Ukraine special podcast: Mark Nelson managing director of the Radiant Energy Fund, joins the podcast for the third time to talk about the global energy crisis after Russia’s invasion of Ukraine. We talk about the soaring price of coal (the Newcastle benchmark is now over $400 per ton), Germany’s plans to restart the three nuclear plants it closed in December, France’s nuclear sector, and why the crisis may end up bringing more industrial plants to the United States.
Robert Bryce 0:04
Hi, everyone, welcome to the power hungry Podcast. I'm Robert Bryce, where we talk on this podcast, we're talking about energy, power, innovation and politics. And we're talking about Ukraine and Russia, with my guest, Mark Nelson. He's the managing director of the radiant energy fund. Mark, welcome to the power hungry podcast. Good to be Robert. So I just let's get this out of the way. Introduce yourself, please. Just very quickly, I know you've been on this your third time, I believe on the podcast, but just give us a quick intro.
Mark Nelson 0:31
Sure, I'm from Oklahoma,
Robert Bryce 0:34
and brother go nuclear news of the week, all that
Mark Nelson 0:39
my mother's in nuclear medicine, my father's in oil and gas, I went to school for engineering and Russian language and literature. And then I did my graduate studies over in the UK in nuclear energy. I work in environmental advocacy for a lot of my day. And in doing that, I'm trying to save nuclear plants from closure, communicate about them to the public, and maybe get a few new ones built.
Robert Bryce 1:03
Well, let's jump right in the we talked a few months ago. And one of the things I remember you saying was people, you know, in industries, companies all over the world now just looking for anything that hydrocarbons to burn. And we saw the beginning of price increases, but will tell us what we've seen just in the last day or so with the price spikes, both in natural gas at TTF, the Dutch trading hub, and then Newcastle coal in Australia.
Mark Nelson 1:28
Sure, Newcastle coal, which was trading not far from 2008, all time highs last autumn, around the just under $200 a tonne has now jumped up in today's trading to $435 a tonne,
Robert Bryce 1:46
which just on its face is incredible, and puts the lie to this whole idea of Oh beyond coal, and we don't need coal anymore. That's the fuel of the past, when in reality, the countries of the world again are burning, burning whatever they can to produce the electricity they need. And this is a function. What because of Russia as a big coal producer, and what are what are the drivers here.
Mark Nelson 2:09
There's energy in it, and it can move by ship. On our podcast, as you mentioned, we said that when things get tight, anything that burns, anything that burns is going to be burned. We warn people, we said it's coming. Did we expect? Did we expect war to break out? No, but it's not completely independent. Without the fossil fuel crisis, it's not at all clear that Russia would have chosen this time to invade.
Robert Bryce 2:38
Well, so explain that without the fossil fuel crisis that Russia knew that they had Europe in a box. And that they and that that was the key. And this is the other thing I wanted to talk about. And and, again, my guest, Mark Nelson, it makes me think that I've written about this in my latest book, one of the first things that when invading countries do is destroy the the the country's energy infrastructure, particularly electricity grid. But we haven't seen that with Russia invading Ukraine. Why not?
Mark Nelson 3:06
They haven't touched it. Presumably, because they don't need to do
Robert Bryce 3:12
that they could they they assume that they could take over without having to take out big transformers, power lines, etc.
Mark Nelson 3:18
Yeah, I think they're just trying to come in and sub out top leadership. That's it.
Robert Bryce 3:25
But so far, I mean, you know, I don't know what to believe. And you made this point on your Twitter feed about, you know, the news about different power plants the Zapper Resha power plant, but the biggest nuclear power plant in Europe 5.7 gigawatts that there's, you know, information from the Russians informations from the Ukrainians. You're not we don't know really, who to believe. But the the the inner the power plants haven't been touched, they haven't been attacked, presumably because Putin thought, well, I'll just roll in, replace the leadership, and then everything's gonna be fine. I'll keep the existing energy infrastructure. But the other part of it is that the EU and the US have said, well, we're not going to blow up their pipelines or anything else, because they knew would that would sabotage their own economies. Is that fair?
