“Doomberg” is an anonymous team of analysts covering energy and economic trends. Their newsletter is Substack’s No. 1 finance publication and the group is represented by a cartoon chicken.
Motley Fool senior analyst Nick Sciple caught up with Doomberg’s head writer for a chat about topics including:
- The state of Europe’s energy crisis.
- Nuclear’s place in a decarbonized future.
- And what the Nord Stream pipeline attack means for the world.
To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on Oct. 01, 2022.
Doomberg: If you have an adversary like Putin who hates you who is a net energy exporter, it is incumbent upon you to allow every molecule he’s willing to sell to reach the market and then to flood the market with your own so that you drive price down. Oil sold from minus $37 a barrel at the peak of the COVID crisis, nobody was making any money in the oil patch. If our objective is to starve Putin’s war machine of cash, the only way to do it is to flood the world with molecules driving the price way down and crushing his revenue.
Dylan Lewis: I’m Dylan Lewis, and that’s Doomberg’s anonymous head writer. Doomberg is a team of analysts and writers covering energy and economic trends. The group is represented by a green cartoon chicken, and their newsletter is Substack’s number 1 finance publication. Motley Fool Senior Analyst Nick Sciple caught up with Doomberg for a chat about the state of Europe’s energy crisis, nuclear’s place in a decarbonized future and what the Nord Stream pipeline attack means for the world.
Nick Sciple: One of the tag lines that you use very regularly is the term energy is life. Can you explain to our listeners what you mean by that?
Doomberg: Energy is literally life in the sense that the human endeavor is a constant, unrelenting struggle against the forces of entropy and in order to beat back entropy and to impose order on your local environment, you need to waste to energy then your standard of living is quite literally measured by how much energy you get to waste. That’s sounds weird, but it’s fundamental laws of physics, second law of thermodynamics. It’s not often thought of in that way because for most of today’s intelligencia that the cultural thinkers of the universities and think tanks, they’ve existed in the professional careers during a time of energy surplus. It driven predominantly by the shale patch revolution. Post-COVID for a variety of reasons that we’ve discussed we now find ourselves in a period of primary energy shortage and most analysts, commentators and macroeconomic thinkers don’t have models for what works in such environments.
Energy is life becomes really apparent when there’s not enough of it. We’d like to say that in the battle between platitudes and physics, physics is undefeated. The Bank of England this week is learning that it can print energy. It can print the British pound, but it can’t print energy and it can’t settle its energy transactions in its own domestic currency, which is a key part of the crisis that is unfolding now that people are learning firsthand. You literally in order to impose order in your local environment, which is a measure of your standard of living you must have access to primary energy. Right now, for a variety of reasons, the world is short of energy and we’re seeing that if you push on one end of the balloon, you’re just expanding it somewhere else and all of this whack-a-mole of crisis are just unfolding at record speed. A couple of them this week are only going to make the situation much, much worse.
Nick Sciple: Let’s talk about the global energy crisis that we’re in right now, that’s something the IEA declared in July, but really something you’ve been reading about since 2021. Back in 2021, how did you foresee some of the issues that we’re seeing in Europe today?
Doomberg: The energy crisis actually started in the spring of 2021 with by today’s comparison relatively cheap natural gas prices but back then expensive natural gas in Europe caused the Europeans to pause and to not fill their storage tanks at the speed with which they needed to confront the winter. It’s lost on people now, but the price of natural gas in Europe spiked to unthinkable levels long before Vladimir Putin overplayed his hand and moved across the border in Ukraine. He did so we believe in no small part because Europe had handed him all of their energy cards and he felt like he had leveraged to play. We believe he miscalculate it, but we also believe he would not have moved on Ukraine had Europe not already been involved in an energy crisis. It wasn’t hard to detect. You could just look at the chart the natural gas price that the best CTF on the Dutch GTF contract was 15 times the price of natural gas in the US and you can’t run your economy that way.
One of the big things that people get confused is they co-mingle electricity with energy. This is an energy crisis, not just an electricity crisis. Natural gas is used to heat homes, it’s used as a feedstock to make fertilizer. It’s used in co-generation plants at major chemical facilities to produce industrial steam and electricity that drives the work processes that deliver life, that deliver our standard of living. The things we’re used to having. That’s where gas crisis in Europe quickly spread to Asia because they found themselves competing for the incremental carrier of liquefied natural gas which then of course, by the law of substitutions spread to coal and now we are in this really bizarre situation where corrected for energy content coal is more expensive than oil, which is really staggering and means something.
