“The World Has Never Witnessed Such a Major Energy Crisis”

Just How Bad Is It? [The Daily Reckoning] October 25, 2022 [WEBSITE]( | [UNSUBSCRIBE]( “The World Has Never Witnessed Such a Major Energy Crisis” - Why you can expect gas prices to shoot even higher after the midterm elections… - The greenies have ruined the energy industry… - Then Byron King shows you why the world “has never witnessed such a major energy crisis”… [Attention! Before You Read Any Further…]( Before you read any further in today’s issue, an urgent situation needs your immediate attention. If you don’t plan on claiming this new upgrade to your Strategic Intelligence subscription, you’re missing out on a huge opportunity. Right now is your chance to grab one of the biggest (and most valuable) upgrades our company has ever made to a newsletter. I’m taking Strategic Intelligence to an entirely new level and I’d hate to see you left behind… [Click Here To Learn More]( Portsmouth, New Hampshire October 25, 2022 [Jim Rickards] JIM RICKARDS Dear Reader , Gas prices have been rising again over the past few months. And you can expect them to shoot even higher after the upcoming midterm elections. Here’s a major reason why, preceded by some background… The Strategic Petroleum Reserve (SPR) was established by President Ford in 1975 in the wake of the first Arab Oil Embargo in 1973 and a quadrupling of oil prices from 1973–1974. The idea was to protect U.S. national security by building up a reserve that could be used in emergencies. These emergencies might include a new oil embargo (less of a threat today because the U.S. is capable of energy independence), a natural disaster, an infrastructure failure, war or other calamities. The SPR has a total capacity of 714 million barrels. The actual amount of oil in the SPR has varied over the years. It is sometimes drawn down and then refilled. The reserve was at 100% of capacity in 2010. A series of drawdowns lowered the level to 600 million barrels in 2021. But this year, Joe Biden implemented a wholesale drawdown of reserves so that the current level is approaching 400 million barrels. That’s a 44% decline in this national security resource in just 10 years and a 33% drop in just the last year alone. My colleague Byron King, a Harvard-trained geologist and maybe the finest energy analyst I know, tells me the Biden administration has been releasing oil at about the max rate SPR managers can prudently pump it — just under 1 million barrels a day. Biden’s drawdown might be acceptable if there were an actual emergency that required it. There isn’t one. The U.S. achieved energy independence under President Trump and could easily do so again if Biden were to reverse his anti-energy policies including killing the Keystone XL pipeline, shutting down new oil and gas exploration permits on federal lands and other steps to handicap the fracking industry. If the U.S. has energy independence or is close to it, there’s no justification for draining the SPR. Biden is doing this for purely partisan political reasons. He’s trying to keep the price of gasoline down in advance of the midterm election on Nov. 8. But this is stupid in two respects. In the first place, it’s not working. The national average price of regular gasoline has risen from $3.69 to $3.80 over the past month, a 3% price increase. The second reason is that there is no shortage of crude oil. There’s a shortage of refined products such as gasoline, kerosene and diesel fuel. My aforementioned colleague Byron King tells me that “U.S. refining is maxed out.” U.S. refinery capacity is about 17.9 million barrels a day — down from a peak of 18.9 million just before the pandemic hit in early 2020. And it’s not like you can just turn a few knobs and rebuild that capacity. As Byron explains: “Fixing up an existing refinery is problematic. Ordering steel pipe, pumps and valves makes for long lead times — one–three years. And environmental permits are always a quicksand, with some NGO or environmental law group out there to file suit.” Meanwhile, many refineries have closed up shop because of political pressures on the industry and diminished long-term prospects, as Byron explains: “Who wants to invest in these facilities when the cultural-political trend is so deeply anti-oil? You might be regulated out of business in the next five–10 years.” Returning to Biden’s depletion of the SPR, releasing oil from the SPR does nothing to alleviate the bottlenecks in the refining industry. In fact, much of the oil from the SPR is being sold to China and Europe and not used in the U.S. at all. Finally, the SPR will have to be replenished at some point. Oil in the reserve that was purchased at about $24 per barrel will have to be replaced with oil that is likely to be priced at $80 per barrel or higher. That’s a dead-weight loss for U.S taxpayers, who’ll be stuck with the bill — all because of election year politics. But the long-term outlook is even more dire. Below, Byron King shows