Mark Nelson 4:10
Yeah, I Russia needs the money from European natural gas sales, so much less than Europe needs the natural gas.
Robert Bryce 4:22
Explain that. How do you mean?
Mark Nelson 4:24
Yeah, well, natural gas sales are just a fraction of the hydrocarbon sales that that Russia has. They've been getting decent money up to this point. They they declined to put any optional natural gas on the market starting last autumn, which in hindsight, was the sign that they were preparing Europe, softening up all of Europe for invasion. They just stopped selling natural gas. He just didn't want to Europe hadn't signed long term contracts. Russia didn't deliver. That was up to Russia, Russia. The retailer has a right not to offer goods on the public markets. And they didn't. So Europe needed the gas, the money to pay for it is good to have. But if Russia can spend it outside of Russia anyway, wouldn't really matter if they were looking at invading. So again, from the from the perspective of Russia, no matter how many people in Russia actually knew the invasion was happening, the only one who needed to know clearly was Putin. He planned for it on energy. Europe didn't have an alternative to natural gas, certainly not in the short run, almost all of its energy policy was oriented towards gas, Russian gas was by far the cheapest, right, so Russian gas was the cheapest. Europe had already oriented around it. Could it have gone better for Putin yet? Sure, there could have been more cold weather, there is a quite warm and mild winter, there's been really good wind for all of January and February. Until now, now there's bad wind. But sometimes you win. And sometimes you don't. And I guess Europe has had a good hand there. It was good. But then they got a bad hand because the wind stops. So hydrocarbon sales are exploding from a high base to all time highs. And that's that's Europe's problem. They don't have the physical energy they need regardless of the the money they're going to be willing to spend on it.
Robert Bryce 6:25
Well, let's talk about that price, because and I want to come back to the pipeline gas because of the power of Siberia pipeline, which connects China now to Russia. But the
Mark Nelson 6:33
then sorry, that's the other thing. Russia has other markets for the oil and gas, right? Because prices are high around the world. Countries like China and India are trying to figure out whether they're willing to starve their countries on behalf of Ukraine, and they're looking at it and they're like, and not so probably gonna let Europe sort this one out.
Robert Bryce 6:56
Right. So according to trading economics, was a great website for commodity prices of all kinds. The price of Dutch Yeah, the TTF trading hub, which is the main trading hub in Europe, the European equivalent of Henry Hub. Prices today are 100 $173 per million BT us it's a price increase of $58 in a day, it's a 60% increase in one 50% increase roughly in one day. Which Oh, okay, sorry. Tell me what's, what's the latest?
Mark Nelson 7:28
Just below 200 euros?
Robert Bryce 7:31
Okay, well, that's in megawatt hours. I'm talking about going in million BT use the TTF is there in on trading economics they denominated in in MMBtu? Because that, to me, it's easier to not have to convert to megawatt hours. But nevertheless,
Mark Nelson 7:44
apologies for me, it's one step closer to to going into my specialty, which is electricity. Well, then let me let me give something Sure. Then, yeah, mistake at about 194 euros per megawatt hour plus the carbon price, which looked at carbon trading scheme is got just days to live in my opinion. I it's it's hard to see how the carbon scheme survives, unless the European Union has decided they need that extra little price signal to
Robert Bryce 8:19
starve consumers of power.
