Episode 81: Energy and Oil Markets with Art Berman

Ben Lakoff, CFA
August 22, 2022
Listen to this episode on your favorite platform!

Art Berman is my go to person for all things energy related. He rejoins the show in a moment where it feels like every headline is focused on inflation and energy costs to break down what is happening on a global level.

Listen to catch up on the current state of all things energy and what the future may have in store.

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Show Notes

0:00:00  Welcome and context    

0:02:30  What is impacting the Oil Market?    

0:11:37  What is happening with the Oil supply?    

0:20:05  What happens with Europe and the sanctions towards Russia?    

0:23:00  What other supply factors can affect the oil market?    

0:26:21  What is happening with the oil demand at the moment?    

0:41:15  What is the overall energy consumption right now?    

0:50:03  What is the most credible bearish take on energy?    

0:59:11  Are there any changes that people can do that change their  energy consumption?    

1:03:10  Where can people find out more about you?

Show Links

Art Berman

Art on Twitter

Episode 14 with Art

Helpful other Alt Asset Articles

Episode Transcript

[00:00:00] Ben: Welcome to the alt asset allocationpodcast, exploring alternative investment opportunities available to theeveryday investor. Here's your host Ben Lakoff.

Hello and welcome to the alt asset allocation podcast. Today'sinterview is with petroleum geologists and energy expert Art Berman inflation,higher energy costs.

These things pepper the headlines at the moment. And in thisepisode, we actually go through a chart book. So Art has come prepared with apresentation. I've linked this in the show notes. So alt asset I highly recommend watching this on YouTube to follow along. Although I dotry to narrate it in the audio only version plus on YouTube, you get to see me,Hey, that's so great, right?

But in this episode we cover oil and energy what's going on inthe market. Some of the biggest factors for demand and supply, really helpingyou understand the oil market and energy market. And ultimately we cover justthe bigger shifts in this energy market. Overall, art has a wealth of knowledgeon the energy markets, and I love being able to pick his brain on these things.

Before we jump into the episode, I wanted to take a quicksecond to thank you for. Great questions and feedback I've been getting beforeI do these interviews, I tweet out asking for questions and I've been gettingsome good ones, even DMS. So keep those up. You guys rock. I really appreciateit. If you're getting some value, drop me a line as well.

I also appreciate that. Alright, Art Berman on energy, enjoy!

Art, excited to have you back on the allt asset allocationpodcast. It's been a long time. Welcome back, sir.

[00:01:44] Art: It's a pleasure to be back and good tosee you then.

[00:01:47] Ben: Likewise. And I was looking back, so itwas all the way back at episode 14, and this was published in November, 2020which meant it was probably recorded in July, 2020.

Nearly two years since we've spoken and yeah, just a fewslightly significant things have happened in the last couple years. Welloverdue for an update here.

[00:02:12] Art: Well, I'm, I'm, I'm, I'm pleased andhonored to be asked back. So hopefully we'll I'll be able to give yourlisteners some new perspectives.

Yes indeed.

[00:02:22] Ben: You are a petroleum geologist and anenergy expert. You are Mr. Oil in my mind and would highly encourage mylisteners as kind of more of an intro into what is, why is the oil in what isimpacting the oil market and why like investors should care about it? Thatthat's episode 14.

Let's start off just with an overview of the oil market, cuztoday this is being recorded on July 13th and the headline today was usinflation hits 40 year high in June driven by record gas prices. CPI print wasa 9.1%. So let's just start off by kind of painting the picture and you sent aterrific slide deck.

I can show that and reference a slide if that would be easier,but we'll definitely get into that one. Further on.

[00:03:11] Art: Yeah, well, so I guess the, the, the, themain thing that I would like people to understand, and there, there is a slidethat, that chose this as clearly as can be. And, and that is that you know, ininflation the main, the main cause of it the main factor for inflation in theus I think it's slide number one.

Ben, yeah, there you go. It's oil price and it, it, it it'sastonishing to me as I listen to all these really smart economists and analyststalk about all the, you know, all the, the many reasons for inflation that, thatvery few of them ever really mention oil. And if they do, it's kind ofparenthetically.

Of course energy is left out of core inflation, which gives yousome idea of, you know, sort of how, you know, just how bizarre everything is.But this, this chart goes from January of 15, 2015 through June of 2022. Andyou know, I don't want to insult anybody by trying to help them see the obviouscorrelation.

This is west Texas, intermediate us oil price and us inflation.And I mean, you know, it's, it's about as good a correlation as you get in thereal world. And so this shows today's inflation print of 9.1% and it shows JoJune's oil price of almost $115. So in my world, and it's not because I'mpartisan.

I, you know, I, I, I look at all commodities. If you had tochoose one factor. That controls inflation it's oil price. It's just thatsimple. And, and so why would that be the case? Well, because I mean, theeconomy runs on energy. I mean, you, I mean, we have to work to make money. Andmost of our work comes from energy, which in the modern world, most of it isoil.

And so when the price of oil or energy goes up, then the costof doing business goes up and that gets passed along all through the economy.So the fact that there is such a beautiful correlation comes as no surprise tome, but I think it. Maybe is a little bit of, maybe not a surprise, but alittle bit of a revelation.

When I make a statement as strong as high oil price is theleading cause of inflation. There are people that will argue with me about that,and I'm gonna stand my ground. You know, look at this chart and tell me whereI'm wrong. That's all I can say.

[00:05:52] Ben: Yeah. Well, what are the arguments herethat it's actually money printing?

And this is actually what happens after money printing iseverything goes up including oil. Is that the main argument that kind of peoplepeople are saying, that's

[00:06:07] Art: certainly one of them. And, and so I turnthat around and say, well, what is money? I mean, you know, you wanna make anargument that it's not oil or energy that it's money.

