saying, Oh yeah, well, Russia may have taken some losses, but they’re also inflicting some losses as well. It’s a little bit more even, Stephen, than perhaps you’ve been led to believe if you’ve just been following mainstream Western news sources here. I got to be honest, we’re not doing a really good job of telling ourselves the stories that we need to be told. We need more honesty, more reality. So let’s start in with the stories, obviously. Here’s a headline. EU leaders agree to ban 90% of Russian oil by the end of 2022. We’ll talk about what that means and how they get there. In a big bid to punish Moscow, EU bans most Russian oil imports. Quote, European Union leaders have agreed in principle to cut 90% of oil imports from Russia by the end of this year. That’s 2022, cutting off a vital source of funding for Moscow’s invasion of Ukraine. After reaching a compromise deal with Hungary, the 27 nation organization has spent weeks haggling over a complete ban on Russian oil but encountered stubborn resistance from Hungarian Prime Minister Viktor Orban, who said an embargo would destroy his country’s economy and quote Viktor Orban. A little prediction time here. He’s a very populist leader of Hungary, got swept in, although polls said he wasn’t going to happen. It did. So there’s been a big war against populism. Obviously, the truckers in Canada, they just got squashed ruthlessly, mostly in the press, but also by a number of politicians. And then, of course, they’re interested foot soldiers out there in the population who increasingly also seem to be the same people who are very interested, for whatever reason, in increasing totalitarian control over society. Right. Less freedom, more surveillance, less personal choice, up to and including what goes in your body, etc., etc., etc.. So there’s a cohort of people out there interested in going down that route. I’m not. I’ll tell you why. Because that route does not increase prosperity. It always, always limits prosperity. So the mistake is thinking they’re going to give up a little bit of my liberty for a little extra safety. And of course, you get neither liberty nor safety in all of that. And so this Viktor Orban is going to get in a bunch of trouble because he’s daring to put the people of his country first. That’s a no no in the in the current political environment in Europe. All right. Remember, the reason we like to know these things is because if you know where the shocks are coming from, you have a chance to respond and respond intelligently and maybe even improve your current situation, not have it degraded. Otherwise, if you don’t know where the shocks are coming from, well, now they’re just shocks. You’re just a rat in a cage. Next thing you know, you find yourself pointing your finger at inappropriate parties at the street level for the discomfort you’re experiencing. And that’s that’s not how it should be. If once you understand that we live in a circumstance, we all live in a cage, I live in the same cage that you live in. We’re all going to continue to be shocked between here and 2030. There’s going to be a very long series of shocks, and I’m going to go into a lot of what that actually means and how I’m responding in part two of this, which you can find at Peak Prosperity.cCom. If you join up there and become a subscriber, we’ll go into the details around exactly how should you be responding, particularly in Europe. I mean, this is I’ll tell you, you’ve got to get ready. You got to be prepared for much higher food prices, much higher energy prices, a much lower level of economic output. And unfortunately, you have to prepare for the unprepared able, which is the kinds of things that happen when you starve. A complex economy for energy are inherently unpredictable. They are instead emergent properties of a new lower state of energy throughput within that system. This, I believe, is a current. Well, let’s call it. It’s our current predicament, but it’s actually a permanent predicament. Nothing ever goes to heck in a straight line. There’ll be some bumps and wiggles along the way. But this is our new condition, where we’re going to experience less in less and less available energy. Net energy per capita that has huge impacts on how we structure ourselves, how we organize ourselves, what happens, what doesn’t happen in our economy. But again, our economy is not a set of dials and levers that have knowable outcomes. It’s a complex system itself hinged on top of an even more complex system, which is humans and our social and cultural values and mores. Those are unpredictable how they will respond to the new conditions. So new conditions coming. Let’s go here now. So we’re listening here to Mika’s interview with President of the EU Commission, Ursula von der Leyen. Right. Let’s tee that up and give a listen here.
Ursula von der Leyen [00:07:21] Well, what we also always have to do is find the right balance between not hurting our economy too much, because this is the strongest leverage we have against this Russian aggression. Putin’s aggression, as I take the example of oil where we have to be careful, is that if we would completely cut immediately as of today off the oil, he might be able to take the oil that he does not sell to the European Union, to the world market, where the prices will increase and sell it for more. And that’s fill his war chest. So we have to be very strategic in the way we approach that topic. And therefore, it is also so important that we convene the rest of the world to really make sure that we that we deplete his war chest. So a full embargo embargo would really be years away. Over time, over time, what we do is get rid of the overall dependency of Russian fossil fuels, all three of them, and never to go back.