Mark Nelson 8:21
I don't Yeah, at this point, I don't know is it extra rationing, or I really can't tell whether it's gonna survive, I presume at one at the moment. At the at the current price of carbon, that makes the Newcastle coal not $80 per megawatt hours fuel in European coal plants, it makes it about $180 a megawatt hour and for the carbon, instead of making it about, let's see, I guess it'd be about $320 per megawatt hour for the natural gas only costs like just the cost of the fuel as burned per megawatt hour of electricity, about 320. If you add the carbon, it takes us up to about 353 $60 a megawatt hour on the wholesale market, and not now, the wind is down now. So we don't know how much power is needing to be generated at sort of the long term contracted price, and how much is jumping up because of not needing sales now? But look, I had a trusted, very smart friend in London. It was in financing and he called me up yesterday and he said, it's over, right? I don't see how it's not over and I'm like, hold up. What do you mean? He said, I our factories in Europe, we can't do that none of the numbers work out. The fuel is 10 times more expensive now. And I had nothing to tell him.
Robert Bryce 9:53
We know it. Let's see. We've talked a bit different price sets and I think that the punch line here either way, whether we're talking megawatt hours whether we're talking to MMBtu is on the gas. These price spikes are just this is unprecedented in a single day. And and what is the root cause of this? I've written about it Europe's energy suicide. Is that the right term here? What? How do you? What's the one sentence description of what is going on? Now? How do you mean them in the shortest possible way? How do you describe what the situation is in Europe? Visa, relative to Russia and Ukraine. Now with regard to energy?
Mark Nelson 10:30
It takes money to make money, it takes energy to make energy. How much energy does it take to make your energy? Well, it depends on how good your energy is, the money, the energy, the effort had to go in previously, to make sure you have energy now, and not enough effort and money, it turns out to have gone into producing energy. And now we don't have it.
Robert Bryce 10:53
So was it. So here's, let me the way I've typified this. And it was what I've said, you know, last year, when I testified before the Senate, I've written it several times now, since then, Europe's over investment in renewables under investment in hydrocarbons, or early closure. Crazy closure of their of their baseload power plants, including coal and nuclear, and over dependence on imports. Is that Is that pretty well covered?
Mark Nelson 11:19
Yeah, speaking in rough numbers, because I haven't checked it. Yeah, the numbers for early this year or all of last year, but in figurative terms, Europe was using about 15 million barrels of oil a day, right. And they produce about three and a half million barrels of oil a day, okay. In terms of natural gas, they're using, they're using on the order of 550 billion cubic meters a year, right. And they produce about 250. And when I say Europe, I don't mean EU, I mean, the whole continent. So that's Norway, big, big energy producer for Europe, right? Alternative to Russia. So about five 50 billion cubic meters a year. And they produce about 250. And it's really hard to store Robert. Yeah, really hard to store expensive and difficult to store. It's expensive and difficult to transport. That's why Germany worked so hard to make it to where they didn't have to store any or much. They built giant pipelines directly between Russia and Germany, to let it flow. But that flow has to continue. It has to keep going. And when because that flow has been going. It's undercut every other type of energy in the economy, except for two. And yeah, I'm not talking about wind and solar, they don't, that's not fuel. They come they go, they come they go. It's winter, solar is gone. It's winter wind is good, sometimes sometimes for a month. And it's not good today. So that's what the fuel is for. Right? Right. None of that is whether anyone's got to invest any money to keep any of that system going, even the solar and wind factories, to build those things or to invest in them. All of that's a different problem from this survival today, the disconnect between the survival today, dreams for the future and actions in the past. That's the best way I'd say we're in this crisis. Right. Anyway, so on.
Robert Bryce 13:13
But to interrupt you that what you're saying is that, that this is the this is the the fruit that has been being produced of these paths, the past inaction passed in attention to the criticality of the energy network.
Mark Nelson 13:26
Well, look, if we want to if we want to empathize with bad, dumb, destructive decision making foolish decision making at the top of European society, if we want to put our head in there, if we dare, what was there to be gained for fighting to spend time, effort, money, political capital, on making sure there was enough hydrocarbon production, enough nuclear production? If people didn't care weren't gonna fight for it? I have to respect the Germans for something.
