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SB's avatar

It is tempting to just observe that if you take a set of complex equations and plug in a set of parameters that you (to use a crude expression) "pull out of your **" you can produce whatever numerical output you want, but it may be more productive to just go to the old "forrest" v. "trees" distinction and try to look at first principles.

1. Lets start with the relatively observable fact (as described above) that Russia provides 30% of Germany's primary energy.

2. There either IS "spare capacity" for energy production equal to that 30% or there IS NOT.

3. All analysis of the form discussed above is fundamentally predicated on the assumption that THERE IS such "spare capacity", and then models the cost of re-configuring Europe's (and the World's) energy systems to switch from Russia as the source to that "spare capacity" source (whatever/wherever it is).

4. So, is there?

5. The fact that the US has been begging the Saudis/UAE to increase output yet got no effect, and is now turning to Venezuela suggests that there IS NOT all that much "spare capacity". (The fact that prices are at all time high and any such hypothesized "spare capacity" hasn't moved to take advantage of these high prices supports the thesis that it doesn't exist.) It may be possible to find a few percent (5%?) by ramping up coal, but again, where are all these "ready to go" coal power plants?

6. If that is the case, then any effort by Germany to diversity ITS supply, will involve diverting such energy supplies from someone else.

7. That someone else will now need to substitute for the missing supplies - and if there is no "spare capacity", then the only place they can turn is Russia.

8. So, unless there is a "net decline" in total energy use, the net result of Germany's policies would be be higher prices (due to the need to rearrange how energy is routed) while volumes produced and sold by all suppliers (including Russia) remain the same.

9. Thus, we need to look at the alternative concept - there is no "alternative source", so Germany needs to simply reduce global consumption of energy by that 30% of Germany's energy usage.

10. Given the broad correlation between energy use and "activity" (including economic activity, but really all activity - "Life" is "Energy Use"), for Germany to reduce energy consumption by 30% would represent a massive drop in GDP. It may not be quite 30% because some "efficiency gains" are possible, but it would be close.

11. More importantly, that decline isn't just a "number". It would involve "energy rationing", so choices will need between cutting household heating (leading to people freezing) of shutting down transport and factories (leading to massive unemployment).

12. The alternative is to "spread the pain" across Europe, forcing other EU countries to lower their energy consumption and redirect the savings to Germany.

13. This brings us to the fact that Germany is not the only EU country using Russian energy. (It is worth noting that Russia controlled sources (including Kazakhstan) are also a major supplier of Uranium for Nuclear Reactors - 40% of US purchase, and a fair chuck of France's).

14. While there are "long term" options (Geothermal? Wind? Fusion?) these will not be providing significant amounts of energy in the next 12 months.

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Goldarn Staid Worrier's avatar

Fascinating summary, thank you. I’d like to see some analysis/discussion about the Russian hard currency windfall to due to price escalation. What does this really mean? Is this hard currency that Russia cannot access due to the market constraints put in place by the west? If not, where does it go, how is it spent? Is the war a net financial gain for Russia because of this windfall? Is Russia (and the world) learning that starting a war is a great way to raise profits in energy? I’d like to understand the answers to this line of questions a lot better.

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