Tell me what money is. And after a certain amount of. You knowdeer in the headlight kind of things. That's not a question that people oftenask. I often have to say, well, look, I mean, money is a claim on energy. It'sjust that simple. If we go back to, you know, ancient times you know,pre-industrial sometime after the agricultural revolution and, you know,10,000, 11,000, 12,000 years ago that was the first time that humans.

Accumulated the surplus. Okay. When, when, when we were huntergatherers, when we got hungry, we went out and killed something. You know, weall went out and, you know, killed a Mastodon or whatever. And we had enoughfood for, you know, a couple of weeks, just sort of like our, you know, our,our predator friends on the Savannah do right now, they go out and they get akill and it feeds them for a couple of days or a week.

And they lay around and, you know, nurse their Cubs or playaround with their friends until they have to work again. Okay. Well suddenlywith agriculture we had some people were able to accumulate a surplus cuz theycould store. GRA, they really couldn't do at the time with meat. And so somepeople had enough surplus that they could say, well, you know, there's some workI need to do.

I need to dig a ditch. Hey, Ben how about if you dig this ditchfor me, cuz I don't feel like doing it and I'll give you a bushel elite inexchange for your work. Okay. Calories for calories, jewels for jewels. Okay.Think about however you want and you might say screw you or sure. Why not? Andyou do the work and you take your bushel elite home and you know, you and yourfamily can make bread or do whatever you like.

Well, that that's pretty awkward after a while. And soeventually rather than exchange the wheat for the work we invent a coin and thecoin is good for a bushel, a wheat, and it's a whole lot easier. You put it inyour pocket instead of having to. You know, carried on your back and eventuallymoney became the exchange that humans used, but it was just a claim.

It was a token. It, it, it represented work, it representedcalories or jewels. Now in today's world, we forget about all of that, butthat's, but it hasn't changed. And so when we print money, if that's really theright word for things, and you know more about this than I do, but money is aclaim on work and debt is a lean on future energy.

It's just that. And so when you print a lot of money that youdon't have any, any material basis for, then the assumption is that, I mean,money is a debt, right? I mean, that, that's what it is today, cuz there's nogoal backing it up. And so the assumption is you're going to, you're gonna paythat, that, that, that debt by production of future energy.

Okay. And if you can do it, that's good. And if you can't, thenwe're all in trouble. And, and so to me, it's, you know, it seems intuitivethat that that's the way it works, but I understand it's easy to forget. It'seasy to think that money has a life of its own, but it doesn't, nothing has alife of its own.

Everything relates to something and we're not stupid. I mean,you know, we, we don't work so that we can have a stack of bills. We have to beable to do something like that. So that's the argument. It's, it's, it's reallyquite simple and as basic as it gets.

[00:10:02] Ben: Yeah. That's helpful to go back to thebasics because I think you, you do kind of.

Get a little bit confused us as humans when all of theintricacies of, of how money is in the system. So going back to the basics likethat, and, you know, for the record, terrific di ditch Digger, this guy. So,you know, happy, happy for well, if we slip into full on depression, you know,maybe I'll go back to digging ditches a little bit more often.

I hope not. Yeah. Yeah. Well, you know, it's, it's kind of aworkout and stuff. No. So since we chatted like Ukraine Russia, us boycott onRussian oil. I mean, you talk about a lot about supply and demand. This hassignificantly. Changed the supply, the dynamic of supply and demand within themarket.

Let's talk about supply and kind of some of the, some of thebig changes and again for, for my listeners on podcast, if you check this outon YouTube, we're likely going through a slide deck that art has shared, andI'll have this in the show notes as well that you can flip through as well.

[00:11:13] Art: Well, what's going on in Ukraine is a isa fundamental restructuring of the world order of. I mean again, I'm, I'm, I, Idon't, I don't prepare these comments, you know, for shock value or anythingthat that's just, you know, we've just covered two big ticket items, inflation,and and what's going on in Ukraine.

And, and so I'm certainly my, my first degree was in history.So I know a little bit about these things, but I I'm, I'm not a politicalscientist, but what what's happening in Ukraine is so much more than Ukraine. Imean, Ukraine has, has kind of been the focal point of all kinds of stuff. Inour lives for many years not the least of which was, you know, all theimpeachment issues with, with Trump.

I mean, those kind of centered on Ukraine and Biden's son hasstuff going on in Ukraine, and there's a reason for that. Okay. And so Ukraineis a, is a, is a huge transit point for mostly natural gas coming out of, outof Russia into Europe. Now that has changed somewhat in the last few yearsbecause Russia doesn't want to be that dependent on Ukraine, but nonethelessUkraine, isn't energy, crossroads, and, and Ukraine is a place where, whereNATO, Western interests, clash with Russian, therefore Eastern interests and anawful lot of nations, which are semi unaligned.

Like. India Turkey. I mean, Turkey's a member of NATO, but theycould kind of go either way. China's certainly aligned, but they're, they'renot aligned with NATO. You know, these are countries that are saying, well, youknow, we don't really agree with you. We don't, we don't think that we reallywanna sanction Russia.

In fact, we, we kinda like the deal that's going on right now.Cuz we can buy Russian oil real cheap. So, you know, this is a restructuringof, of the way that the, that the world app portions, its energy and with whatI said before, about how energy is the economy, that that's kind of asignificant thing.

And, and so. Getting into the details, which I don't care tobecause it's a distraction. You know, let let's just leave it there. I think,you know, and your, your listeners know that Ukraine does a lot of other thingslike produces a huge amount of food in the form of grain and all sorts of youknow, of other significant commodities for the world.

It's, you know, it's not a, I mean, it's a significant providerof, of, of a lot of things to the world and a transit point for those. So thewar is, is complicating, supply chains in ways that, you know, we thought wewere a little bit out of that, that bind and, and here we find ourselves again.So it's, it's a mess, but let me conclude my comments on Ukraine.