Robert Bryce 14:03
In 2020, which is what in 2020,
Mark Nelson 14:06
their coal fleet operated at about 20% capacity factor. Yeah, that's right. The mightiest coal fleet in Europe, one of the biggest in the world. Right. We're talking about a coal fleet of almost 40 gigawatts of capacity operated at 20% capacity factor. How long would that have last? In America operating at that capacity factor? Not lose half your fleet the next year? Yeah, right. The Germans with some kind of ancient wisdom. Were mealy mouthed about the need for energy like coal in order to justify shutting off their nuclear plants. But they kept their coal fleet didn't they? They kept it and now they've got it. All they have to do is spike the carbon price and or, you know, they just have to outspend their neighbors and the EU for energy. They have to say on good enough terms with Russia that's going to happen to keep the gas flowing. And then They will be in a relatively stronger position versus the rest of Europe. So even if all the factories start collapsing all around Europe, Germany may be the last one standing, which is why I've always framed this as a Germany, Russia, regardless of what any of them said, whatever they're doing. It's it's a it's it's a recreation of a war by other means not by other means. And Russia at the moment by war means they're doing more. But in Germany, it was a way of undercutting the other economies around them by inflicting the harmful part of their energy policy with on weaker allies that didn't have the productive advantages and the gas pipeline that Germany had, if that makes sense. Well, so
Robert Bryce 15:45
I'm following you here. But you what you're implying here is there some kind of calculation or some kind of strategic theory behind the Germans here, or they're just just luck.
Mark Nelson 15:55
Once they eliminated the cheapest, most secure, low carbon energy, nuclear, what was left was, effectively economic warfare against Europe that they were willing to invest in. And they were willing to sabotage European energy to achieve they just didn't expect that Russia would start with the shooting. You see,
Robert Bryce 16:20
they thought it would be more gradual. Lyndon, well, then let's talk about Germany then in and you've written about this. I've written about it. Just on December 31. The Germans close the the broke door for grown and grown to Grinda. Remington Grinda, rimage. In nuclear plants, that's three plants. How many? How many gigawatts was that 345 gigawatts,
Mark Nelson 16:42
just over four gigawatts. And think about this. The Germans have winnowed their reactor fleets down to the finest individual reactors on planet earth by by some metrics, the finest of German engineering, the culmination of 40 years of engineering, culture and achievement are in those remaining reactors. Yeah,
Robert Bryce 17:03
they're in their three best. They're three plants left.
Mark Nelson 17:07
Is that right? We're talking production costs at 20, or a few do less than 20 euros a megawatt hour, right. And the quantity is about four gigawatts of capacity that was closed only two infinitely long months ago. Right. And then they're supposed to close another four gigawatts of the finest reactors on planet Earth in another nine months. Well, so then, but let's sorry, it's eight gigawatts total. That's about 60 terawatt hours total. Right. That's about that's about 12% of all the electricity in Germany, but in terms of solid fuel, predictable electricity, that comes from German production, like German mining or German, you know, domestic production. It's, it's, it's like 40%.
Robert Bryce 18:01
Hmm. Okay. So but about those three reactors, or three plants that have closed now, Brock Dorf, and Rhonda and Grenda. Religion, can they be salvaged? Now? They were closed on December 31. Can they go back and say, Oh, just get We're just kidding. We want to restart those. Can they do that now? Are they already? Have they already scrapped them and gone past the point of no return?
Mark Nelson 18:24
Yes, they can. They can be saved. Yes, they can. And I'm not guessing. Explain. I'm in touch with people there who are very upset at what was done to their facilities. They can't speak up because they're German. And they have superiors and they have orders. And Germans follow orders. You we know this doesn't matter whether they're good orders or bad orders, they follow them. And so they communicated what their plants would require to return to operation. The very, very approximate math is this, about 100 million per plant for emergency life extension for the three that are on and up to, but not probably much higher than about a billion euros per plant to resurrect the three, it's probable that it'd be lower cost for some of it, it depends on how much damage has already been done to the facilities.
