RE: G & R latest..2 Mar 2023 11:40
Extracts below from G & R latest Market Commentary…Q4 2022.
We estimate that over the next 15 years, the Inflation Reduction Act’s investment and production tax credits could total over $1.5 trillion. Unfortunately, we expect much less energy will be available in the US. Consider the following. If you believe we are now in an energy-insecure world, there are two available power technologies: natural gas or coal and renewables. The former enjoys an EROI of 30:1, while the latter has an EROI of ~5:1. The IRA has now guaranteed that investors will divert capital from traditional energy to renewable power. We believe the net result will, of course, be much less available energy, severely limiting economic growth.
Pundits argue these subsidies will help accelerate the transition from hydrocarbons; we remain skeptical. Throughout human history, society has willingly shifted away from one form of energy towards another only when it has been economically advantageous. Before Colonel Drake drilled the first oil well in 1859, whale oil was a dominant fuel source. In 1840, the US consumed 1.6 PJ of whale oil, equivalent to 710 barrels of crude oil equivalent per day. By 1870, whale oil consumption had fallen 75% to only 175 barrels of oil equivalent per day, while crude demand surged from nothing to 14,000 barrels per day. The economics of drilling and burning crude oil justified the transition. Society did not rely upon subsidies. Instead, economics and energy return on investment (EROI) drove the adoption. Our research shows that fully buffered renewable power has a much lower EROI than natural gas. By massively incentivizing the widespread installation of such an inferior energy source, the Inflation Reduction Act will ultimately usher in an energy crisis of unprecedented magnitude.
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