A little known fact that I think is super important and that isbelieve it or not. And you can believe it. Vladimir Putin has a PhD and his PhDis in mineral economics and he wrote his dissertation on the fact that theRussian, the Soviet union fell because it failed to manage its oil and gasassets.

Correct. OK. So whether or not.

[00:14:47] Ben: This is, this is mind blowing for thoseof you that don't understand that, like, this is a very smart guy and there'sthere's theories about somebody ghost riding or whatever, but like he probablyvery, under very much understands these things. So he's not he's. Office rockerwith these decisions probably.

[00:15:05] Art: No. And, and, and, and I wish he were ,you know, from a, from a partisan perspective as an American, but, and, andyou're right. I mean, there, there are rumors that, you know, well, maybe hedidn't write the thesis himself, but nonetheless, I would argue that, you know,discount, if any way you like this man knows more about energy than all of theleaders of NATO countries put together.

Because, and, and I don't mean this it's gonna sound bad, but Imean, they they're, they're ignorant of energy. It, it, energy is too complex.It doesn't lend itself to a, you know, to three or four talking points and, andPutin understands, and he knows, he knows that for all the talk and the Kabukidancing, and, you know, all of the mine shows that are going on.

That Europe is screwed without oil and gas from Russia. Andthat he's playing as Russians always do the long game and they have absolutelyno chance of winning the long game. The longer he, he drags out this thing inUkraine, whether you think he's or losing it doesn't really matter. He iswinning he's winning because he wants to extract pain from the west and he'sdoing it just this morning.

The German government is running models on how they can switchfrom gas to wood this winter. I mean, this is real. I mean, this is an officialcommunicate from the German government. Okay. So I mean, you know, this is ahuge step backward in time. And, and so this is the kind of thing who knowswhat he's doing.

He knows. I mean, you know, again, I'm not endorsing him, I'mnot admiring him. I'm just saying he knows what he's doing and what he's doingaside from demonstrating. How, how much everybody depends on Russia, he'sshowing, you know, this renewable energy thing. It just isn't working. I mean,not that it can't work, not that it's, it's a bad idea, but you know, I, Idon't hear anything hardly about people you know making a run on solar panelsin German.

I mean, they're talking about burning wood, this winter forcrying out loud. Okay. When push comes to shove we gotta stay warm and we haveto live and you know, your solar panels are real nice and your wind turbinesare great. But we'll, we'll talk again in a couple of years. I mean, and, and,and, and, you know, Ben, I mean, I'm.

I'm I'm an environmentalist. I'm a conservationist. I'm deeplyconcerned about climate change. I, I, I, I'm very concerned about the state ofthe, of Earth's ecosystem. But this is the maximum power principle at work. Andhumans are gonna like all life. We're gonna Maxim. We're gonna go for themaximum bang that we can get for our energy buck, cuz that's the way it works.

And it ain't solar. It ain't wind not today. Not this decade,not next, maybe sometime. So that's, that's the, the realignment, those are,that's the scope of the realignment that's going on in the world. Right?

[00:18:34] Ben: What's what's, what's the end game herefor Europe. Europe is very reliant on Russia for their oil.

It's it's July now. So it's less of a concern, but this winteris, you know, temperatures start dropping, not that far away from now in thenext four or five months. What is kind of their end game? They roll over andreduce the sanctions. What has to happen here or burn down all the points, Iguess?

[00:19:01] Art: Well, we did that once back in the 14thcentury and that's kind of when cold became a thing yeah, with the populationthat we have in the world today. The forests are not gonna last very long. And,and, you know, we didn't talk about fertilizer either. I mean, this is anothervery important thing that both Russia and and Ukraine provide to the world.

And by the way, Ukraine has lots and lots of natural gas. Andhow do we make fertilizer? Well, we make it from natural gas. In fact, if youlook at the you know, like what are the, the five or so really significanttechnological breakthroughs that led to the 20th century fertilizer is on BOM'slist.

Okay. And, and because the, the population of the earth. Is is,is limited by its ability to feed a population. And as of the end of world warI, the population of planet earth was less than 2 billion and it was less than2 billion, cuz that's about all that earth could feed. And these two Germanscientists, Harbor and Bosch figured out just before the war, how to liquefyair, which is the only source of abundant free nitrogen on planet earth.

And with nitrogen, you can make as much fertilizer as you wantand you need two things, nitrogen or nitrogen. You get the hydrogen fromnatural gas, you get the nitrogen from air and CBO. We've got 8 billion peoplebecause we can feed them. So when fertilizer starts becoming a problem, eitherbecause it's too expensive or because there's not enough of it, suddenly peoplestarve.

When there isn't enough grain to distribute because of aconflict in Ukraine, more people start. And so, I mean, these are just, theseare just the harsh facts. And again, I, I, I just, you know, to me, it'sobvious that all these things are related, but I, I don't think that this well,no, I don't think, I mean, this, this is simply not part of the of theperspective that you get from, you know, watching cable TV and, and nor norshould it be perhaps, I mean, I'm not criticizing them.

I'm just saying, you know, to, to those of us that work in theenergy business, it's all related to.

[00:21:22] Ben: And for the average person, it's, it'sjust, they see home price or they see gas prices going up substantially. Theysee these CPI prints that are outta control. You know, it's unclear where thesethings are coming from.

And, and then, you know, if we have food shortages and things,it will all kind of come full circle. But what other, like, what other, so, Imean, this Russia Ukraine thing is going to have tons of impacts, not only tooil, but what other like exogenous supply factors should, should we be thinkingabout in the world today?

I mean, Russia was the second largest ex exporter of crudeafter Saudi Arabia. So I mean the

[00:22:05] Art: actually, right. Yeah. Yeah. So the bigthree, us Russia and Saudi Arabia and everyone thought well with all thesehorrible sanctions, We need to try to, you know, recalculate supply and demandbecause I mean, Russian supply is gonna go to who knows, but, you know, onepoint some of us were thinking it could, I mean, it could be down four or 5million barrels a day from the 10 or so that it ordinarily is.

