The Beginning of the End Part III: Green Energy Realities

Economies and their growth are fundamentally reliant on energy. Without it, economic growth would simply not be possible. Energy serves as a pivotal input in the production of goods, the cultivation of food, the transportation of these goods, and nearly every facet of economic activity.

Over time, technological advancements have empowered humanity to devise more efficient means of generating energy. This progression has spanned from human and animal power, to biomass and fire, wood to coal, coal to oil, and now to renewables.

These shifts in energy sources mark significant junctures in history, reconfiguring societies, economies, and the environment. They represent substantial changes in the primary outlets of energy harnessed for diverse purposes. Two notable transitions in the history of energy sources include the move from wood to coal, and subsequently from coal to oil. These transitions not only transformed societal operations but also brought about far-reaching economic, environmental, and geopolitical consequences.

We stand at yet another pivotal moment, and I anticipate that the consequences will be nearly as significant. During this phase, we're witnessing the initial steps towards replacing a longstanding and reliable energy source that our modern economy relies on with another. As I've outlined in my previous articles, such a transition is highly unlikely to be smooth in nature. History has demonstrated that it often leads to more frequent booms and busts, heightened inflationary pressures, and economic volatility.

Transition from Wood to Coal

For millennia, wood was the dominant energy source, employed for cooking, heating, and illumination. However, the 18th century saw a decline in wood supplies due to population growth and extensive forest clearing for agriculture and industry. The advent of the steam engine marked a pivotal stride in transitioning from wood to coal. James Watt's enhancements to the steam engine, alongside the ensuing Industrial Revolution, expedited this shift. Coal-fired steam engines fueled factories, railways for goods transportation, and the production of iron and steel.

Coal emerged as a viable alternative to wood in the late 18th century. Coal boasts higher energy density compared to wood, meaning it yields more energy per unit volume. Additionally, coal is more easily transported and stored than wood. This transition, which of course helped to propel the Industrial Revolution forward and led to significant advancements, was also marked by major economic turbulence and societal dislocations.

Transition from Coal to Oil

In the early 20th century, oil began to challenge coal's dominance. Oil stands as a more versatile fuel than coal, capable of being transported and refined into various products, including gasoline, diesel, and heating oil.

The transition to oil gained momentum with the invention of the combustion engine, which helped to increase the demand for oil and refined products. Oil-powered vehicles proved more efficient and adaptable than coal-fired power plants. The discovery of extensive oil reserves in the 19th and 20th centuries, starting in regions like Pennsylvania, Texas, the Middle East, and Russia, supplied the fuel that has driven modern industry and our contemporary high-tech world for the last 70-80 years.

These energy transitions brought about both positive and negative consequences. On the one hand, they enhanced the quality of life for much of the global population. For instance, coal-fired stoves and furnaces provided more reliable heating compared to wood-burning alternatives. Oil-powered vehicles offered more convenient and efficient transportation.

However, these transitions also gave rise to environmental issues such as increased air and water pollution, health concerns, and, as we see today, calls for radical changes to the regulation of industry.

Energy Transitions: A Time-Intensive Process

Energy transitions have emerged as pivotal historical moments, shaping our societies, economies, and environments. These shifts are marked by changes in the primary energy sources that power our world. From early wood burning for warmth to the coal-fueled Industrial Revolution, and the subsequent dominance of oil in the 20th and 21st centuries, each transition has wielded profound impacts.

It is crucial to grasp that energy transitions are not swift processes. The transition from wood to coal spanned the 18th and 19th centuries, covering approximately 200-300 years. The shift from coal to oil took place over about 50-70 years. These transitions were characterized by phases of gradual adoption followed by periods of accelerated change, especially during peak industrialization.

The contemporary transition is presenting unique challenges. It is primarily driven by climate scientists and environmentalists warning of widespread catastrophe if society does not swiftly transition away from fossil fuels within the next decade. This presents significant difficulties and physical limitations, both practically and economically.

One significant challenge in achieving a swift transition away from fossil fuels lies in the fact that approximately three-quarters of the global population, encompassing regions like China, India, Africa, and South America, are actively expanding their reliance on fossil fuels rather than phasing them out. While Western industrialized nations are rapidly moving away from conventional, steady sources of power such as nuclear, coal, and gas-fired plants, China and India are in the midst of a substantial upswing in constructing these facilities at staggering rates.