Dr. Chris Martenson [00:08:30] That was last week. Obviously, something changed between last week and this week, but if I had to translate what she said, Ursula said, Look, if we don’t buy Russia’s oil, they’ll just sell it to somebody else for even more. So the way we starve Russia for the capital is we buy it, but we’re buying it for less. Okay, this is not how oil markets work at all. It’s a very fungible product. It’s sold all over the world. It’s not like because the EU is buying it for X, maybe Russia will sell it for x plus y to somebody else’s. It really doesn’t work that way or hasn’t for a long time. Maybe, maybe in the near future it will work that way. I don’t know. Maybe there’ll be a premium on Russian oil that some people would be willing to pay, but that’s part one. Ursula just doesn’t seem to understand how the oil markets actually work. Part two is this other idea of saying, well, you know, oil is just oil, so maybe we could just get rid of Russian oil at some point in the future. You know, we’re just we’re just more use it. I’m going to talk to you about how oil is actually consumed within the system of refining and show you that it’s actually not that simple. This is a cartoonish version, which is kind of like saying, oh, well, you know, you go to the zoo and they feed animals, animal food. So if the zebras run out, we’ll just feed them some lion food and vice versa. It really doesn’t work that way. It’s cartoonish to think there’s animal food. It’s certainly a classification. But beneath that, there’s some important distinctions between the types of animal food. Hopefully we would know that if you have a hamster. Probably not going to be feeding it too long in your cat food and vice versa. So at any rate, I think this was a really ignorant set of statements to be said, but it turned out that they didn’t even last a week because where she said she was put on spot, like, does this mean you’re going to eventually ban Russian oil? I know. Yeah. Maybe someday, you know. Well, it just happened. So two thirds gets cut right away. The remaining 10% is up to that. 90% is going to be temporarily exempt from sanctions so that Hungary, Slovakia and the Czech Republic, which are all connected to the southern leg, leg of the pipeline, a pipeline that’s been coming out of Russia for four decades, continue to have access to fuel they cannot easily replace. Russia has chosen to continue its war in Ukraine tonight as Europeans united and in solidarity, solidarity with the Ukrainian people. We are taking new decisive sanctions. That’s from French President Emmanuel Macron. Of course, he tweeted that, quote, The compromise means other measures can also take effect, including the disconnecting of Russia’s biggest bank, Sberbank, from the global swift system, banning three state broadcasters. So you can’t even have your stuff over here, can’t can’t even hear the message. And blacklisting individuals blamed for war crimes. So. The normal way that it works across Western countries is the idea of guilt. Innocent until proven guilty here? Yeah. They’ve been blamed for war crimes. That’s the way it’s going to go. And so this is clearly being framed as if it’s a global. All civilized people agree, but it’s not true. About 15% of the world’s population is on this bandwagon and another 85% kind of aren’t. There’s a lot of countries that have not blocked Russia, banned Russia, all that. So this is just Europe with a lot of prodding from the United States, blocking itself from access to Russian oil. So you think, oh, what’s the big deal? What’s the big deal? I’ll show you what the big deal here is. So let’s get there and make this just a little bigger. Get my drawing tool out and take that off. So we’ll just make this a little bigger for this down.
Dr. Chris Martenson [00:12:14] So I can read it more easily and you can read it more easily. Quote Russia has also not shied away from withholding its energy supplies despite the economic damage it could suffer as a result. Russian energy giant Gazprom said it cut natural gas supplies to Dutch trader Gas Terra on Tuesday, a move announced before the embargo was agreed. It already turned the taps off to Bulgaria. Poland and Finland is considering doing the same to Denmark. Gas Tero said homes would not be hit as it had bought gas elsewhere in anticipation of a shut off. There’s going to be a little this jockeying around, but this is gas to natural gas. I mean, obviously for us people, when I say gas, I always mean natural gas. Gasoline is gasoline. All right. So this is a pretty big deal because as we look at where obviously this gas comes from and we’ve talked about this extensively in the past, this isn’t just the oil that is now embargoed from Russia, but it’s the gas, too. You can see here the places that have already been cut off from. That which they mentioned Finland and we just had a little cut off to a place in Denmark. And where else? At any rate, you can see here all of these in the pinkish color here. These are all already get 100% of their natural gas from Russia. These lighter colors get some lesser amounts on down to zero in Spain because a lot of their gas actually comes from across here from Algeria. So at any rate, a lot of gas dependency in Europe. If Russia suddenly cuts off the gas to Europe, Europe is really, really, really in a dark place, literally, and a cold place, literally. Those two things, it’s going to be an extraordinary economic disaster. And you put that on top of the monetary disaster that the ECB has already inflicted across the European continent. It’s astonishing just how bad that’s been. Well, we’ll have to talk about that some more at some other point. But carrying on here. So look at the European natural gas supply. See where it comes from. All of this stuff down here in the darker brown. This comes from Russia. This is an enormous amount. That’s part one to take away from. This in part two is notice how domestic production in the EU has just been declining year over year over year over year. And that’s a normal thing that happens with any fossil fuel well, a gas well or an oil well, they start out strong and they get weaker over time and then they play out and they deplete. Eventually they are completely depleted while they’re depleting. Usually see that decline in output over time. So this is very normal. Welcome to this new normal. We are now living in an age where humans no longer have access to as much new sources of fossil fuels as we want, mostly leaving coal out of this conversation. It’ll come back. Trust me. We’re going to burn all of it. Not because we should, but it’s just how humans are wired. But the most important, most exceptional fuels we’ve ever had as a species is oil and natural gas. You’re going to be hearing more and more about this over these next coming months and years. So this is an early warning. I’ve been talking about this thing called peak oil for a while. It’s not a theory. It’s not a some hypothesis. It’s just a description, an objective description of geological fact. Every single well has a beginning, a middle and an end. A collection of wells has a collective beginning, middle and an end. An entire field has a beginning, middle and an end. And there’s only so many fields. It’s really not a hard concept, but when every single fiber of your culture is wrapped around an idea that says, We’d rather that wasn’t true, you find that there’s a lot of resistance to getting these ideas out there, and there’s a lot of ignorance around exactly how important this substance is when you just sort of assume it into existence, which so many leaders seem to want to do.