Robert Bryce 19:25
So they can revive those three plants that were closed on December 31, for a total cost of about 3 billion.
Mark Nelson 19:31
And then with that, is that the cap that can
Robert Bryce 19:34
333 $3 billion are the Euros and they're written fairly close proximity now. But in other
Mark Nelson 19:39
words, if you had to replace a huge number of the components to satisfy a nervous regulator, you would you would be needing to spend a lot to do emergency rapid manufacturing. And you would need to fabricate a bunch of parts. You need to do rush orders of fuels. You needed to do big bonuses and rehiring programs, that sort of thing right? employee retention programs right, grant you that that would be expensive. But expensive. We open this talking about $435. a metric ton of new castle coal. Yeah, yeah, no, it's not that expensive. We've already run the numbers, by the way, at about conservatively, about 20 euros per megawatt hour for the currently operating reactors versus for live extension, if if we could guarantee five years at least of operation, that adds about 10% of production cost, compared to not having had closures and just rolling on right. So that's about $22. A megawatt hour is going to be the ongoing cost. And the amortized cost of the 100 million euro payment to have the option of keeping gives you about 10%, higher about 22 euros a megawatt hour. Electricity prices, contract prices for this year in Germany are about 250 euros a megawatt hour.
Robert Bryce 21:01
So it's 10. It's 10 to 20 times cheaper than going on I buy that, to revive them, then to keep them to keep them close then and over the long term for electricity production.
Mark Nelson 21:14
Oh, no, that's not over the long term. We have no clue what's going to happen in the long term. I mean, just what we can see today. Okay, very, here's, here's another way to look at it. How long does it one of the reactors that's on today have to continue operation compared to natural gas prices to have paid 100 million euros to pay for itself? Right, right. Last night, it was about 14 days. Now, it's about 10 days of operation total, to pay for the 100 million euro cost of, of continuing life.
Robert Bryce 21:51
It's just incredible. I mean, it just is I mean, it's among the most amazing developments I've seen in my lifetime. And what you know, yeah,
Mark Nelson 21:59
I mean, again, like, at this point, screw the environment, the most environmentally conscious countries in the world are scrambling to gather every last dust mote of coal that can be found every bit of like, cow fart, and, and by like anything to get energy. Robert, it's not going to necessarily happen by legal means. We're going to see a lot of forest cover go away from Europe this year. I bet deforestation has already started in earnest. Everything that you and I have bought against and our our careers, you're not so much like an environmentalist, like I've been. But we've been fighting this moment, I've been seeing it coming. Almost every forest in the world in the northern hemisphere, outside of Russia was cut down completely. Everything, every single tree we see now is a regrowth from having been clear cut the the few forests in Europe where that isn't true, are a few square kilometers. And they are famous for being the only trees that weren't cut, everywhere else got cut to the ground. And we're going back to that from a Europe that claims all these things about the environment or whatever. And a comment that I keep having to make is that something very dangerous happened in European leadership when energy departments got turned into ecology departments. So there's a more serious problem with European leadership, okay. The generations that built the power plants, whether they be nuclear or coal, they're gone. Now, you know, they're mostly gone. The leaders who are at the top of society, who used to have departments of war that are now Departments of Defense with no armies, or their, their, you know, ministries of energy, have now been turned into ministries of ecology, right, in France, which we consider to be a great nuclear nation, with the most amazing nuclear fleet in the world. It's being decimated now by the caretaker generation that manages it. It was built by people who as teenagers fought in the French Resistance, and were ashamed at their elders collaborating, surrendering and collaborating with with Nazi Germany, reporting their own neighbors, right. So watching that we're young people who grew up to build the most spectacular nuclear fleet the world's ever seen. That nuclear fleet is managed by a ministry of the ecological transition, as in the very ministry and minister who's supposed to manage the French nuclear fleet is as the name of getting rid of it,
Robert Bryce 24:44
of the ecological transition.