As of September 2023, China is currently in the process of constructing 95 gigawatts of coal-fired power plants, a capacity six times greater than the rest of the world combined. India, on the other hand, is working on 27 gigawatts of coal-fired power plants, with an additional 24 gigawatts in pre-construction stages. While China and India are actively industrializing and enhancing their energy portfolios to provide affordable energy for their economies and citizens, Western nations are decommissioning coal-fired plants, which played a pivotal role in supplying electricity throughout the 20th century. Since 1990, the reliance on coal as a primary energy source has dwindled from 22.7% to 9.8% today. This percentage is projected to decrease further, with more coal plants slated for closure and replacement by wind and solar alternatives. This shift is predominantly driven by environmental considerations in the Western world, but it also entails significant trade-offs that are not currently factored into climate models, a point we will delve into later.

China and India are also at the forefront of constructing state-of-the-art nuclear power plants, while the US and other Western nations have been progressively decommissioning and downsizing their nuclear power capacity over the past few decades. In 2023, the US has reduced its nuclear plants from a peak of 112 in 1992 to 92. In stark contrast, China boasts 55 operational plants with an additional 21 under construction, while India has 22 active plants and another 8 in various stages of construction. Both China and India are leading the charge in nuclear power generation. These nations are adopting a diversified approach in expanding their power and electricity grids, incorporating nuclear, coal, natural gas, and renewables.

Unfortunately, the US and Europe are pursuing a curious and almost unthinkable objective of transitioning away from easily scalable baseload sources of power to intermittent energy sources that wholly depend on the weather and favorable climates of certain regions.

Green Energy Transition Will Lead to Energy Crisis

The challenge facing the US lies in the absence of a well-structured energy transition plan. Instead, the shift towards green energy is marked by disjointed policies at both the Federal and state levels. Many of these policies are implemented through legislation or executive orders, often lacking thorough planning or grounding in engineering and scientific principles. Consequently, new mandates are being issued, resulting in the closure of nuclear, coal, and gas plants, and their replacement with less reliable wind and solar sources.

A notable case is California, which exemplifies the consequences of energy transitions driven by political considerations rather than sound science, engineering, and physics. The state shuttered the San Onofre nuclear plant in 2013, with Diablo Canyon set to follow suit in 2030. The Mohave coal plant was closed in 2005. The retirement of the Redondo Beach and Huntington Beach natural gas plants, to pave the way for a transition away from natural gas in favor of wind and solar, has led to an increase in blackouts and brownouts. During the summer heatwave of 2022, the governor urged residents not to charge their electric vehicles during peak hours from 9 AM to 9 PM. The state's electrical grid is ill-equipped to meet its mandates of phasing out diesel trucks and gasoline-powered vehicles by 2030 and 2035.

Not only is California's power grid becoming less reliable, but it is also driving up electricity costs. In July 2023, the average monthly residential electricity bill in California was $164, which is more than 22% higher than the national average of $134. California boasts some of the highest utility rates and gasoline prices in the country, with some areas already seeing prices surpass $6 per gallon and many even exceeding $7.

The governor and state legislature have passed over 800 energy bills, compelling 5,000 companies to disclose their greenhouse gas emissions and climate-related risks. As these green initiatives and mandates proliferate, the cost of electricity and gasoline is bound to become increasingly burdensome for residents. Rather than reevaluating their energy policies, the state is taking major oil companies to court, attributing rains, mudslides, and forest fires to climate change caused by the oil industry.

Moreover, the state government is unwilling to address its own policies that hinder controlled burns for forest debris clearance, adequate water storage provisions, and erosion control. This, in turn, undermines the effectiveness of the state's green policies in delivering affordable and reliable energy, ultimately driving up costs for both industry and consumers. The state's plan to phase out diesel trucks and gasoline engines by 2030 and 2035, if adopted at the Federal level by the Biden Administration, could result in a significant loss of American auto jobs, as the majority of the supply chain for electric vehicles is controlled by China. This is a central concern in the UAW strike, as EVs threaten to phase out numerous auto jobs in the US.