And if the world is suddenly short, let's say four or 5 millionbarrels a day. I mean, that's, that's an absolute catastrophe. And we haven'tseen anything like that since the Iran, Iraq war in that didn't come to pass.Because as I mentioned in the beginning there were other customers that werewilling to buy Russian oil at a discount, China, India being two importantones.

So Russia and exports are actually only down about a millionand a half barrels a day, which is enough. I mean, don't get me wrong. That's alot. But it's not anywhere near what most people expected with gas you know,there's all the, there are all kinds of curious things. Russia has cut off acouple of countries from gas, and right now the, one of the big pipelines theNord stream that goes under the Baltic supposedly has a, a compressor thatdoesn't work.

Okay. Maybe that's true. Maybe that's not but it can easily beinterpreted as Putin turning the screws on Germany and Canada says, oh, well,you know, we've got a spare. You know, how about if we send you one and gasprom, which is Russia's big gas company said, yeah, we, we can't really thinkof a way that that would work.

That was as of today or yesterday. So, you know, the, this isa, a continuation of what the Brits used to call the, you know, the great game.It's the great game of, of, of east and west. And it's playing out just as if,I mean, the players are different, some of them, but Russia is still one. Andso much of, of, of England's foreign policy when they were the top country inthe world was directed at Russia.

I mean, they, they, they went into Afghanistan to control Russia,cuz they wanted to keep their supply lines to India open. They, they invadedRussia from the south a couple of times you know, this is a, this is, there's along history to, to all of this stuff. And Russia seems to be a constant inakind of

[00:24:43] Ben: interesting.

So very interesting and, and fits into like this broaderpicture of de globalization and undoing a lot of what's been happening over thepast couple decades, but right. Yeah, I think we could, we could go down a verydark path on this one to, to avoid that. I'll pull us back and talk about, so,so, so clearly some massive changes supply that there's like a bigger chessgame that's going on.

And, and oil is a key part of this, or, and has been sinceoil's been significant part of the economy, but in terms of demand, I want tojump back to your flip book. Mm-hmm so in your presentation you have a lot ofslides really covering demand. And I think, I think this is what a lot ofAnalysts and, and people end up talking about quite a bit is, you know,gasoline's impact and on oil prices and in general.

So yeah, I'll just kind of have you direct me, but you've gotsome fantastic slides in here. So wherever you wanna start regarding

[00:25:45] Art: demand, this is fine. So, so this is Usoil, WTI futures price. As of today, 96 30 was its its closing price today. Andthis goes back to the beginning of, of of this year.

And so what I'm showing here is just price, futures, price inblue. And then the shaded area is, you know, some of your people know aboutBollinger bands. This is simply two standard deviations. Around the 20 daymoving average, which is the dash line. And so if you, if you believe, or, Imean, it's not a belief thing it's empirical that, that, that prices rarely getoutside of these bands and part of that's cuz they change every day since itmoves forward.

But you know, at 96, 30 were a little bit more than twostandard deviations below the me. And that tells me that we're probably notgonna go much lower. In fact, it went up a little bit today from yesterday.Similarly, you know, if you go up and look at you know, June 8th we got alittle bit above and low and behold things fell.

We got a little bit below low and behold things went up. So,you know, I mean oil price is not like some sort of you know, magical roulettewheel. I mean, there is a thing called priced formation. Which believe it ornot. I mean, I can't tell you what the price of oil's gonna be today or nextweek. I don't think anybody can, but it does follow some rules.

And so, you know, the, the great likely when people say, oh,oil's going to $50. I say, oh really? That's interesting. , you know, thatwould be about five standard deviations below the mean, I'm not saying itcouldn't happen, but it certainly isn't gonna happen overnight. So I mean,that, that, that's kinda one perspective.

So as, as, as most people know you know, nearly half of everybarrel of oil is turned into gasoline. So let's, let's take a look at the nextslide

[00:27:44] Ben: for my listeners were on slide six.

[00:27:46] Art: Yeah, there you go. So what I'm showinghere, this is actually a, an incremental graph. And, and so what I'm, what thepoint is here is that if, if you read the paper, if you listen to cable newsor, you know, Bloomberg or whatever everybody says, oh, everything's goinggreat.

You know, the economy's back on track and oil consumption isgoing through the roof. Well, not so much. If you look at gasoline, which is inblue and this big gap in the middle is of course, 2020 in the COVID period,which is just

[00:28:20] Ben: nuts. I mean, that's talk about thecollapse of demand. It's it crazy?


[00:28:25] Art: world stopped. Would've never seenanything like it in, in modern history. And by modern, I mean, You know, likethe last two centuries, since we've been

[00:28:33] Ben: keep, this is when things like Bogerbands fail, right? No, no amount of technical analysis could ever forecastsomething like

[00:28:41] Art: this. Well, you can't forecast that'sthat's a fact.

But the point is, is that, you know, gasoline consumption inthe United States has not recovered to the levels that it was before 2020, norhas diesel nor has jet. Okay. These are, these are transport fuels. These arewhat make our economy run. Okay. And so if you look at total consumption ismore or less back to normal, but total consumption includes a lot of fluff thatis not.

The, the main job of it is not to run the economy. So, so whenpeople say, well, you know, demand is just great, it's going, you know, no,it's actually not, it's not terrible either, but, but it has not recovered. AndI would be surprised if it does recover. So we're looking at half a millionbarrels of gasoline use.

That's disappeared since COVID

[00:29:46] Ben: OK. Is this, is this partly, I mean,there's a, that there's a bunch of factors, obviously in this one that comes tomind is electrification of the, the, the, the vehicle fleet. Sure. I wouldthink as well as some actual changes structurally of, you know, of peopletraveling for work and things like that, but what, what are kind of the biggestfactors in kind

[00:30:09] Art: of the, well, let's, let's, let's move tothe next slide.

