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Forward Guidance
The Food & Energy Crisis Has Only Just Begun | Doomberg
May 5, 2022
01:12:48
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Quick takeaways
- The surge in oil and natural gas prices is due to policy errors, which could lead to an energy and food crisis.
- Europe's heavy dependence on Russian natural gas poses a vulnerability, exacerbated by Germany's rejection of nuclear power.
- The correlation between natural gas and oil prices is expected to return, leading to higher prices.
- Energy conservation is dependent on energy supply and trade-offs between renewable energy and fossil fuels must be considered.
- Disruptions or price rises in energy sources like natural gas can directly impact the availability and cost of agricultural commodities.
Deep dives
Dunberg's Mission and Value Proposition
Dunberg was founded with the mission to explain non-finance concepts to finance people and debunk fallacies in policy decisions. They focus on energy-related issues and aim to connect thoughts, entertain readers, and provide clarity on complex subjects. The brand's threefold brand attributes are being provocative, funny, and educational.
The Challenges and Future of Energy Markets
One major challenge in energy markets is the lack of scientific training among leaders and policymakers, which leads to unscientific and impractical decisions. The energy sector's move away from traditional fossil fuels and the defunding of exploration and development exacerbate the supply-demand imbalance. Political uncertainty, environmental lawsuits, and stunted domestic energy development also contribute to price spikes. The future of energy markets is uncertain, but high prices are likely unsustainable and could ultimately lead to reduced economic activity and negative consequences for people at the poverty line.
European Dependence on Russian Natural Gas and Oil
Europe's heavy dependence on Russian natural gas, which accounts for 125% of the entire US LNG export capacity, presents a vulnerability. German policy decisions to phase out nuclear power and reliance on Russian gas have contributed to the continent's energy crisis. Building import terminals and diversifying gas sources are possible solutions, but they require time and substantial investment. The oil market is more global and less heterogeneous than natural gas, providing more opportunities for alternatives. However, barriers still exist, such as decapitalized oil production and concerns about OPEC's spare capacity. Price volatility in both natural gas and oil markets poses challenges for businesses and economies.
US Natural Gas Price Correlation with European Arbitrage and Oil
The podcast discusses the correlation between natural gas and oil prices, which used to be tight but was disrupted by the shale revolution. The availability of excess natural gas resulting from this revolution has led to a divergence in prices between Europe and the US. The podcast argues that with increased export capacity, the correlation is expected to return, leading to higher prices. However, the political tolerance for high gas prices in the US remains uncertain.
Energy Conservation, Demand Destruction, and the Risks of Green Policy
The podcast explores the concept of energy conservation and its implications. It argues that energy conservation is ultimately dependent on the availability of energy supply, and any disruptions in supply can lead to demand destruction. The podcast emphasizes the importance of energy in supporting overall standard of living and highlights the trade-offs between renewable energy and fossil fuels. It questions the effectiveness of green policies that prioritize renewable energy without considering the practical limitations and potential negative consequences.
Preparedness and Self-sufficiency in the Face of Energy Instability
The podcast briefly touches upon the concept of being prepared and self-sufficient in the event of energy shortages or disruptions. It mentions that some individuals, including members of the podcast team, practice preparedness by storing extra food and supplies to reduce their reliance on easily disrupted supply chains. The goal is to bridge the gap during potential shortages and ensure a certain level of self-sufficiency in the face of energy instability.
Balancing the Risk-Reward of Renewables and Fossil Fuels
The podcast delves into the risk-reward analysis of renewable energy versus fossil fuels. It acknowledges the desire to minimize carbon emissions and promote sustainability but argues for a more practical approach that includes a combination of nuclear power, improved solar technology, and optimized use of fossil fuels like natural gas. It questions the feasibility of achieving a complete transition to renewable energy in the near term and emphasizes the importance of considering trade-offs and maximizing energy efficiency.
The Role of Energy in Agriculture and Food Supply Chains
The podcast highlights the critical role of energy in food production and agriculture. It explains how natural gas is used in the production of fertilizers and diesel fuels agricultural operations, and how energy inputs contribute to the overall cost and availability of food. It emphasizes that any disruptions or price rises in energy sources like natural gas can directly impact the cost and availability of agricultural commodities like corn and wheat.
Optimism for the Future and the Need for Practical Energy Solutions
The podcast concludes with a note of optimism for the future of humanity, expressing confidence in the ability to find practical solutions to energy challenges. It emphasizes the importance of making informed decisions in energy policy, considering factors like carbon emissions, renewable energy feasibility, and the trade-offs associated with different energy sources. The podcast encourages a nuanced understanding of energy issues and a focus on maximizing the benefits of energy while minimizing negative consequences.
On today’s episode of “Forward Guidance,” Jack Farley is joined by the mysterious green chicken known only as “Doomberg,” a research publication on energy, food, and fertilizer.
Doomberg argues that the ongoing surge in oil and natural gas prices is due to key policy errors that, if they continue, will ensure that price shock will turn into a full-blown energy and food crisis that will push many countries to the brink of recession, particularly Europe and frontier market nations.
Doomberg breaks down the frightening dependence of Europe on Russian energy and explains how, in the case of Germany, a rejection of nuclear power by so-called “environmentalists” led to its embrace of coal.
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(00:00) Intro
(00:33) The Start of Doomberg
(05:27) Core Energy Thesis
(12:00) How Germany's Rejection of Nuclear Led To Its Embrace Of Coal
(14:32) The Weaponization of Russia's Natural Gas
(19:40) Europe's Dependence on Russian Energy
(34:00) Bit.com Ad
(34:30) Nuclear Power
(39:20) Farmers On The Brink
(47:30) Oil
(54:57) Renewables
(01:08:36) Questions From Audience
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Disclaimer: Nothing discussed on Forward Guidance should be considered as investment advice. Please always do your own research & speak to a financial advisor before thinking about, thinking about putting your money into these crazy markets.
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