Apart from issues of unreliability and intermittency, there are four key problems with the current implementation of green energy:

  1. Scale: Windmills and solar farms require vast amounts of land to generate significant amounts of energy.
  2. Resource Intensity: Green energy technologies necessitate substantial quantities of raw materials like copper, silver, nickel, cobalt, lithium, and rare earth minerals.
  3. Fossil Fuel Dependency: Extracting and processing these minerals requires machines and industrial processes that are predominantly powered by fossil fuels.
  4. Resource Limitations: There is a finite supply of these critical minerals, potentially hindering the full-scale transition to a green economy.

Let’s begin with scale. Chris Martenson's analysis in his latest book update to the Crash Course provides a compelling perspective on what would be necessary to replace fossil fuels. Here are some key considerations:

  • A comprehensive energy build-out would necessitate a staggering 586,000 electrical power stations, compared to the current count of only 46,000.
  • To generate a Gigawatt-hour (GWhr) of solar power at a rate of 2.8 acres per GWhr, an estimated 380 million acres of land would be required.
  • Hydropower would need to expand by a substantial 115% to meet the energy demands.
  • To fully transition to nuclear power, we would need an astounding 15,600 nuclear power plants, a far cry from the current 92.
  • It would take 15,611,000 1-megawatt wind towers in perfect wind conditions and up to 52 million towers under intermittent wind conditions.
  • For biomass energy production, an immense 10 billion acres of farmland would be necessary.

Given these colossal numbers, it's evident that a single-minded pursuit of renewables is unachievable. This is why countries like China and India are strategically ramping up their domestic energy capacity across all fronts. They get it, we don’t!

When it comes to resource intensity—our second point above—there is a widespread misconception that using renewable sources of energy like wind and solar leads to a conservation of earth’s resources. This is a far departure from reality. On the contrary, “green” energy demands a vast amount of mining of raw materials and critical metals. In a monumental study, Professor Simon Michaux, Senior Researcher for the Geological Survey of Finland, estimated that a total of 4.5 billion tons of key metals, encompassing copper, zinc, silver, cobalt, lithium, vanadium, and nickel, would be needed for transitioning away from fossil fuels (I spoke with Professor Michaux on Financial Sense Newshour earlier this year about the surprising facts of his research, which you can listen to at the 34 min mark by clicking here).

To put this into perspective, consider the amount of key minerals required to build a Tesla S:

  • Copper: 40-50 kg
  • Lithium: 7-8 kg
  • Cobalt: 3-4 kg
  • Nickel: 15-20 kg
  • Aluminum: 150-200 kg
  • Manganese: 5-7 kg

Similarly, for windmills and solar panels, vast quantities of steel, fiberglass, copper, aluminum, and rare earth metals are essential components.

Minerals used in building a windmill:

  • Steel: 132,000-158,000 kg
  • Fiberglass, resin, and plastic: 22,000-32,000 kg
  • Copper: 2,000 kg
  • Aluminum: 4,000 kg
  • Rare Earth Minerals: 1,000 kg

Minerals used to build a solar panel:

  • Silicon: 2.5 kg
  • Aluminum: 1.6 kg
  • Glass: 1.4 kg
  • Copper: 0.2 kg
  • Silver: 0.01 kg
  • Other minerals (lead, tin, nickel): 0.01 kg

Moreover, the high-tech devices we use daily, such as iPhones and iPads, also require a significant amount of resources and metals for their production. For instance, a single iPhone contains about 32.5 grams of things like gold, silver, and platinum, while an iPad Pro has approximately 67.5 grams.

According to a 2021 report by the World Economic Forum, here are the estimated amounts of minerals in kilograms required to manufacture specific devices:

  • iPhone Pro Max: 0.0325 kg
  • iPad Pro 12.9 inch: 0.675 kg
  • iMac 27-inch: 0.2025 kg

As demonstrated above, our modern technological world relies heavily on a diverse array of minerals, encompassing rare earth elements (REEs), precious metals, base metals, as well as materials like glass, lithium, cobalt, copper, and nickel.

