The Current Energy Crisis

On today’s show we are talking about the short term energy crisis that has gripped much of Europe and parts of Asia. You might be wondering what energy has to do with real estate. But the economy is inextricably linked to energy, and real estate is inextricably linked to the economy.

We have to remember that we are in the shoulder season between the extremes of summer heat and winter cold. This is the time of year where air conditioners are largely turned off, and heating systems have yet to be switched on for winter.

So why are we in such an energy pinch?

It turns out that energy producers scaled back production during the pandemic. We had such a glut of fuel in 2020 that for a short time, oil prices even went negative as oil futures contracts expired and the owner of the contract had no place to store the oil they just purchased. Global oil storage was at capacity. People were buying or renting rail cars and oil tankers just to have a place to temporarily store their new purchase in the face of collapsing demand and prices.

Fast forward a year and global supply chains are out of balance. This includes the energy supply chain. On top of that, unusual weather patterns in Europe reduced the production of renewable energy. Rainy weather in parts of Europe reduced the output of solar systems at the same time that the usually windy North Sea was calm. The massive wind turbines that dot the waters in the North Sea sat idle, shifting demand to the conventional fossil fuel methods of power generation.

The problem with wind and solar power is that it helps reduce your average production of energy from fossil fuels, but you still need to supply peak energy the old fashioned way.