cawacko
Well-known member
Long but excellent read on energy in this week's John Mauldin column. Anyone work in the sector and have thoughts or issues on what's being expressed here? (I could only post a portion of the column)
Energy is everything. Or, if Einstein was right, you and I are just energy in material form. Accelerate us to lightspeed squared and we might become something else.
All economic activity involves converting energy from one form to another. This requires harnessing sufficient quantities of usable energy. That task is becoming more difficult, to the point economic growth would suffer if we weren’t constantly seeking new sources.
In other words, energy isn’t just another market sector. It’s the foundation of every sector. And you know what happens when the foundation gets shaky.
I want to spend a few letters exploring different angles of the energy challenge. I started my research with a long, fascinating phone call (with some of my colleagues) to Mark Mills, one of the world’s top energy authorities. He recently joined with an all-star cast of other energy experts to launch the National Center for Energy Analytics. The research they’ve published so far is extremely valuable. Mark told me a little about what else is coming. Suffice it to say, you should pay attention.
Through the magic of AI, we were able to transcribe my conversation with Mark. Today I’m going to share with you one short section (of 30 pages!) in which he masterfully explains why energy demand is a much more complex topic than many people think.
Mark has an amazing ability to riff on almost any energy-related topic. What follows is a mostly verbatim transcript (with a few minor edits) extracted from a much longer conversation, along with some additional charts and comments [in brackets] from me.
I’ll share some more excerpts in future letters along with my thoughts, but I think it is important we start with energy demand. You need this background to appreciate the magnitude of our challenge. Energy is getting harder (or at least more expensive!) to find at the same time we need an ever-growing amount of it.
Unlimited Demand
There's no period of human history where economic growth, set aside population growth, isn't correlated with more energy demand. This is a one-to-one correlation. There are no wealthy nations that are low energy consumers.
[See this chart of the growth of global GDP. Then see the chart of energy consumption. It’s no mystery why they look so similar.]
Now, in the wealthy nations, there's variability in the per capita energy use, but that's dictated more by geography than it is by behavior. In tiny countries with short distances, small buildings, and punitive taxes, the per capita energy use is lower than in the United States because we have less punitive taxes on heating and lighting and all the rest. But the correlation is one-to-one.
The important part about predicting demand is you have to bifurcate it to just two separate buckets. They're related, but different. One bucket is obvious: Population grows very predictably, give or take small variables. Even if there were no economic growth, you would get more demand.
The world has had reliable economic growth for three centuries since industrialization and the fossil fuel era. Everybody wants to be wealthier and more wealth is correlated with more energy use.
You can measure that by the OECD's “deprivation index.” They actually have an index that measures the percentage of people in different countries who don't have a toilet, a TV, a car, own a house, or rent a house—the set of the things we would consider in wealthy nations that are basic products we all take for granted.
There's a remarkably high percentage of people, poorer people, who have a high deprivation index. They're not wealthy enough to have a car or wealthy enough to own their own house or have air conditioning. So, wealth naturally brings more demand for the things that already use energy. Wealth brings more demand for the really poor countries that want to use what we have.
I mean, only one in 700 people in the poor part of the world have ever flown in an airplane. And in the poorest parts of the world, only one in 800 people own a car. So, you don't have to be a mathematician or an economist to know it doesn't take much growth to create incredible demands for energy to manufacture and operate cars and airplanes, even if only 10 percentage points more of those people get wealthy enough to want to fly and drive cars.
So, lots of people don't have what we have. Roughly three billion peoples’ annual energy consumption is equal to the annual energy consumption of your refrigerator. Their total energy consumption for all purposes over the course of a year does not exceed the energy consumption of your refrigerator. If you think about how much more energy they could use, well, you can do the math. Two-thirds of the world population could increase its energy use tenfold if they lived at close to European or US levels.
That’s not going to happen overnight. So, the variable in forecasting energy demand is then a tough one. How fast do you think economies would grow if the global growth rate were to rebound back to say 3.5% instead of 2.9% or 2.7%? That is a delta [change] of 500-hundred-plus basis points. As you know, John, that's huge.
Ten years of half-percentage-point increases in GDP growth would be a monster increase in global GDP which drags up energy demand. So, energy demand follows economic growth. Energy demand shrinks if you have a depression. It's just one-to-one.
The other factor, of course, is that we invent energy demands. The invention of the car was the invention of energy demands to make cars and drive them. The invention of the airplane was the invention of energy demands to manufacture planes and fly them. The invention of the computer was the invention of energy demands to make computers and run them.
The invention of pharmaceuticals was the invention of energy demand to make pharmaceuticals. Pharmaceutical energy demand is as great as semiconductor energy demand, roughly five to tenfold more energy per square foot of manufacturing space for pharmaceuticals than industry at large.
There is no limit to what we can imagine we might want to invent for entertainment, for luxury, for healthcare. Imagination translates into tools, things that we invent, services we want, entertainment we want. All those things consume energy. You can't make Amazon work without trucks. Trucks take energy to build and run. You can't make Amazon work without computers and a communications network to make one-click work.
