Christmas Eve Ruminations Regarding a Christmas Grinch, Innovation, Green Hydrogen, and the Next Financial Crisis

Aweh dearly beloved fellow Ruminants & Groupies in day 640 of Re-Modified LockDown Level 1 with Alcohol and increasing Omicron Hysteria.

Period as a semi-retired pensioner: 267 days

In the spirit of ultimately revealing all my dirty little secrets, I can today reveal what my family already knows. There is a lot about Christmas that I don’t like.  Procuring (elaborate and thoughtful) gifts for a large list of people is as close to hell for me as you can get. Fortunately, Nerine does that.  I presume that when I ultimately arrive in hell to receive my justly deserved eternal punishment and damnation there will be no Christmas and perhaps that’s not all bad. I won’t even bother to engage Dali Mpofu to appeal my damnation. Personally, I would be happy with a Mars bar, and if you were feeling generous a modest bottle of the crimson restorative beverage as a Christmas gift.  Socks are also ok. Same treatment for everyone else. I am a Vulcan Christmas Grinch.

Since I was a lad, I have really disliked ceremonies. Daily compulsory chapel ceremonies during high school at St Stithians College were a form of cruel and unusual punishment. Much to the disgust of my family, I was happy to receive my first degree in the mail rather than sit through a boring ceremony with tedious and overly long pompous speeches. However, my family was not happy, and they prevailed upon me, and I endured two boring and lengthy graduation ceremonies for my subsequent degrees for their benefit. They were not memorable, and I will never get that time back. So, no formal Christmas ceremonies for me. I searched fear of ceremonies and there appears to be no specific phobia attached to ceremonies. So maybe it’s just me. Weddings also don’t do a lot for me and elaborate weddings where people literally spend months planning a single event at enormous expense make absolutely no sense to me. What’s that all about?

For more than two decades we have hosted a traditional Christmas dinner, at our beach house, with all the trimmings for our family. Fortunately, alcohol and food are served. Today I can reveal to you that it is not me who makes this happen. My very modest contribution, by means of a war of attrition, has been to tone down the dress code from formal attire to appropriate beachwear of shorts and slops. It is, however, good to have the family together even if they are only wearing tatty shorts and a faded T-shirt.

A suitable topic for a Christmas Grinch and party pooper is to speculate on the next financial crisis because it’s coming, I just can’t tell you exactly when, but I have some potential ideas regarding why. Aspects of the energy transition have all the right ingredients brewing for the next financial crisis. Sometime in the 2020’s I suggest, there could be a popping of the energy transition bubble followed by a great wailing and gnashing of teeth. As always lawyers will benefit handsomely.

 What does innovation have to do with this? Here I am going to reference Vaclav Smil’s latest interesting book, “Numbers Don’t Lie”. Recommended reading. https://www.amazon.com/Numbers-Dont-Lie-Things-About-ebook/dp/B084DKCQHG . “Modern societies are obsessed with innovation. At the end of 2019, Google searches returned 3.21 billion hits for “innovation,” easily beating “terrorism” (481 million), “economic growth” (about 1 billion), and “global warming” (385 million). We are to believe that innovation will open every conceivable door: to life expectancies far beyond 100 years, to the merging of human and machine consciousness, to essentially free solar energy.”

One can argue that the last two financial crises (2001 & 2008) were, in part, caused by an uncritical genuflection to innovation. In the 2001 dot.com bubble, there was a spurt of innovation associated with the internet, but it was ridiculously overhyped and ended badly. Of course, the internet has been transformational and some of the hype was justified. The 2008 subprime crisis was, in part, driven by financial innovation to try and spread risk. However, the core idea that you could build a huge number of houses and then provide large mortgages to people unable to afford them on the assumption that house prices always go up is just epically stupid. Intermediary and obfuscatory financial engineering involving credit default swaps and collateralised debt obligations (CDO’s) just provided mechanisms to prolong and disguise the bubble and make the crash, when it came, a lot more painful.

Once again, we are seeing a huge spurt in innovation associated with the energy transition to net-zero, and as has happened before there is a ridiculous amount of hype, glossing over the laws of physics and commercial realities. As has happened before this is most likely not going to end well. The extent, timing, and magnitude of the potential crash will have a lot to do with for how much longer reality is ignored, the hype flames are fanned, and money is uncritically poured into non-viable ventures and projects.

Am I perhaps being too critical regarding innovation? Is innovation perhaps not a good thing. Of course, innovation is what has lifted humanity out of the stone age. It is essential. But it is very risky, and it is only well-managed innovation that is economically beneficial. The energy business is not without its own failed innovations.