This is good. Just, just for the heck of it. So, I mean, thisactually shows these are annual averages. So you can see that gasoline, whichis the green is substantially less than it was over the last several yearsbefore. COVID in fact, everything is less except for the red. Those arehydrocarbon gas, liquids.

Those are things like EF ethane, propane UTA. Those are thingsthat don't actually come from oil. They come from natural gas. And so you addall this up and you include those gas, liquids and everything looks great.Okay. But, but the fact is, is that the, the, the composition makeup of, ofwhat's called oil has fundamentally changed and we're now much more focused.

What's ethane used for ethane is the biggest single componentof these gas liquids. It's used to make plastic. Okay. When, when you, whenyou, when you put some food in the baggy that baggies made of ethane, Okay. Youknow, butane and, and, and, and, you know, propane and, and all that otherstuff. Some of those are actually fuels of sorts, but most of that increase isfor plastic.

Let's go on to the next slide here. Yeah. Or

[00:31:28] Ben: if, if you're out in California, youknow, the propane heaters, because everybody's eating outside that that bumpedit up just ever so slightly. Probably

[00:31:37] Art: just a bit. Yeah, but here, this is, thisis us vehicle miles travel. Okay. This is irrespective of, you know, ofelectric cars, hybrid cars, gasoline cars.

This is the whole shock. And what you see is that we aredriving less after COVID. You mentioned that I've got a chart that I didn'tinclude that goes all the way back to 2000. And what we find is that we've beendriving less since about 2006. So Americans are driving less. There are manyreasons we can discuss, but it's a fact let's go on to the next well, and

[00:32:17] Ben: I would think that this trend continueswith work from home and, and, and a number of other things.

But but it was happening long

[00:32:24] Art: before work from home. Yeah. So youmentioned electric cars, and I'm gonna say Uhuh, not a factor. This shows thestarting in 2021 the, the composition of the us car fleet. All right. And soblue are conventional internal combustion cars. The red are other alternative,like hybrid and plugin and you know, all kinds of stuff.

And then the yellow is electric. So as of 2021, only 1% of thevehicle fleet was electric. So rounding error to zero. Not enough electric carsto make a difference. And, and, and the forecast here, this comes from the usdepartment of energy. It's a forecast, it's wrong, but it's notionally. It'snotionally, correct?

Directionally. Correct. And so this data says that by 2050electric cars may represent 9% of the us car fleet.

[00:33:29] Ben: That's so insignificant, still on such along time frame. This blows me away. So 1% of number of cars in the us isrepresented by U electronic electric cars. That's correct. I mean, it is, thisis the number of cars inflated somehow by transport, which is tough to replaceby electric or, Nope,

[00:33:54] Art: this is it.

That's it's, I've made a version of this chart. Every year forthe last five years, I don't generate the data. I mean,

[00:34:03] Ben: I'm just, yeah. Well, I mean, it's just arounding error. I mean,

[00:34:06] Art: it's crazy. Yeah. And, and, and so, youknow, this is this is, and, and there'll be people that say, oh, that, thatcan't be right.

That's clearly wrong. And I say, fine, I know it's wrong.Double

[00:34:18] Ben: it. Yeah. Yeah. Before I said, it's stilllike very slow. No,

[00:34:24] Art: you know, it, it, it's not gonna changethe world. It may change the world a little bit and that's fine, but you know,we're, I mean, the, the, the focus of our discussion, Ben is energy crisis.

Okay. We're not gonna solve a crisis with electric cars. Okay.We're not gonna solve a crisis with wind. Turbines and solar panels we're in acrisis. Okay. I, I don't know what the next slide is, but go to it. Well, yeah,this is cool. The, the other reason that people will cite for driving less isefficiency, fuel efficiency, you know, cafe standards and all of that, to whichI say nonsense again, not because I want to say it because this is data.

This is data from, you know, the, the us EPA and what we see.We see three things. We see the blue is fuel efficiency measured in miles pergallon. On the left. The red is gasoline price and that's normalized, or, youknow, deflated to 20, $21. And then there's the fuel efficiency change, whichis in gray, just the, you know, the annual change in fuel efficiency.

And what you see is there was a huge improvement in fuelefficiency. On the left side of the graph starting in 1975, up until about1987. Okay. That's when we had the first oil shocks and price of gas got realexpensive. And guess what? Consumers told what car makers we want, better gasmileage. It was easy to do that.

Cause all you had to do was take a, you know, a four ton carand, and shave off a bunch of steel and replace it with plastic and aluminum. Andyou could reduce the weight of the car by 30 or 40% and improve gas mileage.And so that big efficiency gain that you see. On the left side of the graph wasjust that it was just lightening up the vehicles.

Then we went through a long period where efficiency actuallydecreased that's because oil price went down. People didn't care anymore aboutfuel efficiency. And then beginning in about 2004 or five, when oil prices,gasoline prices started going up. We had an improvement, but not nearly asdramatic as what we saw in the 1970s.

And the reason was the low hanging fruit had already beenpicked. Okay. We'd already reduced the weight of the vehicle. So how, how werethese efficiency changes, achieved? They were achieved through aerodynamics,but mostly through figuring out ways of recycling waste heat, right? Your carengine gets hot, you know, you know that

And so they, the, they engineers figured out ways. Of reusingthat heat as energy. Okay. But now we look at where we are today. And over thelast five years, we're flat, there have been, there's been no improvement infuel efficiency, despite the ups and downs in gasoline price. And I would arguethat efficiency or technology despite the popular notion is not a continualprocess.

It's a, it's a step wise process where some new advance takesplace. It makes a big difference until everybody uses it and then it goes awayand we reset to the same slope we were on before at a higher level. And so Iwould argue not because I'm a pessimist, but just because I understand how, howthe second law of thermodynamics works is we're playing the game of diminishingreturns here.