We think it means we’re headed to stagflationary environment where we have both inflation and economic contraction and we shall see, but this is a really historic time and you could see it coming. Again, because you can measure the molecules Europe has stopped fossil fuel development. Many in the US are focused on return on capital as opposed to growth for growth’s sake. The production of oil in the US has not surpassed COVID highs and the price elasticity of demand for life is huge. The clearing price that the wealthy in the world are willing to pay shuts out many of the developing countries and so we’re just at the beginning of the crisis in our view, and it’s going to be a big one.
Nick Sciple: You mentioned Russia’s invasion of Ukraine certainly put something that was already going to be an energy crunch even into a further energy crisis. How did the Russia’s invasion of Ukraine change conditions on the ground with regard to the energy shortage?
Doomberg: I’d say upfront, we have limited oil analysis of the situation to the energy side. We make no commentary on the military side and why is that. We know nothing about it. We can’t cut through the propaganda war. But we understand the dimensions of physics and what the limitations physics will impose. We have argued forcefully, and we think correctly that the sanctions regime has been a total failure and was a predictable failure from the beginning. Why is that? Anybody with any experience in commodity sector knows that price is the key to battling somebody. If you haven’t an adversary like Putin, who hates you, who is a net energy exporter it is incumbent upon you to allow every molecule he’s willing to sell to reach the market and then to flood the market with your own so that you drive price down. Oil sold from minus $37 a barrel at the peak of the COVID crisis, nobody was making any money in the oil patch.
If our objective is to starve Putin’s war machine of cash, the only way to do it is to flood the world with molecules driving the price way down and crushing its revenue. If we were successful in taking half of his exports off the market, the price of these commodities would more than double and he would make more money because of it. Trying to crush his volume is only going to end up empowering him to make more money, which is what we’ve seen. Who’s being sanctioned here? Look, it’s still happening in the UK with the Bank of England having to do quantitative easing in the face of 10 percent inflation while Russia is cutting their interest rates handover fist to well below pre-war levels. Why? Their coffers are full because energy is expensive. Energy is expensive because of our sanctions policies and the quicker we realize that and change course, the quicker we can win the energy part of this hybrid war.
Nick Sciple: At the end of the day, it’s your belief that in order for the market to be adequately supplied, you need some of that Russian natural gas.
Doomberg: The world cannot live without Putin’s energy and we should not want them to. Because if all of Putin’s energy, let’s just get the exception that proves the world out on the table here, if we bombed every oil well and embargoed every port, and no LNG, no natural gas from pipelines, and no oil from Russia found its way outside of rushes borders, the world economy would collapse, hundreds of millions if not billions would starve and we would enter into a depressionary spiral that would make the thirties look gentle. It’s just a fact and so this is an Axiom. When you’re designing your sanctions policy, you should consider not only the first order, but the second, and third, and fourth order effects of what you’re doing.
We’ve been very loud from the beginning, people accuse us of being quote, unpatriotic for pointing this out. In fact, we argue it’s as patriotic as you can be. This is not going to work. Here’s a plan that would. Follow our plan and we will achieve our geopolitical objectives. Unfortunately, we’ve gotten in the opposite direction talking about price caps, and if somebody blew up these pipelines, I’m sure we’ll talk about Nord Stream 1 and Nord Stream 2. This is catastrophic for Germany in particular, but this is a real big escalation. So yeah, we think we’ve been wrongheaded on this from the beginning and we’ve been consistent in our view, you can only when a revenue war in the commodity world by swamping with production.
Nick Sciple: Yes. So let’s talk about what’s happened this week. Some obvious sabotage of the Nord Stream 1 and 2 pipelines which link Russia to Germany where when it comes to natural gas, those have now been sabotaged and there’s some belief that those might not be able to come back online for years to come. How does this attack change maybe where Europe’s energy future goes?