you why the world “has never witnessed such a major energy crisis in terms of its depth and its complexity.” How did we get here, and what can you do to turn the situation to your advantage? Read on. Regards, Jim Rickards for The Daily Reckoning P.S. In my 2011 book Currency Wars, I warned that the U.S. was engaged in a special type of economic war. I said that these wars would: Degenerate into sequential bouts of inflation, recession, retaliation and actual violence as the scramble for resources leads to invasion and war. The historical precedents are sobering… Some version of the worst-case scenario is almost inevitable. Now with Putin invading Ukraine, rising tensions with China, inflation, recession, supply chain issues and the potential for greater violence breaking out all over the world… It seems my predictions are coming true. [That’s why I recorded this short video message.]( I want to help you prepare for what I fear is coming next. Because if history is any indicator, there could be real trouble ahead. [Click here to view my urgent video message.]( [Crypto millionaire James Altucher just revealed the cryptocurrency he’s piling into now… and it’s NOT Bitcoin…]( [Click here for more...]( He reveals exactly what it is on this page predicts 8,788% returns. However, events are happening RIGHT NOW in the cryptocurrency space that could swallow up this opportunity forever. If you missed the first crypto boom… do NOT miss this one. This could be your last chance for easy profits. Find out what James is recommending now… [Click Here]( The Daily Reckoning Presents: “The world has never witnessed such a major energy crisis in terms of its depth and its complexity”… ****************************** It’s Worse Than You Think By Byron King [Byron King] BYRON KING Fatih Birol is the executive director of the International Energy Agency (IEA). He’s a doctorate-level engineer with a strong background in energy, power systems and energy economics. He has followed global energy markets for about 30 years and is worried that: The world has never witnessed such a major energy crisis in terms of its depth and its complexity. I believe we might not have seen the worst of it yet. That’s pretty scary coming from a true expert with over three decades of experience analyzing energy markets. There’s no good news at all in those two sentences. And again, this isn’t just some barstool rant from a guy who’s annoyed by high prices at the fuel pump. Birol actually holds relevant science and engineering qualifications and has deep experience in the field. He knows what he’s talking about. Much of the problem goes back to long-term underinvestment by the global fossil fuel industry in upstream exploration and discovery. In other words, for about a decade, not enough money has gone into exploration, particularly geophysics, drilling and discovery. Plus, you have to add in chronic, long-term undercapitalization of what’s called midstream and downstream energy development. That is, there’s not enough investment in oilfield production, pipelines, tankers, refining capacity and storage. And I’ll add, just for the sake of completeness, there’s a serious shortage of young people in the West who enter into the energy field (definitely the oil and natural gas side of things). It’s reflected in shrinking faculties at colleges and universities that formerly offered such programs. Looking back, it’s no overstatement to say that the investment side of the global energy industry began to fracture during the 2008-09 crash. And it’s also fair to say that, for numerous reasons, the sector never properly righted itself in the past dozen years and more. Energy powers the economy, of course. But finance tends to steer the ship. So let’s begin with the financial side, rooted in zero interest rates (and for a long stretch, even negative real interest rates) for much of the past decade. Low/negative interest rates may have benefitted big banks, but those same low rates badly distorted capital flows in energy. In other words, when you don’t know what money is worth — via interest rates — it’s hard to place a proper value on long-term capital investment. And most serious, large-scale energy projects are long-term, multi-decade plays. In the North American oil and gas patch, those low rates of the 2010s tended to favor relatively fast-execution, low-risk ideas like fracking. Thus in the U.S., fracking became the predominant, onshore fossil fuel effort in the past decade. Stated another way, most new U.S. oil and gas wells have been fracked wells. Yes, fracking has delivered oil and gas, literally millions of barrels per day. But for the most part, those molecules came from wells with steep decline rates. The result was an expensive, not-very-profitable industrial treadmill of drillfrack-produce/drill-frack-produce. Companies had to sprint to drill and stay ahead of the decline curves. Elsewhere in the world, many large oil companies — especially Europe-based ones like