Professor Micheaux's research underscores a critical concern: the current mining efforts, and those in the process of ramping up, are insufficient to support the envisioned green transition.

The third challenge to a rapid and large-scale transition away from fossil fuels is, ironically, fossil fuels themselves. One inconvenient fact of green energy is that it depends on cheap and abundant sources of oil.

As we just pointed out, the manufacturing of wind and solar requires vast amounts of raw materials such as steel, copper, nickel, aluminum, and rare earth elements, all of which require energy to extract and process. Electric vehicles in particular necessitate six times the mineral volume compared to conventional gasoline or diesel engines.

electrical vehicle minerals required

Yes, an EV doesn’t directly run on gas but it indirectly requires a large amount of cheap energy in the form of coal, oil, and diesel in order to make one.

Graphite, for example, is the largest mineral by weight required for an electric vehicle. However, processing graphite is an energy-intensive process and is done so primarily in China using cheap coal-based power. Electric vehicles are far more expensive than gasoline-powered vehicles, however, their price is already highly dependent on cheap fossil fuels.

Mining operations overall rely heavily on robust earth-moving machinery, including excavators, loaders, trucks, dozers, graders, and crushers, all of which run on diesel fuel. At present, it simply isn’t practical for a large-scale replacement of diesel-powered machines with electric batteries given the large charging times and higher costs.

But this is overlooking a much more powerful point: Oil itself stands as a cornerstone of the global economy, fueling 95% of all transportation worldwide. Virtually every product we purchase today, from groceries to household goods, relies on trucks, ships, planes, and trains for distribution—the vast majority of which run on fossil fuels.

The majority of our current oil consumption is sourced from 500 major oil fields discovered over half a century ago, constituting 75% of conventional oil reserves (I covered the giant oil fields and their depletion in a previous article, “From Supply Glut To Energy Shock”). However, these fields are approaching depletion. The remaining reserves primarily consist of heavy oils (as seen in Venezuela) or unconventional "tight" or "fracked" oil.

Over the past decade, American shale has been the driving force behind 83% of global oil growth. However, these shale fields, spanning from the Marcellus to Eagle Ford and culminating in the Permian, are now approaching their peak. The Permian Basin, the final major shale basin, is projected to reach its peak production by the end of this year or the next. The latest reports from the EIA reveal a consistent decline in production in the Permian over the past three months, signaling our proximity to this peak.

The IEA, in what I view as an optimistic scenario, considers factors like greater efficiencies and widespread adoption of alternative fuels. This outlook suggests that with concerted efforts, we could facilitate a successful transition to greener energy sources. The primary emphasis is on discovering new fields to replace those reaching their peak, a challenge given the global depletion rate of 8% per year on most oil fields. Unfortunately, new oil discoveries have dwindled over the past decade, with the remaining reservoirs often situated in demanding environments like oil sands, deep-sea reserves, or the Arctic. Shale oil has been the stalwart that saved us over the last decade, driving global oil production growth. As Goehring and Rozencwajg have repeatedly pointed out, just six counties in West Texas have been responsible for 100% of all global production growth, a trend now plateauing. The pressing question is: where will the new oil, essential for funding economic growth, come from? Shale wells face a daunting depletion rate of over 80% within a three-year span, necessitating ongoing drilling efforts to sustain production. As of September, the rig count is down by 11, and it's a decline of 134 rigs from a year ago.

In addition to oil, the transition to a green economy demands substantial mineral resources, which, in turn, hinge on extensive mining endeavors. Diesel fuel is irreplaceable for mining operations due to its unparalleled energy density, particularly for the robust trucks tasked with transporting processed materials crucial for EVs, wind turbines, and solar panels. Consequently, diesel prices are poised to rise significantly.

As highlighted in this and previous articles, oil discoveries have been declining by decade, as shown below:

oil discoveries by decade
Source: Our Finite World

This decline has been exacerbated by a substantial drop in investment for exploration, a trend originating from the 2014 oil price downturn. Moreover, the administration's stance against fossil fuels is amplifying the costs and complexities associated with oil exploration and drilling. Foreseeably, oil prices are expected to remain in the triple-digit range for a significant portion of the coming decade, potentially further inflating the cost of mineral mining.