Dr. Chris Martenson [00:16:15] So let’s cover it again very quickly. This is looking at GDP and it’s proportional to oil consumption, GDP, gross domestic product, a marker for our economic output. These are all different countries. Every dot is a country. So in 2017, on a log chart, log chart across both axes, asking the question, how much GDP did they have? How much oil did they actually consume? And you can see that our square 2.93 says if you want 93% of the explanatory power of how much economy a country had could just simply be understood by looking at how much oil they consumed. And of course, this makes complete intuitive sense. Just open your eyes next time you’re on the road. All the lorries or trucks and ships and planes and even all the diesel locomotives, you just look at all the things going from A to B, that that’s just the transportation courtesy of oil. But then we use it for all kinds of industrial processes and it’s a feedstock, I think 2000 separate input feedstocks. It’s astonishing. We’ll get to that in just a second. So oil is an economy if you want to understand how much economy, oil. So what happens? What’s the prediction when a continent. Cuts itself off from its oil production. What do we think would happen to Germany’s economy if for whatever reason it took itself? Get my drawing tool back out here from this much oil consumption and took itself down to this much oil consumption. I’ll make a very easy prediction. Its economy is only going to be that big. If I could draw a straight line that big. Right. It’ll be smaller. That’s easy. And by the way, no alternative energies are not coming in save the day. You know all you read all the headlines. Hey, this is Europe speaking rule. Get rid of Russian gas and oil and I’ll tell you what will replace that with solar and more wind towers. No, you won’t. But leaving aside the subtlety that every single solar and wind installation is subsidized by fossil fuels, in particular oil in the construction of the long wind blades and the making of the steel that goes into the towers and the base, the concrete, how that gets, how the limestone gets cooked. All of that stuff requires fossil fuels. And if you ignore all of that and then put the wind tower up and then say, Well, look at all this energy we’re getting from wind without first considering how much oil was baked into that process beginning you get a bad picture. This again, it’s a form of self-deception. Regardless, this is current as of 2019. Please look up here. So this is traditional biomass down here. This is coal, oil, natural gas. These three together right here is still about 80, 85% depending on the country area. But for global area, it’s 80% of the globe’s energy consumption, production consumption comes from. Fossil fuels. And then on top of that, you see a little nuclear, which is that that orangish. So it’s a pretty thick smear right there. Right. And then we have hydropower, which is this next big sort of, I don’t know, aqua color blob on top of that. And then those last three up there where you get actually other renewables, modern biofuels, solar and wind, they’re these little tiny things up top here. Little, tiny things. There’s smears at the top of this. So the idea that we’re going to just take those little smears and suddenly massively replicate them is just a fantasy. We won’t. Can we get by on a lot less energy? Yes, we can. Will we do it if we have to? You bet. But does that mean we can continue to operate our financial systems and or economic systems as they were? Just by other means using alternative energy. The answer is no. Absolutely not. Totally. Just makes a ton of sense. Eventually, maybe, but not anytime soon.
Dr. Chris Martenson [00:20:10] So this is in the Wall Street Journal. I found this quote. Talking about this EU ban on Russian crude, saying, quote, If it is just banning the crude import, if if it is just banning the crude import, it basically lengthens supply lines, says Alan Gelder of Wood Mackenzie says You think you know what? You ban Russia, but it just lengthens the supply lines because they’re not getting Russian crude anymore. But then Russia sells its crude to somebody else and then somebody else doesn’t need that other crude they were buying. And then EU gets to buy that crude. So really, honestly, when you break it down, if you’re saying if your point of view is that they’re just just increasing supply lines, what you’re really saying is nothing has happened at all. Russia’s still selling their oil. They’re still getting money for it. It’s just not a direct sale to the EU. It’s an indirect sale to the EU because who the EU is buying their oil from used to be selling their oil to somebody else who’s now buying Russian oil. If that makes you feel better, Europe, go for it. But I think this idea that all that’s happening is it’s just lengthening supply lines. Well, obviously, that’s friction in the system, but also it’s not completely accurate because, again, we have to get rid of this cartoonish vision of like oil is oil is oil is oil. It’s not. There’s a lot of complexity in this. So I want to go into that just a little bit.
