just asking questions

How Europe Stumbled Into an Energy Catastrophe

A German nuclear power plant. Photo: Armin Weigel/picture alliance via Getty Images

Since debuting on Substack in the spring of 2021, Doomberg — an anonymous group of writers whose avatar is a distinctive green chicken — has become one of the most popular financial publications on the site. The team has also become a prominent and distinctive voice on finance Twitter (a.k.a. FinTwit). Doomberg’s writers, who come from the world of commodities and heavy industry, deliver deeply informed, often withering analysis that focuses largely on energy policy, their area of expertise. Befitting the site’s name, they often take a darker (or perhaps just more realistic) view than many mainstream sources. Doomberg has been particularly bearish — and prescient — about the unfolding energy crisis in Europe, warning for months that the decision by European leaders to cut off Vladimir Putin from their markets after his invasion of Ukraine risked causing an economic crisis. I spoke via Zoom with one of the Doomberg writers (as represented by that green chicken) about how Russia’s oil industry has thrived despite sanctions, where Europe’s energy squeeze is headed, and why his site is, despite appearances, fundamentally optimistic.

Your nom de internet, Doomberg, is a bit tongue-in-cheek, but it does seem like you come by your pessimism about the short-term future honestly. Am I right that the blog is meant to be a corrective to a certain overly optimistic tone in the world of economic news and commentary? The news being too cheerful isn’t a complaint one hears often.
I would say that Doomberg is meant to be mildly tongue-in-cheek. We’re actually, in our hearts, pro-human optimists. But we do think that there’s a lack of knowledge among our political and cultural leaders about the fundamental way in which the world actually works. We have a unique background — we’re a team of former executives from the commodity sector. And very few people with executive experience in the commodity sector ever speak publicly because they have no economic incentive to do so.

The word Doomberg, and the first-level superficial connotations that one might attach to it, doesn’t sufficiently capture the intent. The intent is to improve and to teach and to entertain. The vast majority of people with relevant industrial experience are too busy collecting stock options to spend much time getting into the arena of ideas. And the arena of ideas today is dominated by think-tank or university or professional types in government who have never actually worked in industry.

Does that fact have something to do with your anonymity? 
We have a consulting practice in real life, and it’s good business. We just decided that it would be easier to be anonymous. But also, from a branding perspective, it’s very difficult to create a platform from nothing if the face of the brand is a person, unless that person has some sort of preexisting celebrity. We have a strong marketing background, and we decided that a green chicken would stand out. If it flashes before your eyeballs on Twitter, it’s something that you remember. We’ve seen when other anonymous accounts de-anonymize, the mystique sort of dissipates. And so we’re not anonymous for any other reason other than the brand. Substack knows who we are. Stripe knows who we are. We’re based in the U.S., and we have passports and we’ve traveled the world. And many, many people on Wall Street know who we are, but the public face of the brand is anonymous predominantly now for the maintenance of the brand mystique.

We surveyed the landscape and concluded that the subset of thought leaders, let’s call them, that have relevant experience in industry was pretty much de minimis. And that was an open playing field that, if we executed properly, we could occupy.

You recently wrote that “with each passing day, Europe risks crossing the point of no return.” What does the point of no return look like in your view?
The point of no return is literally heading into the winter of 2022–23 with insufficient molecules — think natural gas, oil, and so on — to get through that winter, based on any sort of reasonable, Monte Carlo simulation of the degree of winter’s severity. But also, and just as importantly, no efficient mechanisms for rationing.

You can’t print molecules. You can’t print energy. If you head into the winter without enough energy — and because of Putin’s decisions, Europe almost certainly will — and then you also have a very sloppy, guaranteed-not-to-work rationing mechanism, you could have chaos. And that’s our main concern. We’d argue we’re kind of already there. What we’re experiencing today — bailouts by the hundreds of billion — electricity prices up by a factor of 14 or 15 before coming down by a third and everybody cheering … this is Weimar-like stuff.  If even just three months ago we had said this was going to happen, we would have been dismissed, and I would say correctly, as alarmists.

You thought the U.S. and European attempts to use economic sanctions to cut off Russian oil from the global market was a catastrophic error. Why?
We wrote a piece called “Crazy Pills” where we outlined our views in this regard. This is the type of insight that can only come from direct experience in the commodity sector. It intuitively feels right that if we just choke off Putin’s energy-export volume, we will choke off his revenue. But that’s just not how commodities work, especially when you’re the swing producer like Russia is. If you’re a small country and you produce a de minimis amount of energy and it’s choked off by a naval blockade, the rest of the world can make that up and it’s not a big deal. But when you are the single largest exporter of energy that the world desperately and critically needs, you hold all the cards.