That. Will there be, can there be in additional increases infuel efficiency? Of course they, there can, and there will be, but they're notgonna be as great as they were in the early two thousands and which were notnearly as great as they were in the 1970s because there limits to how much youcan improve this efficiency.

So again, I don't wanna, you know, reign on anybody's you know,faith-based belief in, in the fact that technology will always save us, buttechnology does not create energy. And, and, and that's, that's a fact. So, sothese are, you know, these are kind of the, the, the hard limits to, to the,the bigger problem that we're talking about.

[00:38:58] Ben: The takeaways here and all of this kindof fits into this energy crisis is that we're not using any less, less gasolinesignificantly, certainly not by fuel efficiency or electric cars. And we're notreally driving that much less. Maybe it's, it's structurally a little bitdifferent, but I wanna, I wanna jump into I think this, this slide 12 probablyis the next good one to jump into.

We consume energy. The world runs on energy. You say it all thetime, but I think that this, this chart shows it quite well.

[00:39:31] Art: Yeah. So this chart shows all of theforms of energy from biomass, all the way to wind and solar from the year 1800.I mean, this is, this is some pretty cool stuff. obviously our confidenceDiminishes a bit

[00:39:46] Ben: it's directionally accurate.

I bet. No,

[00:39:49] Art: it, it, I think it's quite directionallyaccurate and certainly the last hundred years is, is quite accurate. But whatwe see is that per capita energy consumption, which is black increases stepwisejust as I've been talking about. And, and whenever per capita energyconsumption increases, the economy grows as does the general prosperity of, ofindividuals.

And, and you know, I'm not, I'm, I'm not gonna try to explainwhy that's the case, but it's simply a matter of productivity that if, if I canproduce more work with the same amount of effort by using a more efficientfuel, like oil instead of coal. Then it's a win, it's a win for, for, foreverybody. Cuz we get more work from the same number of people.

And so what we see is that when we look at the, the first wordson their coal, 1830 to 1940, we saw a a, a gradual increase and then a fairlysharp increase in the 20 early part of the 20th century. As more and more tothe world started using coal. Then we got to a flat spot, 1925 to 40. And youcan argue that some of that was the depression and, and I would agree with you,but then oil comes into the picture.

That's the green and look at what happens. Look at that, thatincredible increase in, in world energy consumption. I mean, it is a rocketship because oil. Is so much more productive. It has so much, it's so much moreenergy dense than coal and wood. And that's where the world economy, that'swhere we got this whole notion of progress that it lifted so much of the worldout of subsistence and into prosperity.

And then CBO, we hit a ceiling in 1974 to 2000. What was that?High oil prices? That's when we had the, you know, the Yom Kipper war, theIran, Iraq war that's when oil prices went crazy and what's the result. Peoplestarted consuming less. That's what we do. We adjust. All right. Then we gotinto natural gas gas, 2000 to 2008, fit into the next piece of the pie.

That was a huge jump, but it was brief. It was kind of stillborn. It was just as steep. If not steeper. Then oil because there's a ton ofgas in the world and it's really cheap. Well, what happened? Well, thefinancial crisis happened in 2008 and then investors said, no, no, no, we don'twant any more of this fossil fuel.

We want wind and solar, which is absolutely a step backward interms of energy, content and productivity. Again, you know, no bias here. I'mall four of them. You just can't, you know, you can't make 'em more than theyare. And so we've been on a flat spot, relatively in terms of energyconsumption since 2008.

And it's hard to grow the world's economy when you're notincreasing your productivity. So another way to think about all this is, is theworld uses. You know, something like, you know, a hundred million you know, theworld uses, we use a hundred million barrels of, of, of oil a day. And in termsof all the fossil fuels we use, I mean, it's, you know, it's even more.

And, and, and so if a barrel of oil contains about 10 or 11years worth of work, which it does, and, and you can discount that back for,you know, the number of days of the week and all that. And let's just say,it's, it's four and a half to five. You, you multiply that by the number of, ofbarrels of oil equivalent of all this.

And we have a system of slavery in world where we have 8billion people who have 500 billion fossil energy slaves working for us all thetime. I mean, that's the math that it works out to be. And so you want to knowwhy the world is so productive. You wanna know why we got rid of human slavery,cuz we got a better form of slavery and it's called fossil energy.

And, and, and for people who think that we can just turn that offand still have growth in our economy, let's go to the next slide. Yeah. Andthis one

[00:44:34] Ben: really hammers it home. So we're on slide

[00:44:36] Art: 13. This is an absolute depressing slide.It's terrible. this shows all of the different forms of energy, but I've lumpedthem here.

And so we've got non fossil and green coal oil and gas and I'mshowing population world population in black. And you see the, the, the yellowline at the bottom. That's renewable that little bitty blip at the bottom. Andso without. You know, trying to take this thing too. Literally, if the worldwere to rely solely on non fossil, which includes hydroelectric, nuclear,biomass, you know, all that kind of stuff.

In addition to, you know, to renewables, we could only supportabout 2 billion people today on that energy. And so, but we got almost 8billion, so let's just be super optimistic and say, well, it's gonna grow. Imean, we're gonna grow that and we are, let's triple it. You triple it. Andthat says that you can support 6 billion people on non fossil energy.

Well, the UN estimates that we're gonna have about 10 billionpeople in 2050. So to put this in a really dark perspective 4 billion peoplehave to die. So that we can have the world run on clean energy and, you know,it could be a whole lot more than that because that assumes that, you know,that, that everybody just peacefully dies and, and, and we don't have wars andwe don't have massive immigration and all that kind of stuff.

But I mean, you wanna talk about

[00:46:22] Ben: crisis, this likely the case. This is

[00:46:24] Art: a real scary crisis that all of thesepeople that are, you know, beating the table about, oh, we gotta get off offossil fuel. I mean, it's killing us. Well, I agree. It is. And, and, and thiswill also kill us. So gosh, you know, people then look at me and saying artyou're so depressed.