Dr. Chris Martenson [00:21:28] This is how we’re going to not be rats in the cage. We have to understand things like this. So little Oil Refining 101. I’m not a world expert at this, not any sort of an expert, but I know enough to be able to give you the basics so that hopefully you can appreciate some of the complexity involved here. And it’s astonishingly complex.
Dr. Chris Martenson [00:21:46] So first up, we take this stuff called crude oil. And it’s a it’s a mix of things. It’s a bunch of different things. Like think like when you first buy like a 10,000 piece Lego set. I’ve never bought one, but if you did, has all those things, if you just packages, if you opened up all those packages, dumped it all out on the floor, you’d have little tiny pieces, big flat ones, long ones, different shapes, colors. That’s basically a crude oil is it’s like a Lego 10,000 piece Lego set just dumped in. It’s got all these different compounds in there in the way you separate those from each other is in this process of what’s called crude oil distillation, not all that dissimilar from distilling alcohol where you have to separate the alcohol from water. Same process. You have this liquidy substance, you heat it up and it begins to evaporate off and it evaporates off at different temperatures. And by controlling the temperature, you control what you get out at the very top stuff here that basically has a very, very low boiling point like butane. So if you’ve ever, you know, all your butane later when you press the little lever down and you hear it coming out, that’s because it’s a liquid. You can see the liquid. If you had one of those clear lighters and that liquid is sloshing around because it’s under a little bit of pressure in there. And as soon as you let that pressure out, it becomes a gas. It doesn’t spray out as a liquid. So butane really likes to be a it’s a liquid and a little bit of higher pressure. But it normal room temperatures, it really kind of likes to be a gas. So these are things like methane, ethane, propane, butane, those are all very light products. And then you have this gasoline stuff and getting a little heavier. You have naphtha, which is a gasoline product and then you get kerosene and jet fuel coming off of here. Then you get your diesel, tasty, tasty diesel down here. Then you get your heavy gas oils and your residual fuel oils, all of which could be turned into things like bunker fuel for ships. Oceangoing ships can be those things can be broken and put back into the system, make new stuff. Anyway, here’s kind of how it looks. So this methane is a compound with one carbon atom and it’s got four hydrogens. So you can see those four hydrogens around the outside right here. So that would be ch4. That’s methane, natural gas. If you have two carbons next to each other, it’s called ethane. And if you have three, it’s called propane. And if you have four, it’s called butane. Methane is a complete gas at normal temperature. In fact, you have to make it in pressurized or enormously cold in order for it to be a liquid here on earth. Surface ethane, yeah, it’s got to be pretty darn cold, but not nearly as cold as methane. Propane, very easy to turn that into a liquid under pressure, butane much easier. But then once you get up to the things that have five or ten carbons, they have pretty high boiling points. And these are things that would be like gasoline, gasoline, you can smell. It evolved to lysis pretty quickly, but it’s a liquid. Thankfully, it’s a liquid at standard temperatures and pressures and then carrying up the scene, 10 to 16 carbons in a row. One, two, three, four, five, six, seven, eight, nine, ten or 16. That’s a kerosene.
Dr. Chris Martenson [00:24:55] You got gas? Oil’s at 16 to 6. So these are very big, long things. All right. Why am I going into all this? Because the kind of oil that you get out of the ground, it comes with all sorts of different combinations of these different things in there. It comes with some have a lot more naphtha is in there. Some have a lot more fuel oil in there, on and on. They are very different grades and they have very different purposes. So let’s go there real quick. And by the way, this is what an oil refining process might look like. You see crude oil coming in here and then it goes through all this stuff. It gets separated and cracked and alkylating and it look like there’s tons of things. It’s very that’s why they look like this. That’s why when you ever see a refinery, it looks like this is because there’s all kinds of different processes being run in there. And those big, tall columns typically are those are those distillation columns. But the rest of them are all these pipes because you have to draw stuff off and then you have to put hydrogen on it, or you have to take hydrogen away and you have to do sulfur at it, or you have to whatever you have to do to it. There’s a lot of steps. And by the way, those steps are unique for each grade of oil. How many grades of oil are there? Hundreds. Every oilfield kind of has its own characteristic. It comes out with a certain amount of sulfur in there, comes out maybe with a bunch of vanadium, which is another element from the periodic table. They come in with all sorts of other impurities, whether they’re light or heavy, sweet or sour. That’s a sulfur designation. That’s the nature of the business. So when a refinery is tuned for a specific grade of oil, it’s kind of tuned for that specific grade of oil. It’s not easy to make it tuned for a different grade of oil, a substantially different one. So in the United States, we have a lot of refineries, many tens of billions of dollars of investment there invested in processing heavy crude. So the United States starts