Abstract

A commodity super cycle is forming today. It will last 7–10 years. It will peak in this decade. Primary drivers are growing energy and material demand, supply tightness, under-investment in long-term oil, gas, and nuclear projects, malinvestments in low energy return on investment (EROI) power sources, unrealistic net zero goals, environmental opposition, and the US Federal debt.

The super cycle will be driven by supply-and-demand imbalance, but it will be supercharged by the malinvestment of capital to low-EROI green power sources like wind and solar. This malinvestment comes at the expense of high-EROI energy sources of oil and gas or nuclear. In addition, the US, and other countries, are prematurely turning off the only high-EROI green power source available, nuclear power. US monetary and fiscal policy will contribute to the super cycle by spurring inflation. Throughout history, the Organization of Petroleum Exporting Countries (OPEC) have adjusted nominal prices to maintain purchasing power against inflation.

Demand for oil continues to grow and is expected to hit 101.9 million barrels of oil per day in 2023. Key OPEC countries have admitted they are near pumping capacity and have warned non-OPEC countries to invest in long-term oil and gas projects. Cumulative underinvestment in oil and gas over the last 10 years could be $2 trillion. Record low discoveries in 2021 reflect this underinvestment.

US nuclear power capacity is down 5%. Six nuclear power plants totaling 4736 megawatts (MW) have been retired since 2017.

Environmental, social, and corporate governance (ESG) and anti-hydrocarbon non-governmental organizations (NGOs) have forced capital into low-EROI projects. Biofuels, solar, and wind projects return little energy. Biofuels return less 2 times the energy invested. The buffered EROI for wind is 8, and the buffered EROI for solar is 2. Gas and coal have EROIs of 30. Nuclear is 75.

Wind and solar are extraordinarily expensive power sources compared to a Haynesville gas well. Solar cost costs 16 times a single Haynesville well, wind costs 4 times a Haynesville well for the same power output. Green energy’s astronomical costs will bring “greenflation.”

Net zero goals are unrealistic and policies are incoherent: mandate electric vehicles by 2035 but ban copper, nickel, and cobalt mining in Minnesota; demand green energy but prematurely shut down CO₂ free nuclear power in New York. Well designed studies for a path to net zero by 2050 show the US will need 17 million acres of solar farms (with 9 billion photovoltaic cells), 1.5 million wind turbines, plus 5.2 fold increase in the power grid. The cost to 2030 alone is $2.5 trillion—before the majority of the build-out.

All energy transition mines in the US are either banned, stalled, or being litigated. World mineral deposits are past “peak minerals.” Ore grades for copper are below 1% around the planet. Social license for solar and wind machines is waning because of their enormous footprint and impact on rural stakeholders. Over 480 solar and wind power plants have been banned.

Energy prices are a major cost in making the material-intensive machines to capture wind and solar power. Rising energy prices and the rising cost of money are driving up the cost of green energy machines and making them uneconomic.

Monetary and fiscal policy will play a key role in the super cycle. Every energy transition scenario relies on federal money. US debt is now 120% of gross domestic product (GDP) and interest payments on the federal debt is consuming federal revenue. Growing federal debt by deficit spending on green projects will spawn inflation.

Near term, oil prices will settle in $85–140 range, but excursions over $200 should be expected. Longer term, $200 oil might become the price floor. Natural gas prices in the US will rise towards prices in Europe and Japan, circa $20/thousand cubic feet until Congress gets involved.