Doomberg: It’s a catastrophic, monumental, historic event of epic proportions that is not yet been internalized in the commentary of the media of the day here. This is a very big deal to set the stage. These are two Deca billion-dollar projects to create these pipelines. They had the capacity to meet most of Europe’s natural gas needs. It removes the incentive for Putin to come to the table and talk peace because like you can’t even supply Europe through these pipelines. If Putin disappeared tomorrow and the most western friendly leader of Russia possible was installed, Europe is now catastrophically in big trouble for it condemns Europe to several very tough winters. It’s a real shocking event. The most important element of what’s transpired here is we’ve crossed the Rubicon into a world where attacking energy chokepoints is now normalized. We don’t know who did it.
There’s lots of speculation who did it. We won’t indulge in such speculation. Somebody did it. They know that they did it. The people that didn’t do it, they know that they didn’t do it. But in the sort of game theory of what happens next, let’s just say the US. did it, just to pick an example that we don’t necessarily believe to be true. But what’s Putin’s response? We have choke points over here. We have cyber vulnerabilities at LNG export facilities. We saw an explosion at the Freeport LNG export facility. There was some whispers that that might have been a cyber attack. The company denies it and there’s no evidence of it. But whoever did it, the other side now feels emboldened for retribution. Because energy is life, and because we have these chokepoints, it doesn’t take too many acts of sabotage to catalyze a catastrophic decrease in the global average standard of living and this is a big deal.
Nick Sciple: Whatever entity is responsible for these attacks, in any event, we will not be able to return to the status quo we were in and say summer 2021 with respect to these pipelines. As you look forward to Europe, the world trying to solve its energy shortages today, what’s the path that you think leaders should be following?
Doomberg: Well, there’s only two possibilities. You will either produce more energy or you will accept and distribute substantial decreases in your standard of living. One of those is hopeful and the other is less hopeful. The mechanism by which cuts to standard of living our distributed can get messy. We believe Europe is entering the winter with insufficient molecules and no amount of Central Bank printing or interference in the market can create those molecules. So any strategy to get us out of this crisis that does not involve more energy produced domestically is doomed to fail. Price caps, stimulus, all of these things they are only going to make the situation worse as you know. The only answer is more production of energy. Even if they were able to outsource all of their natural gas needs, for example, from the LNG market, two problems, they have just diversified away from one set of foreign potential geopolitical opponents into another one. Qatar has got a mixed relationship with the West.
They’re a major exporter of LNG. Even the US sometimes we get into diplomatic Rose with our perceived allies. Ultimately, if Europe can’t produce its own energy or it can’t acquire Energy in its own currency, then they’re going to have to accept a substantial and destabilizing cut and standards of living, which we fear is going to trigger a substantial tilts to the right in European politics and we’re seeing evidence of that today in Italy. But this blowing up of the pipelines is a really big event and it changes the chessboard permanently and it changes a chessboard in a way that elevates risks substantially. Look, we have the Foreign Minister of Russia and the president of Russia actively warning about using nuclear weapons. This is a very big deal and one that we should be taking a very seriously.
Nick Sciple: You mentioned nuclear weapons. I want to talk a little about nuclear power actually. It’s been a conversation you’ve had a fair bet around, Europe has been slowing down or speeding up. They shutdown down some of its nuclear plants. You actually had some German ministers yesterday talking about the need to extend nuclear plants in the aftermath of what happened with the pipelines. How do you see the role that nuclear could play in solving some of these energy issues?
Doomberg: There is simply no path to a decarbonized world that does not have nuclear power as an anchor. Many sort of progressive environmentalists would disagree with that and I think that we can get there with solar and wind alone, it’s just provably untrue. It’s simply won’t be enough. It requires an enormous amount of energy to produce solar panels and wind turbines and the payback period is huge. It’s of hyper-political numbers, so we don’t need to engage in that. But the payback period on nuclear power, because it’s so energy dense is six weeks. If the payback period on solar is four years and you want to, let’s say, displays 10 percent of your energy needs, you need to take 40 percent of your energy this year to do it. Whereas if the payback period on nuclear powers six weeks, you can obviously have a much bigger impact much quicker.
There’s a lot of noise about nuclear waste, which we believe is just a propaganda trick. You cannot decarbonize without nuclear power. If you truly believe that the climate crisis is catastrophe and that decarbonizing is a must, you either do nuclear power or you crush everybody standard of living. Politically, as we’ve tried to warn our friends, on the Progressive side of the environmental movement, the path function matters. If you force a swift de-acceleration of standards of living, you will lose the popular vote. The median voter will turn against you and you will see this right-word tilt and politics that is dangerous. This is an experiment now that’s a bit uncontrolled.
