Energy Shots #112:

Converting Energy into Dollars

Market participants are preparing for downstream economic consequences of the Republican party taking control of the House of Representatives, the Senate, and the Presidency.

Burdensome regulations and barriers to leveraging the US’ cheap and abundant energy are likely targets of a unified Republican government, particularly in the wake of the Supreme Court’s ruling against Chevron Deference earlier this year.

While the velocity with which the US unlocks the utility of its ‘liquid gold’ must contend with macro and geopolitical dynamics like the US’ relationship with Saudi Arabia (crude) and Qatar (LNG), the directional priorities are clear.

Furthermore, the change of course comes at a timely moment in the US energy sector.

• After two decades of near-flat load growth, US grid operators are racing to secure reliable and affordable power to satisfy a wave of industrial electrification, transatlantic manufacturing migration, and emerging load growth from data centers and AI supercomputing.

• Beyond the grid, a unified Republican government adds several question marks behind the $393 billion in Inflation Reduction Act (IRA) EV subsidies that demand forecasters tallied as headwinds for long-term petroleum consumption.

In preparation for near-term shifts in US energy policy and more abundant BTUs, Energy Shots #112 looks at the connection between energy and value creation — specifically, how much energy is required to add a dollar to US GDP.

As shown below, the US economy converts energy (BTUs) to real (inflation-adjusted) dollars at a rate of 4,190 to $1 — approximately 40% more efficient than the 6,860 Btu per dollar rate in 2000.

Further dissecting this figure shows that the majority of US value creation relies on two resources:

• Petroleum and natural gas contribute approximately 37.9% and 36.0% of the energy required to add a dollar to the US’ gross domestic product.

While vehicle efficiency gains and generation retirements have eroded the share for petroleum and coal, natural gas remains a steadily-growing source of energy for US GDP growth.

• The share of natural gas in primary energy consumption has grown at a CAGR of 1.66% since 2000.

That CAGR is only bested (in percentage terms) by biomass (2.2%), geothermal (2.4%), solar (12.4%), and wind (20.7%).

When examining real Btu contribution, however, all renewables represent just 3.1% of the energy required to add one dollar to US GDP.

While the US’ energy inputs per dollar output are more efficient than in prior decades, one notable ‘artifact’ from Energy Shots #112 modeling shows that the US is less efficient than other ‘major’ economies.

The reasons for comparatively inefficient value creation are multifaceted and will fall under the scope of a subsequent Energy Shots. However, we are interested to observe how ‘carrot and stick’ incentives affect this trend during the second Trump administration — i.e., the rate that tariffs attract foreign manufacturing operations and add to industrial energy consumption.

Send follow-up questions to [email protected].

See you next Sunday.

ES.

This commentary contains our views and opinions and is based on information from sources we believe are reliable. This commentary is for informational purposes, should not be considered investment advice, and is not intended as an offer or solicitation concerning the purchase and sale of commodity interests or to serve as the basis for one to decide to execute derivatives or other transactions. This commentary is intended for Mobius clients only and is not considered promotional material.