“The fast breeder reactor, so-called because it produces more nuclear fuel than it consumes, is one of the most remarkable examples of a prolonged and costly innovation failure. In 1974, General Electric predicted that by 2000 about 90 percent of the United States’ electricity would come from fast breeders. GE was merely reflecting a widespread expectation: during the 1970s, the governments of France, Japan, the Soviet Union, the United Kingdom, and the United States were all investing heavily in the development of breeders. But high costs, technical problems, and environmental concerns led to shutdowns of British, French, Japanese, American (and also smaller German and Italian) programs, while China, India, Japan, and Russia are still operating experimental reactors. After the world as a whole spent well above $100 billion”. It would not have been a good idea to put your pension money into this.

After the second world war, there was a period of euphoria regarding nuclear energy-generated electricity which would be too cheap to meter. https://en.wikipedia.org/wiki/Too_cheap_to_meter. How has that turned out?

There is currently an enormous amount of hype concerning green hydrogen and many oil and gas companies are behaving as if a large-scale transition to green hydrogen is inevitable, and a given. But is it? Firstly, in line with my (self-diagnosed) narcissistic personality disorder, I have covered this in a previous blog, and I reference myself as one does. https://ruminantpinkfriday.com/2021/02/23/ruminations-on-green-hydrogen/. To move beyond just referencing myself I provide a reference for a better written and more compelling article in Forbes magazine. https://www-forbes-com.cdn.ampproject.org/c/s/www.forbes.com/sites/jamesmorris/2021/12/11/hydrogen-is-not-a-fuel-its-a-cult/amp/. The author, James Morris, suggests that green hydrogen is not a fuel but rather a cult and cults are generally not a good place to invest your pension money.

It is convincingly argued that by and large the energy future is likely to be electrical rather than hydrogen except, perhaps, for some niche hard to decarbonize areas. The problem is that the underlying battle is between two types of energy providers – electricity grid suppliers versus oil and gas companies. The latter are generally in favour of hydrogen because currently most of it is currently made from their methane or coal. They also want to maintain their financial and business model of forcing consumers and industrial customers to go somewhere to pay for fuel, rather than having it supplied to their homes and businesses. Electricity providers, in contrast, want to sell more electricity wherever it can be supplied. Based on costs and the laws of physics the scales are significantly tilted in favour of electricity providers.

For purposes of illustration, I will reference just one large budding green hydrogen project in Australia.  https://reneweconomy.com.au/massive-15bn-desert-bloom-green-hydrogen-project-gets-planning-fast-track/. This is not one of the many “demonstration” projects out there but a 10GW megaproject with a preliminary price tag of $15 billion in the remote Australian outback. $15 billion is serious money. It’s going to suck water out of the desert air. How about that? The hydrogen will be piped to Darwin from where it will be exported to Asian markets.

How do you transport the hydrogen from Australia to Japan? One option is high-pressure hydrogen. At 700 bar hydrogen has a density of 42 kg/m3. This is 17 times less than petrol.  Hydrogen does have a heating value (energy content) of about 3 times that of petrol, but this still leaves you with an energy density 6 times less than petrol. For those of you who are not technical 700 bar is a humungous pressure. Car tyres are pumped to 2-3 bar. Compression costs and its energy requirements will be high. The very expensive pressure vessels will be enormous. Alternatively ultra-cryogenic liquid hydrogen at -253 ^oC and a density of 73 kg/m3. Not cheap either. These are fundamental features of hydrogen dictated straight from the laws of physics. You can’t innovate this away.

But don’t we already transport cryogenic liquified natural gas (LNG) successfully and cost-effectively? Well yes, we do but hydrogen is different. Don’t take my word for it and let me provide a reference. https://cleantechnica.com/2021/12/20/shipping-liquid-hydrogen-would-be-at-least-5-times-as-expensive-as-lng-per-unit-of-energy/. Using optimistic (unrealistic) assumptions it will cost at least 5 times as much to transport hydrogen as LNG. Feel free to challenge these calculations. Once again, the author convincingly argues it is better to use electricity directly.

Is any of this deterring the proponents of green hydrogen? Not so much. They are much too busy preparing delicious vats of green Kool-Aid to serve to you and anyone who will drink it.  Will they be using their own money to build megaproject green hydrogen ventures? Of course not. Don’t be silly. Government money is best and then of course one can use shareholders’ money as well. Will this end well? Make up your own mind.

So why do engineers, the Oompa Loompas of society go along with this? Some drink the Kool-Aid but for the most part, I think Scott Adams and Dilbert sum it up well.

Finally seasons greetings and best wishes for 2022 to all my devoted (and not so devoted) groupies.

Thank you very much for your comments and suggestions and please keep them coming.

Regards

Bruce