Mark Nelson 24:47
Yeah, and they put like former journalists there and they put like, like, you know, people have studied, like, some philosophy about how to think about an ecology scenario like Complete bogusness, where if they've even touched on science, it's likely to be a pseudoscience, like a college. Right? So it's, it's fake. And they put them in charge of the nuclear fleet. And sure enough, they don't know what units are used for, like, what's a megawatt or kilowatt hour? Or like, what's, what's that tonne of coal or weigh? Where does? Where does fossil fuels come from? They just don't. It wasn't even a concern for qualifications for having responsibility over energy. Not it did not matter. Until now.
Robert Bryce 25:35
So what I hear you saying I'm gonna play back to you what you've been saying is just that this is a result of just a complete lack of seriousness of understanding the fundamental nature of energy and its importance to society. You and I've talked about John Constable, he's been on the podcast. And he's warned he warned about this, he said this is that we're not taking this seriously enough. And we could see, he didn't say societal collapse, but he said, what with all the progress we've made, could unwind very, very quickly. Is that what we're seeing now? I mean, just that that Europe suddenly takes machines
Mark Nelson 26:05
to make, yeah, sorry, it takes machines to make machines takes energy to make energy. We've had quite continuous culture and a lot of those. So there, you know, if we have to if we have to end on an optimistic note. Yes, unwinding can happen. If you lose the grid, it's really hard to come back from that. I've been watching with trepidation, some countries like South Africa struggled with whether they were going to make it back or not make it South Africa is not in a good trajectory. It really isn't. And there's these donors and donor nations from around the world trying to put up money. Because the ministers in South Africa are evidently willing, I guess, to bribe them with billions of dollars in wind turbines or whatever, to close their coal plants when they're having blackouts now, right are having loadshedding now, and people are stepping up with 10 billion to get them to close. They're some of their final working PowerPoints.
Robert Bryce 27:08
Same things happening in Australia, they're already talking about the same in Australia. I mean, but it's just
Mark Nelson 27:13
yeah, but Australia is about to be incredibly rich on commodities, aren't they? Well,
Robert Bryce 27:18
fair enough. But let's let's I know you you're constrained on time and I am as well today, but I mean, is there a reason for where we are now and it's today's the march 2 and Ukraine is in in the in the world of hurt is there anything here that gives you optimism as you look at this going you know, over the next few weeks with the that is that Russia hasn't destroyed their their their the Ukrainian energy grid the pipeline's haven't been spared so far. Is there any room for optimism right now? Are you expecting things to get worse from here?
Mark Nelson 27:55
Yeah, there's room for optimism, all those factories that need to leave Europe. We're gonna get a bunch of them. We've got a lot of energy, they're gonna they're gonna come to the US. Yeah, there was there was $300 billion of of money burned in the shale revolution Okay. However, we can think of that as a donation now. A donation to America to be the this is the optimism the preserve of low cost energy to rebuild a Europe that's about to be devastated.
Robert Bryce 28:31
The deindustrialization we're gonna have to get our
Mark Nelson 28:33
act together on nuclear we we are really bad. We have not had probably the best people join nuclear. We have not really been taking it seriously. We've had too big of a gap between the owner, the customer that the contractor, the our engineer, the architect, the vendor, it's been an absolute mess. But I think we're gonna see a generation of young people flood into nuclear strong, strong young people flood into nuclear with almost a religious zeal, inspired by what we're about to see unfold in Europe. So there's our optimism.
Robert Bryce 29:12
I like that. Mark Nelson. Many thanks for taking some time. Mark is the managing director of the radiant energy fund. You can find him on Twitter at energy bats, just like it sounds energy ba n TS mark. Many thanks for being on the power hungry podcast. Sure, Robert, and thanks to all of you tuning in. I'm going to have another couple shows on the Ukrainian crisis and energy issues. So stay tuned. Until then, next time
Transcribed by https://otter.ai