You know, we're damned if we do, we're damned if we don't.Well, my, my role here is. You know, I'm a scientist and, and, and I wantpeople to understand what it is that we're trying to navigate. And I'm not hereto, you know, to, to, to fill you full of, you know, of sweet nothings and, youknow, paint a rosy picture or a negative picture.

But if you don't know, what's, going's out there, then youcan't possibly prosper

[00:47:16] Ben: any well. And you look at the data,right? And it's like the, the, the narrative that you're hearing isn't quitesupported by the data. And this slight really, really hits at home. And it'stough not to end with a pick pitchforks and torches with this stuff.

So, but like, so this is, this is it's tough to be bearish oiloil at usage within the economy, within the world. But I wanna, I want to askyou, what is the most credible, like bear case for oil. We've looked at thedata, all of these charts kind of support this energy crisis. Oil's not goingaway, but like, there's gotta be some credible bearish take on all of this.

What is it and why?

[00:48:03] Art: Yeah, so humans we don't, we don't changeour behavior very much except in, in situations of trauma. Okay. Crisis is whatcauses us to change our behavior. And it's usually crisis that, that causespeople to be really good to each other too. When, when, when things get totallyscary, And like, you know, all of our lives are on the line.

That seems like when I'm willing to risk my life for yours, aslong as things are relatively comfortable and I can make a few extra bucks atyour expense, I'm gonna screw you. but we get really, we get, we get strangelyaltruistic when we, when, when we're leveled and we see ourselves as, assharing in a common survival problem.

And, and so the, you know, everybody's gonna ask me, well,yeah, art, but I mean, what's the answer and the answer is pretty simple. Theanswer is use less energy. It's real simple. I say it simple. I thought

[00:49:16] Ben: we're not go real dark. Like just be lesspeople at the world. It's like, no, that's got even

[00:49:22] Art: darker. well, it, it goes there, but ithas to start somewhere.

Okay. And, and, and, and where it starts. Is that we have to beshocked into a recognition that we can't go on consuming the amount of energythat we are now. Now there's somebody probably a, a great deal of somebody'sout there right now, listening to this and saying, oh, well, you know, you'recoming at it from an oil and gas perspective and your biased and, you know,despite what you've shown me you know, renewables are after all the answer.

Well, I wish that were true. But the problem with that is thatis that if, if we continue to consume the same amount of energy, roughly thatwe are now, it really doesn't matter if it's fossil based or non fossil, basedthat by the time you get done doing all the, the energy accounting for themining and the, the transportation and the manufacturing and the distribution,you end up.

You end up making the earth unlivable for most of itsecosystem, no matter how you do it, is it, is it, is it better? If, if you useless fossil energy slightly, somewhat, you know, is, is it, is it 50% better?No way. Is it 10% optimistically? It could be. It could be, except we're notready to make it 10%, not even close.

And so the first thing I would like people to consider is it'snot whether we use energy type a or energy type B. If our goal is to continueliving at this crazy level of, of, of standard that we have, where everybodycan afford a 5,000 square foot house or think they can we're, we're screwed.Okay. I mean, that's got to stop.

And it isn't gonna stop by choice. It's gonna, it's gonna stopby by necessity, but we cannot prosper as a species if our ecosystem is wreckedand it's wrecked right now, I mean the number of species that are becomingextinct because of human activity. And I'm not even talking about climatechange, I don't wanna get into that can of worms.

Okay. Let's just talk. I mean, you, you can't dispute the, thespecies extinctions, you cannot dispute the acidification of the ocean. Youcannot dispute the amount of crap, the plastic and all this garbage that's inthe ocean. You can't do it. I mean, it's just, it's just a fact and all of thatis to support growth of, of our species.

Okay. So at some point, you know, we have to learn to livewithin. The the context and, and, and rules of the global ecosystem. And thefirst way to do that is to learn, to consume less. And the, the, the silverlining, if there is one and this horrible thing that Vladimir Putin is doing,and by the way, it's not just him.

I mean, Russia is big. They, they think it's great. I mean,most Russians do. But I don't want to get into the culture piece of that, thatkind of thing. COVID things like that. 2008 financial crisis, those bring uscloser to having to honestly, ruthlessly assess our situation on planet earth.So I'm not welcoming it.

I know it's uncomfortable, but it's a whole lot lessuncomfortable to be become aware of it now, rather than, oh God, a billionpeople just died kind of thing. So I, I, I'm not preaching hope. But I'm notpreaching. I'm not preaching doom either, but we have to start somewhere and westart with awareness.

And once, once some of us have a common awareness and we can,we can call nonsense on a lot of the proposals that we see out there, you know,like the green, new deal. And again, this is purely non-political. Okay. Thegreen new deal is energy. It, it it's, it's made by energy morons. Okay. It'sconcocted by people who either don't understand energy or are so cynical thatthey're just promoting it, you know, to, to, to move their own careers forward.

It's, it's, it's a nonstarter. It doesn't work. Net zero by2050 is, is an absolute impossibility. It just, it just cannot possibly be. Andthese are not arts' opinions. The, I mean, this is physics. This is just basicphysics you cannot do. What is impossible to do. You certainly can't do it inthe timeframe that that people are talking about.

So some way or another people have to learn enough to say, waita minute. No, that's not that, that, that can't work. That is not how we'regoing to get here. You know, we got people, you know, all these extinctionpeople, oh, well, you know, we have to get our fossil fuel tomorrow. Well,okay. You know, let's try that one.

No, we can't do that. You know, I wish we could, but we can't.So we have, we have to, we have to have, you know, some sense of what isfeasible. How can we minimize the suffering and the decrease in population? Howcan we do this in a way that doesn't cause the kind of catastrophes that it will.Cause if we don't do anything and again, I'm not, I'm not talking about climatechange.