So, if you were a curious person, you'd ask how much energy is consumed when you go online to Amazon, then search and hit Buy Now with one click. What you do when you click that button on your computer is you light up computers all over the United States. There is no other service that exists that when you make a decision, you personally cause energy consumption by machines instantaneously, all across the United States.
You light up computers and communication networks all across different disparate parts of the supply chain. And you cause a truck to be driven, a warehouse to be used, a human or a robot in that warehouse to move a good. These are all energy-consuming activities.
So, we invent demands. We'll continue to invent demands. And for all practical purposes, there's no limit to our demands. And the demand limit is not from the limited number of people. The demand limit is how much wealth there might be, which I think is unlimited because that comes from technology and productivity.
So, the demand limit is unlimited because it's not how many people are in the world. It's how smart we are in inventing new things and wanting new things, including entertainment. I keep adding entertainment because depending on how you measure it, entertainment is something like a $4 trillion global industry which didn't exist as an industry at scale a hundred years ago.
If you unbundle the architecture of the entertainment industry which includes tourism, by the way, it's a monster. In fact, sticking with tourism, which is a purely entertainment industry, people who study the aviation industry know 85% of air travel is non-business. Only 15% of air travelers are business travelers.
That means 85% of air travel is for fun, for tourism, for entertainment, for personal pleasure. It is not a business serving some business. It's a business servicing entertainment and human pleasure. It was an invention that people liked because who doesn't like to go somewhere fun? Who doesn't want to fly and see their relatives assuming you like your relatives?
So, that means over 80% of all the energy used by aviation has nothing to do with a human "need" like survival. It has to do with what humans do. They invent products and services because they like to do things. That is unlimited.
Growth drives a lot. And then you have to ask yourself, "Will we invent any new things that will be net energy consumers?" Well, the question answers itself. Sure. The easiest one of course is AI and clouds and data. But the magnitude of that infrastructure's energy appetite is so huge that only now are people beginning to wake up to it. I've been writing about it for two decades. It is a monster infrastructure. The existing cloud infrastructure is equal to Japan's worth of electricity demand.
[Think about that. “The cloud” as an industry did not exist 30 years ago, except in imaginations and on drawing boards. Today, it is the equivalent of 124 million people in a highly developed country in terms of energy consumption. And quantum computing is getting ready to explode.]
The cloud’s energy consumption falls into three categories. And the most important category is not the electricity used by your smartphone. That's the least of it. The networks that connect your phone to the data centers consume far more energy. And the data centers themselves do all the logic, the processing, the analysis. And of course, the networks that take the things back to the market.
www.mauldineconomics.com
Demanding Energy
Energy is everything. Or, if Einstein was right, you and I are just energy in material form. Accelerate us to lightspeed squared and we might become something else.
All economic activity involves converting energy from one form to another. This requires harnessing sufficient quantities of usable energy. That task is becoming more difficult, to the point economic growth would suffer if we weren’t constantly seeking new sources.
In other words, energy isn’t just another market sector. It’s the foundation of every sector. And you know what happens when the foundation gets shaky.
I want to spend a few letters exploring different angles of the energy challenge. I started my research with a long, fascinating phone call (with some of my colleagues) to Mark Mills, one of the world’s top energy authorities. He recently joined with an all-star cast of other energy experts to launch the National Center for Energy Analytics. The research they’ve published so far is extremely valuable. Mark told me a little about what else is coming. Suffice it to say, you should pay attention.
Through the magic of AI, we were able to transcribe my conversation with Mark. Today I’m going to share with you one short section (of 30 pages!) in which he masterfully explains why energy demand is a much more complex topic than many people think.
Mark has an amazing ability to riff on almost any energy-related topic. What follows is a mostly verbatim transcript (with a few minor edits) extracted from a much longer conversation, along with some additional charts and comments [in brackets] from me.
I’ll share some more excerpts in future letters along with my thoughts, but I think it is important we start with energy demand. You need this background to appreciate the magnitude of our challenge. Energy is getting harder (or at least more expensive!) to find at the same time we need an ever-growing amount of it.
Unlimited Demand
by Mark Mills
There's no period of human history where economic growth, set aside population growth, isn't correlated with more energy demand. This is a one-to-one correlation. There are no wealthy nations that are low energy consumers.[See this chart of the growth of global GDP. Then see the chart of energy consumption. It’s no mystery why they look so similar.]
Now, in the wealthy nations, there's variability in the per capita energy use, but that's dictated more by geography than it is by behavior. In tiny countries with short distances, small buildings, and punitive taxes, the per capita energy use is lower than in the United States because we have less punitive taxes on heating and lighting and all the rest. But the correlation is one-to-one.
The important part about predicting demand is you have to bifurcate it to just two separate buckets. They're related, but different. One bucket is obvious: Population grows very predictably, give or take small variables. Even if there were no economic growth, you would get more demand.
The world has had reliable economic growth for three centuries since industrialization and the fossil fuel era. Everybody wants to be wealthier and more wealth is correlated with more energy use.