The opposition to nuclear power has always puzzled us. We have our beliefs as to their origins. But we’re starting to see, at least in the US. every connection with the power of high-density fuels like uranium, and the fact that these are basically carbon-free and that we can decarbonized while ensuring a decent standard of living for people if we have nuclear power at the focal point of it. It is literally impossible any other way and so we can argue about it, and we could be political about it and we could create all manner of and allocations and spending bills. But until and unless we get serious about increasing the energy density of our primary fuels, we’re either going to see radically decreased standard of living or we’re not going to decarbonize.
Nick Sciple: So the choices are either reduced demand, which is to your point, reduce the standard of living or increased supply, whether it’s through nuclear or some of these, these other forms into your point. Nuclear, you can substitute for natural gas and a much more one-to-one way because of the base load.
Doomberg: You could create a hydrogen economy around nuclear and we could use hydrogen combustion engines to power our vehicles around hydrogen produced for nuclear. You can start with water, use an electrolyzer, and power that electrolyzer with a nuclear power plant. We could get rid of CO2 emissions. It is possible. It requires no technical inventions for us to radically decarbonize our economy while still maintaining a good standard of living. The technology exists. The missing ingredients are some financing. This is not cheap, of course, and we certainly are pouring money out of the treasury’s coffers for all manner of potential solutions that probably won’t work.
But it requires no technical interventions. Nuclear waste doesn’t solved problem, It just requires politics well and credit to Gavin Newsom in California for extending the life of debit Diablo Canyon. Look if the Germans actually do keep their remaining nuclear power plants on, that’s great First step. It would be nice if they restarted the ones they just shut down. The same thing in Belgium, they just shut down a perfectly good, totally operable middle-of-life nuclear reactor for no good reason in the middle of an energy crisis, it’s insanity. You couldn’t make it up if you try. The current slate of politicians will either open up a physics textbooks soon or they will be voted out of office.
Nick Sciple: We’ll see how things play out. We mentioned nuclear power is when a potential solution. We’ve also talked or you’ve mentioned a couple of times, liquefied natural gas. One of the big exporters on a global basis is the United States and that’s continuing to grow. What role does North America, the United States, have to play in solving the world’s energy crisis today?
Doomberg: Yeah. It’s a great question and we’ve long argued that if we do a circle around Mexico, Canada, and the United States, so NAFTA, you have an energy superpower. You have all the oil and gas you need. You have all the nuclear technology you need, the CANDU nuclear reactors and the workforce that supports them up in Canada. You have amazing resources and outstanding workforce across all three countries. We have all the fertilizer we need. We have all the farmland we need. We have all the freshwater or 80 percent of the freshwater is sitting between Canada and the US today, all the forestry products that you could imagine.
We have everything we need in North America to both radically improve the standard of living of all of the citizens that are here and project enormous geopolitical power outward by supplying via export the critical fertilizer, energy, minerals, food, and lumber needs that the world is so hungry for. Not only could we radically improve our own world, but we can help the rest of the world lift themselves out of energy poverty, and help humans flourish around the world. We could emboldened our allies and punish our enemies. It’s all right here. We just need to get serious about it. One thing about a crisis is it does focus the mind and so we’re actually pretty optimistic people in real life that named Doomberg not with standing. When we’re done trying all of the bad ideas, we have very good hope that will settle on some of the good ones.
Doomberg: I tend to be of the same mind as well. I think something’s got to give and sooner or later, we’ll find our way to the right path because that’s what people have done all throughout history. Let’s talk about the future and maybe an optimistic. Look one of the things we talk about here at the Fool, sometimes there’s imagine you hop into DeLorean and you go forward, 10 years, you hop out and you walk around. Let’s assume that the world follows that the Doomberg path. That we’re going to invest meaningfully in New Energy Technology, nuclear, things like that. If you jump forward 10 years, what does the world look in that universe?
