Placing Bets In The Global Energy Casino

If you think investing in energy projects is an activity akin to placing bets in a Las Vegas casino, you aren’t alone. The similarities are so ever-present and obvious, in fact, that even public officials fall into the use of gambling language to describe some policy decisions.

At the conclusion of a ministerial meeting of G7 member countries over the weekend, U.S. Climate Envoy John Kerry said that there can be no rolling back of progress on the energy transition that the U.S. and other G7 governments are attempting to subsidize into reality because “private companies have made major bets on the future and they’re not going to reverse them.” That is, of course, how it all works on any game of chance on the floor at Caesars Palace, Aria or the Golden Nugget: Once you’ve placed your bet, it can’t be taken back. You can lose it entirely (the most likely outcome, because those multi-billion dollar casino palaces with 3,000-room hotels weren’t built on the backs of winners), but you can’t just wipe it off the table.

Reducing that risk is of course what all the trillions in debt-funded subsidies are there for: It’s like playing with what the casinos refer to as “house money.” What seldom gets mentioned is the unalterable fact that, in offering the subsidies, the governments of the G7 and other countries all over the world are also gambling, not with “house money” or their own money, but with the money of their constituents, and their future generations.

They do it all with claims of high-minded goals and an unending stream of constantly-rising fright rhetoric, but at the end of the day it is all undeniably still a series of big gambles. Eventually, the house comes to collect from the losers.

Make no mistake about it: The entire “energy transition” amounts to one of the biggest policy gambles in world history. The governments of the G7 are all betting the farm on the proposition that they can force the collective boogeyman they’ve targeted - fossil fuels - out of business and subsidize their replacement with three chosen rent-seeking industries: Wind, solar and electric vehicles, along with some hydrogen, carbon capture and maybe even a little modular nuclear power tossed onto the “come” line at the global craps table.

One of the big proposed bets that apparently wasn’t made by the G7 ministers during this most recent meeting was a proposition floated early in the proceedings that they would jointly roll the dice on $7.5 billion to boost mining and China-free supply chains for the array of minerals that are critical needs for their selected “green” industries. The final communique released April 18 includes no language specific to any such fund, only a vaguely-worded statement asserting, “We will work to strengthen secure, resilient, sustainable, responsible, transparent, and diverse critical minerals supply chains essential for net zero economies and clean technologies, and diversify wider clean energy supply chains to support the global energy transition.”

The statement employs all the right nouns and adjectives, but does not include any new, big bet. Perhaps the global banking crisis is causing a temporary shortage in house money. Or, perhaps it was due to objections coming from China itself, whose government denounced the group’s communique’ as being “full of arrogance, prejudice against China and we have made a strong demarche to the host Japan."

After all, China recently placed a huge bet of its own on securing a new supply of lithium, locking up the contracts in January to produce Bolivia’s enormous store of the critical mineral and manufacture batteries with it. The initial stage of that bet alone involved a Chinese “belt and road” investment of $1 billion to upgrade Bolivian roads and other infrastructure before the process of recovering, processing and manufacturing with the lithium resource even begins. That’s a big ante at the lithium poker table.

Back to the private jet-setting Envoy Kerry: He was also quoted by various media as saying, “I think energy security is being exaggerated in some cases.” What he may have meant by that is not clear, but it is more than a little disturbing to think that senior officials in the Biden administration have failed to learn the clear lesson Vladimir Putin taught Germany and much of the rest of Europe with his invasion of Ukraine last February.

Germany and other European countries had made a huge bet during the first two decades of this century that they could rely on Russian supplies of natural gas, oil and even coal for their energy security. As we have clearly seen, that meant those countries had no real energy security at all. It amounted to one of the all-time sucker bets, and their alternative to cheap Russian gas ended up becoming very costly liquefied natural gas imported from the U.S. and other exporting countries.

In casino terms, that was akin to being forced to leave the $10 minimum blackjack table and move over to the $100 minimum table, where the bankroll tends to deplete far more rapidly.

The smart bettors in the energy policy space have always understood the hard and fast principle that says, “Energy Security is National Security.” When gambling at the global energy casino, the failure to grasp that simple principle amounts to the biggest sucker bet of all.