drilling in the in the shale oils and gets all that shale oil out. So when you drill into shales, you get a very late sort of a crude we didn’t know what to do with it. So we started shipping that overseas and we started bringing other forms of crude in because our refineries needed that other grade of crude. So you could start to appreciate some of the complexity. Obviously, you can see the complexity in these pictures, very complex systems. You can see this. It’s a very this is just a simple schematic. Very complex systems. All right. So crude oils, they’re not all created equal. This is a bunch of different grades down here from West Texas Intermediate, the WTI and Brent. Those are the two main grades that are quoted. When you hear the price of oil is X, they’re quoting typically the Brent, which is a benchmark for world oil prices, even though it’s about 1% of the total amount of oil consumed in the world is actually the Brent grade, maybe one and a half percent WTI, that’s West Texas Intermediate. It’s a grade of oil in the United States that actually. We don’t have as much of that anymore. We have a lot more of this lighter stuff actually that’s coming out of the shale wells, at any rate. On and on we see here some other ones down here all the way down to this Eocene oil way on the end down here. And this Maya, this is a mexican grade. But what you’ll notice here, see this naphtha, which is basically a gasoline on the WTI, you might be as high as, say, 38% of the oil in West Texas Intermediate. If you took that barrel of oil, 38% of it is going to be the snap, the stuff. It’s just how it is. Not a lot you can do about that. Meanwhile, if you took something like the Maya blend down here or the Eocene, they might be as low as ten while 12% huge difference in the grades of oil. So I think you could appreciate if you had a refinery tuned for Maya or Eocene and you couldn’t just stuff it with some WTI, you know, hope for the best because they’re just not it’s a totally different process, plus what you get out of it. A refinery doesn’t just refine crude and then magically we all use it. A refinery refines crude, and then it has all these different markets for the things that come out of that. There’s different feedstocks are making paraffin waxes, asphalt, all sorts of different grades of fuels. They all have to go into different storage tanks because you can’t store your diesel fuel with your gasoline, with your bunker oil. You store them all separately. So when a refinery’s all tuned up, it’s getting a grade of oil that it expects, that it knows how to deal with. It runs it through its process. The outputs go into various storage tanks and then customers for the storage tanks show up and take what they need. And over well, took about a hundred years to get that sort of figured out and really well tuned.
Dr. Chris Martenson [00:29:31] So the idea that Europe’s just going to change all of that because the politicians feel like it is going to create some difficulties, is the prediction I have and know the U.S. shale oil boom is not going to save Europe’s bacon. There’s a huge amount of disinformation, misinformation, mail, information that I have to correct because we’ve done a bad job here in the United States and by extension to the world being honest about what shale is and what it isn’t. So to start that conversation off, first, let’s notice here that this is the proportion of distillation yields from three different crude oil types. This information comes to us from the Energy Information Agency, the EIA. Whoop, there it is. So notice here the mike has I’ll tell you what that 20.5 means in just a second. And then you got this Bakken, which is a type of shale oil, and then you’ve got your Eagle Ford, which is super duper light stuff like basically gasoline coming out of the ground. So and you can see that this naphtha, this is how much gasoline comes out of the Eagle Ford, straight out of the ground. Just pretty much just distill it lightly. And you’ve got gasoline compared to the Maya. You can see the minus, maybe 20%. That’s how much gasoline you’re going to get out of that. But here we’re getting closer to 50 some percent ish. And then this green part, this is what Europe runs on, mostly diesel. And of course, all our trucks in the United States run on this part. They all there’s a pretty decent diesel fraction in the shale oils, which is good. But what you don’t get a lot of is this stuff down here, which is the vacuum gas, oil in the vacuum residual oil. Both of those can be converted into a lot of different things. But those are the things where you’re getting a lot of what’s called bunker fuel or really heavy machinery, fuel oils out of and also the lubricants and things like that that we use to keep everything running. So that’s that’s a pretty big deal. And so if we sent a bunch of our shale oil over to Europe, they’ll get a lot of gasoline out of it, which they don’t really need, and they’ll get a lot of diesel out of it, which is good. They’re not going to get a lot of this other stuff out of it, which is bad again, because every refinery is like a little mini economy and it has all of its partners who it receives the feedstocks from, who it is that’s taking off its products. And how those products are used in literally countless processes out there is a big deal. But here’s the second reason. This is the second reason U.S. shale oil is not going to save the bacon of anybody, including the United States, for all that much longer. This is probably the most important article of 2022, right? When it came out in February of 2022, I immediately brought this to the attention of my subscribers because it was that important. So I’m sharing it here with you.