You can measure that by the OECD's “deprivation index.” They actually have an index that measures the percentage of people in different countries who don't have a toilet, a TV, a car, own a house, or rent a house—the set of the things we would consider in wealthy nations that are basic products we all take for granted.
There's a remarkably high percentage of people, poorer people, who have a high deprivation index. They're not wealthy enough to have a car or wealthy enough to own their own house or have air conditioning. So, wealth naturally brings more demand for the things that already use energy. Wealth brings more demand for the really poor countries that want to use what we have.
I mean, only one in 700 people in the poor part of the world have ever flown in an airplane. And in the poorest parts of the world, only one in 800 people own a car. So, you don't have to be a mathematician or an economist to know it doesn't take much growth to create incredible demands for energy to manufacture and operate cars and airplanes, even if only 10 percentage points more of those people get wealthy enough to want to fly and drive cars.
So, lots of people don't have what we have. Roughly three billion peoples’ annual energy consumption is equal to the annual energy consumption of your refrigerator. Their total energy consumption for all purposes over the course of a year does not exceed the energy consumption of your refrigerator. If you think about how much more energy they could use, well, you can do the math. Two-thirds of the world population could increase its energy use tenfold if they lived at close to European or US levels.
That’s not going to happen overnight. So, the variable in forecasting energy demand is then a tough one. How fast do you think economies would grow if the global growth rate were to rebound back to say 3.5% instead of 2.9% or 2.7%? That is a delta [change] of 500-hundred-plus basis points. As you know, John, that's huge.
Ten years of half-percentage-point increases in GDP growth would be a monster increase in global GDP which drags up energy demand. So, energy demand follows economic growth. Energy demand shrinks if you have a depression. It's just one-to-one.
The other factor, of course, is that we invent energy demands. The invention of the car was the invention of energy demands to make cars and drive them. The invention of the airplane was the invention of energy demands to manufacture planes and fly them. The invention of the computer was the invention of energy demands to make computers and run them.
The invention of pharmaceuticals was the invention of energy demand to make pharmaceuticals. Pharmaceutical energy demand is as great as semiconductor energy demand, roughly five to tenfold more energy per square foot of manufacturing space for pharmaceuticals than industry at large.
There is no limit to what we can imagine we might want to invent for entertainment, for luxury, for healthcare. Imagination translates into tools, things that we invent, services we want, entertainment we want. All those things consume energy. You can't make Amazon work without trucks. Trucks take energy to build and run. You can't make Amazon work without computers and a communications network to make one-click work.
So, if you were a curious person, you'd ask how much energy is consumed when you go online to Amazon, then search and hit Buy Now with one click. What you do when you click that button on your computer is you light up computers all over the United States. There is no other service that exists that when you make a decision, you personally cause energy consumption by machines instantaneously, all across the United States.
You light up computers and communication networks all across different disparate parts of the supply chain. And you cause a truck to be driven, a warehouse to be used, a human or a robot in that warehouse to move a good. These are all energy-consuming activities.
So, we invent demands. We'll continue to invent demands. And for all practical purposes, there's no limit to our demands. And the demand limit is not from the limited number of people. The demand limit is how much wealth there might be, which I think is unlimited because that comes from technology and productivity.
So, the demand limit is unlimited because it's not how many people are in the world. It's how smart we are in inventing new things and wanting new things, including entertainment. I keep adding entertainment because depending on how you measure it, entertainment is something like a $4 trillion global industry which didn't exist as an industry at scale a hundred years ago.
If you unbundle the architecture of the entertainment industry which includes tourism, by the way, it's a monster. In fact, sticking with tourism, which is a purely entertainment industry, people who study the aviation industry know 85% of air travel is non-business. Only 15% of air travelers are business travelers.
That means 85% of air travel is for fun, for tourism, for entertainment, for personal pleasure. It is not a business serving some business. It's a business servicing entertainment and human pleasure. It was an invention that people liked because who doesn't like to go somewhere fun? Who doesn't want to fly and see their relatives assuming you like your relatives?
So, that means over 80% of all the energy used by aviation has nothing to do with a human "need" like survival. It has to do with what humans do. They invent products and services because they like to do things. That is unlimited.
Growth drives a lot. And then you have to ask yourself, "Will we invent any new things that will be net energy consumers?" Well, the question answers itself. Sure. The easiest one of course is AI and clouds and data. But the magnitude of that infrastructure's energy appetite is so huge that only now are people beginning to wake up to it. I've been writing about it for two decades. It is a monster infrastructure. The existing cloud infrastructure is equal to Japan's worth of electricity demand.
[Think about that. “The cloud” as an industry did not exist 30 years ago, except in imaginations and on drawing boards. Today, it is the equivalent of 124 million people in a highly developed country in terms of energy consumption. And quantum computing is getting ready to explode.]
The cloud’s energy consumption falls into three categories. And the most important category is not the electricity used by your smartphone. That's the least of it. The networks that connect your phone to the data centers consume far more energy. And the data centers themselves do all the logic, the processing, the analysis. And of course, the networks that take the things back to the market.
Demanding Energy
John Mauldin shares an interesting conversation with a top energy expert.
www.mauldineconomics.com