BP, Shell, Total and more — actually pulled back from hydrocarbon exploration and discovery in the past 12 years. Reasons ranged from uncertainty over prices to political risk, to the fast-growing Western cultural sentiment against that horrible demon “carbon!” [Stunning New Prediction for 2022]( You’re going to want to see this — America’s #1 futurist just came out with a stunning new prediction for what could happen in 2022. And surprise, it’s got nothing to do with Trump. Or trade wars. Or the ongoing gyrations on Wall Street. In fact, this could be your one chance to ignore all that upsetting “fake news”… and get back to the business of getting exceedingly rich instead. [Click Here To Learn More]( The result is that there’s now significantly less incentive for serious players to invest long-term capital into oil and gas projects that may be illegal and outlawed in just a few short years. The bottom line is, the world has underinvested in energy for many years. It’s now a deep, complex problem and we have not seen the worst of it yet. It’s not possible to reverse any of this overnight. The oil you burn today in 2022 may have been discovered in the 1960s, 70s or 80s. And it may have been refined in a facility built in the 1950s, if not the 1920s. But now after a decade of underinvestment and neglect, it’s more than clear that the world has insufficient new barrels from recent discoveries. Both figuratively and literally, sufficient oil simply isn’t in the pipeline to support current, let alone future demand. All of this helps explain why, for example, Western sanctions on Russia over its Ukraine military operation have failed spectacularly and all but blown back into the eyeballs of Europe and the U.S. That is, up until early 2022 (pre-Ukraine ops) Russia was a key supplier to the West of what are called marginal barrels. Russia’s exports of crude oil and refined products kept prices under relative control and offered assured supply and predictable costs. But not anymore, which is a big part of why pump prices are expensive and likely going higher (after midterm elections, I suspect they’ll go higher). For over 170 years, the world has been building out on fossil fuels, specifically oil and gas. And despite what the green crowd will tell you, there’s no plausible way that wind and solar are ready to pick up the slack. The world needs oil and gas, period. So when Fatih Birol says that the world has never witnessed “such a major energy crisis” as is currently ongoing, and that “we might not have seen the worst of it yet,” it’s time to pay attention. Because he’s putting his finger on an economy-busting problem, and there’s much at risk in all of this. As an individual, there’s not much one can do to change the direction of world events. But still, you need to understand what you see, and discern the truth through the smoke and mirrors of our lying mainstream media. What about the shorter-term investing angle? Big money and bigshot policymakers are driving the program and we mere mortals tend to be locked out of the control room. But as an investor, it’s clear that one strong place to be is in solid, well run energy plays. You should look for oil and gas plays, as well as refiners. Of course, much of the sector is already bid up based on events, so I’m not banging the table to urge a buy. Prudence dictates caution at this stage. And sometimes the best thing is just to hold cash. If there’s a market pullback this fall — which usually happens about this time of year — it’s your chance to dive into the energy space. As fall turns into winter, we’re going to see energy issues magnify. That means we’re looking at shortages and higher prices. I advise you to figure it out, get ready, and strap in for a wild ride. Regards, Byron King for The Daily Reckoning Ed. note: In Jim Rickards’ 2011 book Currency Wars, he warned that the U.S. was engaged in a special type of economic war. Jim said that these wars would: Degenerate into sequential bouts of inflation, recession, retaliation and actual violence as the scramble for resources leads to invasion and war. The historical precedents are sobering… Some version of the worst-case scenario is almost inevitable. Now with Putin invading Ukraine, rising tensions with China, inflation, recession, supply chain issues and the potential for greater violence breaking out all over the world… It seems Jim’s worst fears are coming true. [That’s why he recorded this short video message.]( Jim wants to help you prepare for what he fears is coming next. Because if history is any indicator, there could be real trouble ahead. [Click here to view Jim’s urgent video message.]( Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:feedback@dailyreckoning.com) [Byron King] [Byron King]( is Senior Geologist at Rickards' Gold Speculator. He is a Harvard-trained geologist who has traveled to every U.S. state and territory and six of the seven continents. 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