[00:32:14] Now, this is in the Wall Street Journal saying oil frackers brace for end of the U.S. shale boom. End of the shale boom. I thought this was Saudi America. This is like because we’re so ingenious, this we’re never going to run out of energy, right? Oh, check this out. The end of the boom is in sight for America’s fracking companies. Less than three and a half years after the shale revolution, we’re like a retirement party. Thanks our Berman for that. One quote made the U.S. the world’s largest oil producer. Companies in the oil fields of Texas, New Mexico and North Dakota have tapped many of their best wells. If the largest shale drillers kept their output roughly flat as they have during the pandemic, they could continue drilling profitable wells for a decade or two, according to a Wall Street Journal review of inventory data analyzes. Here’s the critical part in Green quote. However, if they boosted production 30% a year, the pre-pandemic growth rate in the Permian Basin, the country’s largest oil biggest oil field, they would run out of prime drilling locations in just a few years and. If, if, if, if we were going to ride to the rescue, you know, if we the United States were just going to ride to the rescue the world and suddenly just start drilling like crazy and bring all this Permian Shale oil out to the world. We could do that for just a few years. The article goes on notes about three years, and then we’re out of good core acreage. We’re down to some marginal acreage, but it’s over. And here’s the thing. Where does that leave us? Where does that leave the United States? Where are we going to be at that point in time? I mean, I get it. It’s important politically right now, too, to help Europe out. But we got to be honest about this. There’s only so much oil that we have and it’s finite. And the question really ought to be, where are we going with that oil and what do we want to do with it? Right. Because when it runs out. Not if one. We have a very different country in front of us, so we have a lot of very big things that we would have to do. We have to completely retool our energy infrastructure. We have to think about where we live, eat, work, play, how we’re going to transport ourselves and how those are geographically contiguous and relevant. And we don’t have any of those answers at this point. It’s still just like we’re not now. It’s now wouldn’t be a good time to have that conversation. It’s an election year. It’s a this, it’s a that. It’s never a good time to have a hard conversation, but we’re going to have to have one. So I’m talking to you about this right now because Europe’s just about to go through it and we’re going to get a pretty good view of what it looks like when not if, but when you kind of skate into an energy crisis that you haven’t fully planned for.
Dr. Chris Martenson [00:34:54] Now, here’s the kicker. Europe is way better prepared for this than the United States. They have much lower energy consumption per capita. They have a much more organized and relevant and coherent way of moving themselves about where their green belts are, how they conduct agriculture. There’s a whole lot of things that Europe has done arguably better, and they’re still going to be first down this path of skating into less energy than they need to keep everything functioning as it has been. That’s the message I have for you today. All right. So carrying on. So what is Europe’s actual issue going to be? Well, they’re going to be looking for light oil. So we can see here the millions of barrels per day that goes through the refinery system looking at Europe in total. This is light, sweet, light, sour. Sweet means very low sulfur content. Sour means high sulfur content. The refining capacity is about split. Looking for light sweet or light sour, regardless which one they’re looking for. That’s what they’re looking for. So if Russian oil is coming in, they don’t just get other oil. They have to find other oil that replaces as close as possible. The Russian oil that’s going to go missing, because your refiners, again, are very complicated devices that require a very specific input feedstock. If you don’t have that, hey, you can retune them, you can retool them. You maybe even have to rebuild them. But one thing you don’t do is just go to the open market and buy oil. Yet it’s a lot more complicated than that. All right. So look at this. These are the crude grades down here that are coming out of Russia here. And they have different grades here. ESPO is a grade of oil. It has an API of what’s called 36. What’s API? API is this really weird thing? It’s a measure of the specific gravity of oil or oil’s gravity. Specific gravity in relation to actual specific gravity of water, at any rate. The way the calculation is run an API of ten or higher because it’s an inverse number. This stuff all floats on water. So if it has an API of ten or higher and you spilled it, it would float on water. If it’s got an API below ten and you put it on water, it sinks. And so the higher the number, the lighter it is. Basically, I think, you know, if you said butane, which just has a soup, you know, just comes squirting out the API of that might be, I don’t know, 70 or something. I’m just making that number up is very high number. So this is what this is what Russia is basically delivering. Here we see that to be a light oil, you have an API of 31.1 or above. So when they’re looking for light oil up here in Europe, they’re looking for something with an API of 31 or above. That’s all the grades here that Russia is selling. They’re selling a lot of light oil here. And the sulfur content ranges from very, very low. The Sakhalin Bend blend here, 2.16% oil. Sorry, sulfur to oil ratio. It’s very, very low sulfur. Super sweet. Very, very sweet. Even this at 1.48 is not all that sour. So this is principally what Europe’s going to be looking for is a lot of this stuff, a lot of light sweet. That’s what they’re looking for. The United States can supply that to a point, but not a lot and not forever, because where we are in our own shale story and again, you can’t just change these things abruptly. So look at this thing inside mind. Start EU down here. They got a really good PDF on the whole oil business and how it functions. It’s pretty good read. They say here quote There are specifications for over 2000 individual refinery products and it took a full century to develop markets for all the fractions of crude oil. And this tree shows all these different things. You got obviously fuel oil and diesel oil, but you got quenching oils, you got plasticine, you got wood preservatives, polishes, organic chemicals, greases, graphite on and on and on.
