Energy & Economy
The later doesn't exist without the former.
This Substack originated out of a need to highlight the perilous position New Zealanders find ourselves in regarding energy security, and to explain why this is so important for anyone planning on living here in the future.
It was also created to explore our relationship with energy in more general terms.
One of those self-evident but not often discussed relationships is between energy and the economy.
I have often contended that money is by the purest definition a claim on energy, nothing more. The main component of every good or service your dollar purchases is actually energy with just a light sprinkling of intellectual property. Energy to extract resources, energy to manufacture, energy to deliver, and energy to maintain. Debt is by association a claim on future energy. Energy is fundamental to economic activity.
The data shows this relationship clearly, as we see here GDP and energy consumption in Australia are perfectly correlated.
Globally it is the same story, with the main outliers being countries that sell energy to the rest of us hungry to grow our economies and needing their energy to achieve that goal.
The formula is simple if we want to have economic growth and improved GDP per capita, otherwise known as wealth, we need more energy.
However, we are on the cusp of becoming economically constrained due to energy scarcity. It is not a large stretch of the imagination to see that issues with our natural gas supply will lead to business failures and regular extended blackouts. Earlier posts “Cooking with the gas, or maybe not?” and “Hopium” point out this issue in more detail.
Essentially, we are slow out of the blocks, complacent, and have gotten ourselves into a quite a pickle.
When we don’t have the gas reserves needed to give us time to respond, and our government’s (and the opposition’s) fetish for offshore wind is backing the wrong horse, you know we are in trouble.
What does this trouble look like? It looks a lot like Germany which is the canary in the coal mine (and German sure has fallen in love with coal again lately).
And no their wind turbines haven’t saved the day…
Also bear in mind that the German canary has lifelines from its neighbors. Our neighbors are all too far away to be of any help.
ESSEN, Germany (AP) — For most of this century, Germany racked up one economic success after another, dominating global markets for high-end products like luxury cars and industrial machinery, selling so much to the rest of the world that half the economy ran on exports.
Jobs were plentiful, the government’s financial coffers grew as other European countries drowned in debt, and books were written about what other countries could learn from Germany.
No longer. Now, Germany is the world’s worst-performing major developed economy, with both the International Monetary Fund and European Union expecting it to shrink this year.
It follows Russia’s invasion of Ukraine and the loss of Moscow’s cheap natural gas — an unprecedented shock to Germany’s energy-intensive industries, long the manufacturing powerhouse of Europe.
The sudden underperformance by Europe’s largest economy has set off a wave of criticism, handwringing and debate about the way forward.
Germany risks “deindustrialization” as high energy costs and government inaction on other chronic problems threaten to send new factories and high-paying jobs elsewhere, said Christian Kullmann, CEO of major German chemical company Evonik Industries AG
Remember the rockstar economy? Unless we get some adults in the room soon this article could easily be recycled to describe the New Zealand situation in the near future.
Of course many will think that I’m being alarmist. But the veneer of energy security in New Zealand is wafer thin.
Experts are warning of a potential power shortage risk ahead of winter 2024.
The closure of one of Contact Energy's 100 megawatt peaking plants after a turbine blade broke and caused extensive internal damage to the machine has sparked concerns for future power supply.
If that’s what one turbine rotor failure in Stratford looks like I shudder to think (pun intended), what all the turbines running out of gas will look like…
Thank you all for reading, and welcome to all the new subscribers. Next time we will take a look at what Megan Woods has been up to lately and the disturbing parallels with the UK’s new Energy Bill.