And so here’s the example that we would use. Let’s just stick to round numbers. Putin exports 10 million barrels a day of oil. Assume we were to blockade the country of Russia — which, of course, is an act of war, but let’s just for the sake of analysis run the thought experiment. If we were to take 5 million barrels a day of this oil off the market, shut it in, blow up Russia’s wells, pick your favorite — the price of oil would way more than double, and Putin would make more revenue on the 5 million barrels of oil that are still finding a way into the market than he would lose by our cutting off the supply. It’s the same thing with natural gas. The price of natural gas in Europe today, despite coming down by 40 percent off its peak, is still seven or eight times what it is in the United States.

And if the price skyrocketed after Putin shut off the volume, well, that price is the benchmark he uses when he sells his gas to Asia via liquefied natural gas, or LNG. And so if you’re selling it for 40 and then you cut production and you sell half as much for 80, you’re coming out even. The price elasticity of demand in commodities is such that the only way to crush Putin’s revenue is to flood the world with energy. Oil was at -$37 a barrel when we had a lack of storage at the height of the COVID shutdown. That shows you how volatile oil can be.

During the first Gulf War, we went to all of our oil-producing allies and the coalition and said “Pump” because we were trying to rob Saddam Hussein of his oil revenue. The price of oil can be pushed down, but only with supply. So attacking his volume, which we have been loudly saying is a mistake from the beginning, has indeed proven to be a mistake. And I think the numbers are pretty definitive in this regard. August was perhaps a record revenue month for Putin, and this is how he’s funding his war machine.

Isn’t flooding the market with more energy a much longer-term project? Is that something where you can really just turn on the spigot?
I would argue two things. First, had we chosen a different approach, the signaling effect would’ve been very powerful. You would not have seen oil jump to $125 a barrel if, upon the outbreak of war, Biden held a press conference with every CEO of U.S. oil-and-gas makers, Boris Johnson did the same in the U.K., and they declared that they would slice through all of the red tape and back projects that are on the cusp of completion like the Mountain Valley pipeline.

And still today, we have the EPA holding a sword over natural gas exporter Cheniere’s head, threatening to shut it down because of the formaldehyde emissions in one of its gas turbines. This is not sending a message to the energy industry that investment is welcome. You have Janet Yellen suggesting that her intent is to put fossil fuels and their producers out of business. It’s just insane.

What about Europe’s decision to abandon Nord Stream 2 natural gas pipeline?
Insane. The world cannot live without its energy. Again, let’s do the hypothetical and pretend we’ve surrounded the entire country of Russia and cut off all of its oil and gas to the outside world. The world would descend into energy starvation and mass death. The world literally cannot live without Russia’s energy, and we should not want them to. We should be flooding the market with energy. Every molecule that Putin’s willing to sell his enemies in Europe should be accepted.

By the way, we believe that Putin would not have moved into Ukraine had natural gas not already been a crisis. This is the part people forget. The price of natural gas skyrocketed in December in Europe, long before he moved into Ukraine. He likely did the calculation and realized, They don’t have enough molecules. They’re surely going to come to the table and give me what I want in Ukraine. He moved into Ukraine. He was incorrect — they didn’t come to the table. And here they are, weaker than they were if they had. And so he miscalculated Europe’s response. And I think he overestimated the long-term impact of his play. In the medium-to-long term, we think his invasion of Ukraine is a catastrophe for him and for Russia, but in the near term, winter 2022–23 …

You’re saying the attitude should be that we need to amp up fossil-fuel production temporarily. I’m trying to think of how that plays politically with respect to fighting climate change. 
Sometimes, especially during times of war, you have to make choices. And the era of “the buffet is always there and warm and we just let everybody eat” is over. I mean, let’s get real. Europe is facing a calamity. Choices have to be made.

Look at what they’re actually doing, Benjamin. They’re burning coal like they never have in Germany. So — climate what? I mean, does Germany actually care about climate change? If it cared about climate change, I guess Germans would all shiver instead of burning coal. Climate change is going to happen over multiple decades in a century. The war is here. The war is before us. There’s no such thing as the unicorn buffet where we have no trade-offs and every decision is a good one.

What can possibly be done about the crisis now? Is there any good way out of it, or just less-terrible scenarios? 
I would say there are signs of hope with Liz Truss’s announcement about the U.K.’s recommitment to a rational-supply strategy — with a focus on producing more gas, oil, and nuclear power. Her proposal for a broad-based bailout of the British consumer for energy costs does, I think, place extra pressures on limited supplies because there’s no price signal that people should be saving. You end up with less faster. So I would’ve let the prices roll a little bit longer. But there’s no good choices here.