Dr. Chris Martenson [00:38:49] About 70% of oil goes for transportation, diesel, gasoline, bunker oil, which goes in ships. The other 30% goes into the rest of the things on that tree. It’s all the other products out there that make this life of ours possible. So when we think of crude oil, often it’s like, well, we’ll just have people drive more slowly. We’ll save some. True to a point. But it’s not. Actually the whole point about it, 30% of the story of oil is the story of everything else besides moving ourselves around. And it’s a very, very big story. Important part is it took a hundred years for all of this to sort of develop. And if you suddenly just swap out one grade of oil and you try and cram and another grade of oil, a lot of the branches of this tree get shaken up and ruffled. Now, even more importantly, it’s not just complicated, but it’s complex. This is an energy flow diagram showing how much energy in quadrillions would be to use exists in something like petroleum. Over here with a number like 32.2 trillion BTUs of of energy coming in or no trillion quadrillion. And then you see it comes over here and two big fat pipes come off. One pipe goes into transportation. So a bunch of it flows this way and a bunch flows over here into industrial processes. Almost none of this very, very tiny amounts. This little green line right here, very tiny amounts go up into residential and commercial buildings for heating or cooling or things like that. And then to follow this chart all the way through, this is the actual energy service we get out of it. It does something valuable, performs work, it moves a 30 ton thing from A to B, but there’s a lot of what’s called rejected energy because that’s just the heat. But you drive somewhere and you turn off your internal combustion engine car and you feel the hood and it’s hot. That’s the rejected energy. It’s it’s energy in the oil that got turned into heat instead of work just how it is. So what I love about this big flow diagram that shows all the different sources and the relative contributions to each of these big things that we like to do, which is we have residential households, we have commercial real estate buildings, we have industrial processes and we have transportation.
Dr. Chris Martenson [00:40:56] Those are the four big buckets. Now, here’s why this is super interesting. Hey, we’ll just go to electric cars, right? Cool. So this is 2020 and it’s not all that different here. In 2022, you see this little tiny line or you’re that little, tiny, thin little line right there. That’s the contribution. If we chase it down of electrical production coming over here and it comes down here. That’s electrical electricity usage that goes into transportation. No, we’re not going to suddenly fatten up that electric transportation line to be anywhere near taking over this fatty right here, which is the contribution of oil petroleum into transportation. It’s just it’s tiny. It’s a little tiny little line. In fact, it’s 0.02 compared to 21.9. It is a skinny fraction of what’s actually involved in petroleum. So if we said, oh, we’ll just move things around, we’ll just get more electric cars. You have to understand there’s three things involved in that transition. Moving from oil over to electric modes of transportation. There’s time, there’s scale, there’s cost. How much time is it going to take to build enough cars, trucks, busses in order for that to be a relevant statistic? There is the scale of it all. Do we even have enough engineers? Do we have enough manufacturing plants? Do we have enough lithium? Do we have enough raw input feedstocks? And then there’s the cost, which is, you know, we’ve already put all this embodied energy and capital into having this internal combustion engine truck. What if we just crushed that up and replaced it with an electric truck? Sounds cool, right? You just wasted more energy because the embodied energy in that truck got destroyed as you. And then you had to spend energy building this new one, too. In fact, the best way to do this is the time component is you run down the current capital that you have as you replace it with this new form of capital. That’s how we moved from sailing ships to steam ships to oil based ocean liners and things like that. All right.
Dr. Chris Martenson [00:42:59] So any rate, timescale, cost, it’s going to be complicated, complex. No, you should not believe any headline that says we just have to get a little bit more serious about electric cars and this is all fixed. Ain’t going to happen. All right. Speaking of which, so higher energy costs on the way for Europe, if not limiting amounts of energy that are going to cause perturbations within the economic sphere. But from a monetary standpoint, it’s going to we’re going to see higher prices for fuel, and that’s going to be worldwide. But Europe’s really going to feel the bite on this higher energy cost. Hey, just what Europe needed, because Europe just reported it hit another record high in eurozone inflation as food and energy prices soar, both of these are going to get a little bit worse based on this EU decision. Energy cuts, just what the UK needs with, of course. Now, ministers have been reportedly, quote here, warned of potential power cuts to as many as 6 million households this winter and the Government’s drawing up plans for rationed electricity. A supply issues deteriorate. According to the Times. Government modeling of a reasonable worst case scenario predicts major gas shortages in winter if Russia cuts off. More supplies to the EU more than has already been done. Think that’s on the way? At least the idea of saying, hey, Russia. We’re going to cut off your largest bank from Swift Processing so you can’t do business. Hey, Russia, your sovereign reserves are neither sovereign nor reserves. We’ve just unilaterally sort of decided not to honor those. So. So we’ll cut that off. But please keep selling us your natural gas for currency units that you can’t actually spent. I’m not clear why they would be. It all by Russia would be at all in their interest to continue following that particular plan. Obviously it’s stupid. They’re not going to. So this what they’re talking about here, quote is as a result, 6 million homes could see their electricity rationed primarily during morning and evening peaks and curbs that may last more than a month or or forever, depending on how bad this gets, in essence. So that’s not good. So the UK doesn’t need any more of that action. And as well we’re already seeing across most of Europe in here in the case of the UK, cost of pasta and bread surges for Britain’s poorest. Not sure why them. It serves for everybody, but on a percentage basis, I guess worse for the poor. A 50% increase in a packet of pasta and a an increase in the price of a loaf of bread by 16%. So already we’re seeing these food inflation. We’re seeing it all over the world. This is going to continue in part two. I’m going to continue on that story. We’ve got to look at what’s going on in Sri Lanka. We have to look at what’s going on really with respect to the monetary situation. It’s pretty bad because we have two things happening. We have a legit shortfall in energy being exacerbated by certain political decisions in a larger geo political climate. And then we have monetary printing, which has been a disaster for decades now. But really what was a disaster on steroids in the last two years? Because COVID, right. Think of how many things happened because of COVID that turned out not to be awesome for ordinary humans and regular citizens. Citizens. So conclusions here for episode 63.