The transition towards a green economy is further complicated by the fervent anti-fossil fuel stance advocated by environmental groups. There appears to be a dearth of critical thinking regarding the scientific and engineering requisites for mineral production to power a green economy. Despite the notable growth in renewable energy, it's crucial to acknowledge that energy consumption from fossil fuels has outpaced this growth. As indicated in the upcoming graph, energy consumption from fossil fuels has surged by 6.8 quadrillion BTUs from 1990 to 2022, almost doubling the demand seen for wind and solar.

fossil fuel demand
Source: Institute for Energy Research

It's imperative to recognize that the demand for fossil fuels persists for a reason—they underpin the foundations of our technologically advanced economy. Without them, our present world would not be possible. Additionally, little has changed in our energy mix over the past three decades, except for a decline in coal and a rise in natural gas.

To achieve Net-Zero carbon dioxide emissions by 2050, a reduction in fossil fuels' share of the primary energy mix by 62% to 0% by 2050 would be necessary. I will delve into why this scenario is unlikely to unfold and why green initiatives are poised to falter in the forthcoming installment of this series. In summary, the green transition is contingent on the use of cheap fossil fuels to extract and process the minerals essential for its realization. Current policies being pursued are poised to culminate in a major energy crisis and lead to an unfortunate reality check for much of the globe.

Much like oil, the minerals requisite for building out the green economy are destined to become more expensive and face eventual decline in output—a phenomenon commonly referred to as "Peak Minerals." The ensuing series of graphs from The Institute For Energy Research serves to illustrate the extensive mineral demand entailed in constructing clean energy.

green energy resource demand
green energy lithium demand

These visuals underscore that an electric vehicle necessitates six times the minerals for its production compared to a traditional gasoline engine. Moreover, in the realm of power generation, wind and solar technologies can require nearly ten times the volume of crucial minerals. In essence, we lack the mineral reserves needed to achieve carbon neutrality by 2050. The shortage is compounded by insufficient mining resources, diminishing discoveries, lower ore grades as existing mines deplete, and a dearth of oil to fuel the mining of raw materials.

As further exemplified in the previous graphs, clean energy is highly mineral-intensive, necessitating 6-10 times the mineral quantity for its production and implementation. According to the International Energy Agency (IEA), in their sustainable development scenario, demand for lithium is projected to surge by a factor of 42, graphite by 25-fold, cobalt by 21-fold, nickel by 19-fold, and rare earths by 7-fold. Meeting this escalating demand for metals will require a rise in metal demand from under 10 million metric tons to 42 metric tons by 2050. The pressing question is: where will the requisite metals be sourced to meet this demand?

A significant challenge facing the West is that these crucial metals are more geographically concentrated than oil production. While oil was distributed across the Middle East, Russia, and the United States, energy transition metals exhibit a more pronounced geographical concentration. China presently exerts dominance in the processing of the majority of these minerals, accounting for 40% of global copper production, 58% of lithium, 35% of nickel, 65% of cobalt, and a staggering 87% of rare earths.

In line with a report from the Department of Defense titled “Securing Defense Critical Supply Chains,” China has assumed a pivotal role in the global advanced battery supply chain, claiming 94% of lithium production, alongside a significant share of other materials indispensable for the green transition. As electrification intensifies in order to meet the global elite's 2030 target date, dependence on China is slated to amplify through the remainder of this decade. This reliance raises significant concerns for the U.S. military, as we are reliant on Russia for our uranium, which fuels our nuclear aircraft carriers, submarines, and power plants, and on China for the computer chips that guide our missiles and power our high-tech economy.

While the U.S. possesses access to many of these raw materials, mining companies are hindered from exploiting and processing them due to opposition from environmental groups and the Biden Administration's reluctance to open new mines. Instead of cultivating our own reservoirs of critical minerals such as lithium, cobalt, copper, nickel, graphite, rare earths, oil, and natural gas, there is a preference to outsource the extraction of these resources to other nations, for fear of antagonizing influential environmental groups, which vehemently oppose all mining and fossil fuel drilling. The BANANA (Build Absolutely Nothing Anywhere Near Anybody) Greens may have an affinity for their EVs, wind turbines, solar panels, iPhones, iPads, and iMacs, but they harbor a deep disdain for the economic systems and companies that produce them.