Our main critiques of European leaders have been about their broader lack of knowledge about how the world actually works. It’s unthinkable that Germany would still be debating whether they should keep the nuclear power plants on. It’s unthinkable that Germany would be debating whether or not to go turn back on the ones they just turned off. And we keep saying, How much pain do you need to suffer before you reacquaint yourself with reality? And it’s just kind of sad to watch.

This is why we actually are very hopeful about Truss’s policy pronouncement, which has since been drowned out of course by the death of the Queen. But she’s committed to an all-of-the-above approach on energy, which we think is sensible. And she’s the first leader on the continent in a position of power, at least, that we’ve seen come clean with her constituents in this regard. In Germany, there’s still a deep, deep delusion about their relative place in the power struggle that is ongoing. This is a war. The hybrid part of this war that surrounds energy is almost as important, if not more important, than the hybrid part of this war that surrounds the kinetic aspect of it. And in that regard, we’re failing badly.

Do you think Europe will be in a better position to exert leverage over Putin after this winter?
Can’t get worse. This is the apex of the challenge, no question about it. We’re hoping that by some miracle, winter in Europe is extremely mild. But don’t forget, there’s still going to be significant economic damage, much of it exported to the countries that will not be getting that incremental carrier of liquid natural gas. Look at what’s going on in Pakistan today and at what happened in Sri Lanka. As is always the case, the emerging world suffers when the Western world burps. And it’s quite the burp that we have going on in Europe today.

There’s no doubt that if they can muddle through, things only get better from here, and Putin probably knows that. LNG import terminals are being put up at a record pace. People have gotten serious again about reconnecting with physics. Unfortunately, but by necessity, Germany is burning coal as fast as it can. It’s hopeful that around the world, there seems to be a reconnection with the power of nuclear energy. For example, Governor Gavin Newsom in California extending the life of the Diablo Canyon nuclear power plant is an important milestone. We’re seeing reports that the Palisades nuclear plant in Michigan may have a second life. I think both Boris Johnson and Truss committed to nuclear in their plan. Let’s see if it gets executed. Nuclear power would represent 25 percent of the United Kingdom’s electricity production in a few years. Truss has promised that never again shall the U.K. find itself in a position of being short of molecules. And that’s wonderful and we applaud it.

Again, as we’ve said repeatedly, we would love nothing more than if a year from now, you call us back and you’re doing another piece about what alarmists we were and how much we got wrong. That would be great. It’s literally the character of Doomberg — Chicken Little. So that would be fine.

How do you view America’s situation in the world right now when it comes to energy? There’s still a pandemic market shock going and now this war. How well is the country situated, and why is the U.S. much better off than its European counterparts?
We’re better situated because we have an abundance of primary energy and we have a suite of companies that have the technical know-how to exploit it. I don’t use the word exploit negatively in this context — I use it in a positive way. And we have a higher level of seriousness about the power of energy. There were several decades when U.S. geopolitics were driven by this internal fear that we had experienced peak oil production in the U.S.

All that kind of went away with the shale oil and shale gas revolution. And the U.S. became a global energy superpower again. So today the U.S. is blessed, especially with natural gas.

The price of natural gas is up radically in the U.S. compared to a year ago, 18 months ago, but it pales in comparison to what the rest of the world is paying. It’s going to hurt consumers on the home-heating side, but not as much as in Europe. But most importantly, it radically advantages manufacturers who can tap into the relatively cheap natural gas here to make products that are priced in a global market, like fertilizers, plastics, chemicals, the next phase of manufacturing, one leg downstream from those major industries.

We’re going to see a wave of onshoring here if we play our cards right. And though there are many aspects of the terribly named Inflation Reduction Act that I don’t like, there are many in there that I do. Especially if certain natural-gas pipeline projects get green-lit and we continue to construct energy-export terminals, we’re going to be in a position to have a lot of geopolitical power, to be able to help our allies, to have good-paying jobs locally and an abundance of energy, albeit at an elevated price.

We’re still blessed with amazing agriculture and outstanding universities. All the sort of geopolitical advantages that the U.S. has enjoyed over the decades persist. I’m far more bullish on the short-term prospects, with all the political noise notwithstanding. In the long run, the U.S., Canada, and Mexico in particular — if you could draw sort of a circle around NAFTA and we could collaborate around energy in an intelligent way, it would really be a superpower of epic proportions economically. Mexico, Canada, and the US are blessed with seemingly endless resources. That’s a beacon of hope I could leave you with.

This interview has been edited for length and clarity.

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