Doomberg: In an ideal world, we have small modular reactors distributed around the country so that there’s no real big points sources of vulnerability. We have hydrogen production facilities that power vehicles that can store 500 miles of range. We use internal combustion engines to basically burn that hydrogen back to water, so that we don’t have to rip all of these precious metals out of the ground. We could basically just retrofit existing automobile fleet. Our carbon emissions are down, our food productivity is up. People are well fed. There’s peace in the world. We’ve said, it’s a weird thing now to say pray for peace. We had prayed for peace where we wouldn’t that we’re antiwar and that used to be a very liberal position and now it’s considered right wing conservative because you are somehow against war. We would like for democracy to be widespread and for humans to flourish.
There was a way to do that. If an alien came down and looked at the earth and saw how much potential we have. Then saw how inefficiently and unequally we’re distributing it across the humans on this planet. The wealthiest, one percent versus the bottom 90 percent. It’s really a scandal and it’s a broken system. In an ideal world in a utopia but we would have an abundance of energy. We would have peace, and we would be at the top of Maslow’s hierarchy of needs, all searching for our own source of personal fulfillment.
Nick Sciple: I love that. Maybe one last question for you are, one of the focuses of Doomberg. You’ve touched on this a bunch of places throughout this interview is, it’s where narratives about energy diverge from reality, physics versus idealism, things like that. Where do you think is the biggest gap today between the general knowledge around energy today and the reality on the ground?
Doomberg: This is a crisis of distance. For the median voter in the Western world, light is derived from a switch. Food arrives from the pressing of a few buttons, and heat comes from a thermostat. Because we have grown distant from the primary means of production, capitalism is this amazing machine, which is indistinguishable from magic in a sense, because it allows the illusion that stuff just appears. One can become convinced that it doesn’t need to be made. The analogy of our energy policy that led us into this crisis is signed off the trunk to save a few limbs. What needs to happen? In our own small way, we hope we’re playing a part of this is we need a reeducation of the median voter in the Western world. As to the criticality of these primary energy systems, the workers in the oil and gas field are not villains, they’re not out to destroy the planet.
They’re producing critical to life energy that the rest of us, not only indulge in, not only take for granted, but begrudge and so it’s a fight worth fighting. It’s a matter of politics and education, and polite debate, and public discourse, which we’re big believers of. We will debate anybody anywhere that has authentically held views expressed politely. We have our own authentically held beliefs and we tried to express those as politely as we can. We do believe that ultimately the median voter can be convinced to look at things in a different way to understand where it is that the life-critical energy that they exploit every day comes from. We’re not here to change the mind of the loudest of the voices, of the true partisans.
We are idle logs, not partisan and our objective is to teach people how the world really works and to have them at least ponder the trade-offs. An opening quote of one of our pieces was, “There are no solutions, they’re just trade-offs.” That’s fine. If you think nuclear waste is a problem, then you have to trade something off. Are you willing to set your home to 60 degrees for the winter? That’s fine. That’s a trade-off. You can do that or you can handle the relatively small amount of nuclear waste in a safe way that a moderate nuclear power plant produces. What are the trade-offs? Let’s define them. Let’s have an intelligent, polite, open discussion about the pros and cons. Then in a democratic fashion, decide what we’re going to do collectively.
Nick Sciple: Absolutely. Today when we’re in a global energy crisis now probably more important than ever to start making some of those decisions, and deciding where we went to allocate our time and capital and those things. Doomberg, thank you so much for joining me before we go. Where can people find your work if they’d like to read more work and they stay in touch with you?
Doomberg: Nick, this has been great. Our primary work, it can be found at doomberg.substack.com. We are 100 percent subscriber supported. We take no ads and we accept no sponsorships, but nothing wrong with those business models, but we believe that the complete editorial freedom of the Doomberg team is one of our brand differentiators and we’re committed to being subscriber-supported the length of Doomberg. We’re also on Twitter, very active on Twitter at Doomberg T, add the letter T to the end of Doomberg, as in Twitter. Somebody is spotting on the Doomberg game, which is unfortunate, but such is life on the Internet. Really appreciated the opportunity, love your work, and that was a great discussion. Nick, looking forward to having it again.
Dylan Lewis: As always, people on the program may own stocks discussed on the show and The Motley Fool may have formal recommendations for or against, so don’t buy or sell anything based solely on what you hear. Thanks for listening. We’ll see you tomorrow.