Climate change is a subset. Climate change is a part of, ofabusing the ecosystem. So I'm optimistic, I'm optimistic because you're helpingmore people at least hear a perspective that maybe is new to them. And, and,and, you know, some percentage of those who hear it will dismiss it and say,well, he's, he's a crack pot, you know, and we don't like him.

And, you know, he was wrong about something 20 years ago. Soprobably he is wrong about this too, and okay, fine. But, but you know, somepeople will hear it and, and, and we'll remember, you know, that, that weactually do have a problem. And, and that's how we begin, but we certainlycannot, we cannot chart a path forward until there's a certain core.

Group of people that, that, that say, yeah, okay. We don't needto thrash this out anymore. We get it.

[00:56:16] Ben: Yeah. And I, I wanna leave my listeners.So I mean, education awareness on this is, is obviously the most importantthing. And hopefully this, this talk and all that you do helps with that, butis there any and perhaps being involved more politically with some of thesedecisions and, and, and voting on, on things that make actual sense, but arethere any changes that like the average listener could do at home, a smallincrease, but like make any difference in energy consumption for them as ahousehold?

[00:56:47] Art: Well, there are, and, and, and there,but, but, you know, I don't wanna distract. I, I don't, I mean, let's just saythat, you know, if, if you don't want to use plastic straws, then youshouldn't. But it, you know, it's a rounding error to zero. Most of the thingsthat I could talk about right now are, are, are wise and appropriate, but they,they don't make a difference until until enough people say enough, you know,enough of the bling of of energy policy and demand that, you know, that, thatwe, we at least talk about a different direction, but my advice to people isopen your eyes, understand what's out there and think about, you know, what'sreally important to you.

What, you know, if, if, if your happiness is dependent uponcontinuing to earn more money, then I promise you you will be an unhappy personin the future because the world is going to get poorer. And it, you know, it's,it's inevitable. I mean, you, you cannot continue to grow at the rate that,that we have.

It's, it's just not possible. It's like fuel efficiency, youknow, it's a diminishing returns kind of thing. And so, you know, could weimagine, I mean, you know, I'm, I'm 70, some odd years old. You know, when Iwas 20 years old, I mean, no, almost nobody had houses that had more than twobedrooms in them. You know, life was pretty good.

I mean, you know, would, would it be so awful to go back toliving standards of, you know, 1970 United States? It, it would be a big stepdown from where we are now, but no, we, we did just fine. We did great. Youknow? And, and so, you know, when you, when you think about it that way, it'snot nearly as, as radical It's, you know, it's if, if, if you break it intopieces, it makes sense.

But, but we have to be willing to, to learn how to be satisfiedwith, with less. And that means more of the people that we enjoy, the thingsthat we like to do, that don't necessarily cost a lot of money and thereforeuse a lot of energy and, and, and some people say, well, that's, that's bogus.You know, that's shallow.

Well, I wish I had a, I wish I had a more substantial answer togive you, but that's what I do in my life. What I do in my life is try tofigure out how can I be happy in this moment without having to constantlyfigure out how to make more money and use more energy. And it seems to work forme.

[00:59:36] Ben: Yeah, no.

Well, and people, people don't go for a backpacking tripthrough the mountains and you realize how, how little you need to, to truly behappy and like subside on life. But yeah, art is, it's been a pleasure chattingwith you. I mean, albeit a little dark, but you know, these things tend to getdark. If you start thinking critically about like the path that we're on.

And if, if we continue at the trajectory, we are, it certainly,isn't like a great scenario. So these are, these are great wake up calls for mylisteners and of really good deep dive on the oil market and, and how it goesand impact. Within that. So I'll link the show notes and link your website,your Twitter, which is a, a treasure trove of information.

But where else, where would you like to send my listeners?Where can they find out about

[01:00:27] Art: well, you can find out, you know, mydaily brain dump and, and lots charts. Is it AE Berman on Twitter and is my website. There's a lot of free stuff on there. There's somesubscription stuff also, but between those two if you wanna learn more it'sthere, it's free.

And you know, people I'll just leave with people saying youknow, art, the difference between you and me is that you're a pessimist and I'man optimist to which I say, Hmm. I'm not either optimistic or pessimistic. I'ma scientist. I look at. I look at information as I get more information, myinterpretation of it often changes.

Hopefully it always changes, but pessimism or optimism is justnot part of the equation. I'm showing you data. If you find any of my data'swrong, please let me know. I do make mistakes, but I think that you've seenenough to understand that that what I'm telling you is not based on my opinion.It's based on data.

It's based on information and therefore it's neutral. It'sneither positive or negative. What you do with it can be very positive ornegative, but it is what it's, I'm not a pessimist. all right. I wish I couldgive you a happy well,

[01:01:45] Ben: ignore all of the data and you know, goalong living your, your, your life.

And you'll be, I'll show you

[01:01:50] Art: the parts that looks good, right? That'dbe. That wouldn't be fair. That wouldn't be right. No,

[01:01:55] Ben: it's not. It's not. All right. Appreciateas always art. Great to see you and appreciate the update.

[01:02:00] Art: Okay. Thanks, Ben. Always a pleasure.

[01:02:03] Ben: There you go. First off. Thank you verymuch for listening all the way through.

I hope you got a lot of value out of that conversation. Asalways. You can find show notes, links, and [email protected]. Pleaseshare this with anyone you think might be interested and drive any value fromthis conversation. And as always, you can reach out to me for any feedback orquestions.

Please give the video a like, or even better subscribe onYouTube or your podcast player of choice. This really helps others find thepodcast or the video as well. Thanks a lot. Hope everybody has a fantastic dayand stay safe out there and invest wisely. Cheers.

Ben Lakoff is an entrepreneur and finance professional. He has developed strong global finance experience through 10 years of international assignments in the US, Brazil, Afghanistan, Southeast Asia, Czech Republic and through the award of his Chartered Financial Analyst (CFA) certification.