It is imperative to underscore a few of the paramount resources necessary for driving the green energy transition. Let's commence with copper—an average electric vehicle necessitates six times the copper compared to a gasoline engine. Furthermore, copper plays a pivotal role in constructing wind turbines and solar panels. Similar to oil, copper discoveries have been steadily decreasing by decade, with lower ore grades necessitating the processing of greater quantities of earth to yield a pound of copper. As evidenced by the graph from S&P Global, copper discoveries have witnessed a precipitous decline over the past decade.

copper discoveries

According to S&P, the copper discovered over the last 15 years amounts to a mere 143 metric tons. To put this in perspective, almost an equivalent amount of copper was discovered in a single year back in 1991. Even with fresh investments, copper discoveries are slated to reach a historic low for the remainder of this decade, unlikely to match the prime discovery decade of the 1990s. This decline in discoveries coincides with a surge in demand for the metal, expected to double in the near future.

The next metal on the horizon to face a supply deficit is silver—a metal with a multitude of applications, from electronics to solar panels. According to recent reports, China stands as one of the foremost global consumers of silver, with an annual demand averaging 6,300 tons. However, China's annual silver production barely reaches 3,350 tons, with reserves estimated at a mere 41,000 tons as of 2020. At the current pace of mining, China's reserves are projected to be depleted in another 11 years.

Per the U.S. Geological Survey (USGS), global silver production reached 25,000 tons in 2020, with estimated reserves totaling 500,000 tons. Even more disconcerting is the situation in Mexico, which boasts the title of the world's largest producer of silver. Over the last decade, Mexico's average silver output has been 5,600 tons, with remaining reserves of 37,000 tons. At the current rate of extraction, the country's silver reserves are anticipated to be exhausted by the end of this decade. With silver reserves in China and Mexico facing depletion by the decade's end, the supply of silver could plummet by 15,450 tons, while demand is projected to exceed 30,000 tons.

silver production
Source: GoldFix

Anticipated demand for silver is set to surge over the remainder of this decade, spurred by requirements from green energy, high-tech industries, AI, 5G, clean power stations, EVs, medical technology, space stations, and smart appliances. Given the waning discoveries and reserves, where will this silver be sourced? The prevailing price of silver does not align with this reality, as its value has been suppressed through massive short positions on the Comex and London exchanges. The burgeoning demand is reflected in the premiums paid on sovereign silver coins by investors, which have ranged from 40% to 90% above the spot price of silver.

As Guillaume Pitron chronicles in his two must-read books, The Rare Metals War and The Dark Cloud, the digital revolution and green energy transition are highly intertwined. The technological convergence resulting from the integration of these new technologies exerts a multiplier effect on the consumption of metals that humanity relies upon. An aspect that often goes unacknowledged is the environmental toll of digitization and green energy. The extraction and processing of the needed metals for green energy is an inherently dirty process, but many countries are also unwilling to vastly increase the required mining efforts to make such a transition possible. Instead, the West has outsourced its renewable energy needs to countries with less stringent environmental standards, where metals are both mined and processed away from the public eye. Everyone loves clean energy, as long as it comes from somewhere else.

In summation, the current energy transition necessitates a significant quantity of critical minerals, which are presently in short supply, anticipated to grow scarcer in the decade ahead, and ultimately poised to lead to resource scarcity and potential resource conflicts.

In a forthcoming article, I will elucidate why the timetable for the green transition is likely to fall short, not only missing its target but, more crucially, propelling us toward a major energy crisis. You are already witnessing this in the soaring price of gasoline, elevated utility bills, increased food costs, and the inflationary impact of rising energy prices.

Full transparency: we have vested interests in base metals, strategic metals, precious metals, uranium, oil, and natural gas.

Advisory services offered through Financial Sense® Advisors, Inc., a registered investment adviser. Securities offered through Financial Sense® Securities, Inc., Member FINRA/SIPC. DBA Financial Sense® Wealth Management.

Copyright © 2023 Jim Puplava

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