Dr. Chris Martenson [00:46:23] First, Europe’s political decision to cut itself off from Russian oil will be a severe blow at a moment of extreme economic and monetary fragility. It’s going to. This is going to hurt people. So I really want my European listeners in particular. You’re going to have to start getting ready for this. Now you’ve got Summer. That’s cool. Please plant a garden. Get ready for these things. No. This is supposed to say alternative energy. A l t let me just get in your and change that real quick, if I can. So no alternative energy is not going to save the day. Just ain’t going to happen. It can’t. It’s just too little, too late. And it’s going to nip at the margins at best on this story. No U.S. shale oil won’t save the day. Hey, could save a day, but it’s not going to save the year. Not going to save the next decade. We have a serious energy predicament on our hands. The sooner we can get our minds around that, the better off we’re going to be. Yes, the machinery of oil refining and market distribution is exceptionally complex. One does not simply swap out a grade of crude and throw entirely different one in there and say it’s all going to work out. It’s not that simple. I’m sure that the refiners and the people in the business in Europe are scrambling, looking for replacements. But it may not be entirely possible to completely replace the Russian grades. If so, there’s going to be a lot of retooling. Refineries are going to have to be refashioned. But even with that big, big threat here, Russia can’t find a new market immediately for all that oil that Europe’s just said it’s not going to get. So it’s going to have to it only has so many storage tanks, which means Russia’s going to have to soon as the storage tanks are full. What do you do? Pump that oil on the ground? No, what you do is you shut down the fields. But this isn’t as simple as turning a stop on a faucet. This is more complicated. Oil fields weigh underground, are fractured and complicated and complex. And they have very, very complex geologies. And the ways that you have to go about shutting a field in is exceedingly complex to make sure that you don’t ruin it or damage it in some significant way. And then once it is actually shut in, it takes a long time to get it started up again. So let’s say Europe is just like, you know, let’s just make a point. Let’s just make a point. We’re going to just make we’re going to make things tough on Russia for two months. And in that two months, Russia has to shut fields down. And then Europe says, Sake, just kidding. We’d love to get that oil back. We’re good now, right? It won’t be that simple. So I think this decision is going to lead to a world wide oil shortage and it’s going to be persistent over the next few years. And those are going to be really tough years.
Dr. Chris Martenson [00:49:01] And by the way, all of this is in the context of Russia sorry, China coming back online, who has been offline to the tune of almost 2 million barrels a day of consumption is now coming back online. It’s also a really awkward moment. And of course, I think China will be more than happy to take Russian oil whole. Another geopolitical story around that bottom line. I think this move by Europe is going to hurt itself more than it causes any sort of perturbation within Russia. All right. Finally, I think it was dumb move. I’m really, really sorry. I’m so sorry that so many people in Europe are going to have to experience these severe disruptions courtesy of really failed leadership.
Dr. Chris Martenson [00:49:43] And so. My prediction is this fall and winter, it’s going to be really tough from a food standpoint as well as from an energy standpoint. That energy cost is going to be very much higher worldwide. Europe is actually potentially going to find itself legit short of energy, which has a whole different set of ramifications around it. So remember, it doesn’t have to be this way. So if you’re watching this, you know, set a timer, watch this again and say November of this year coming up in a number of months and see if this was a prescient piece to be putting out there or not. I just wanted to alert you to the idea that oil markets are very complicated. Refining is a very complex business. All the markets around all the products are very complex. One does not simply just decide to turn off a set of relationships that have developed over many, many decades and stabilized around that and say, we’ll just buy this from somewhere else. I think if there were legit oil people in that room in Brussels, they didn’t have a very loud voice or not a loud enough voice to talk about what really needs to happen at this point. Unless it’s all just a plan to destroy Europe’s economy, in which case well played, because that’s what’s going to happen here. All right. That’s what I have for you today.
[00:50:54] Remember, come by Peak Prosperity dot com. If you want to see part two of this, we’re going to carry the conversation on. We’ll be talking about, hey, the kinds of actual preparations maybe that you should take and I’ll show you what I’m doing. All right. That’s it. See you next time. Bye.
- Six million Brits could face power cuts this winter with Government planning electricity rationing
- Euro zone inflation hits yet another record high as food and energy prices soar
- Oil Frackers Brace for End of the U.S. Shale Boom
- Refinery Feedstocks and Products, Properties and Specifications
- High prices, Asian markets could blunt EU ban on Russian oil
- EU leaders agree to Russian oil ban after compromise with Hungary
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