Russia's Energy Deal With China Changes Everything – EU 'Biggest Loser': Doomberg
Summary
Geopolitical Tensions: The podcast discusses the aggressive stance of the Trump administration towards Venezuela, highlighting potential conflicts driven by the desire to access Venezuela's significant untapped oil reserves.
US Energy Production: Doomberg argues against the notion that US shale is in decline, emphasizing that bottlenecks, not resource depletion, are the primary issue, and that the US remains a major energy producer.
Russia-China Energy Deal: The agreement between Russia and China to supply natural gas via the Power of Siberia 2 pipeline is seen as a strategic move that isolates Europe and strengthens ties between BRICS nations.
European Energy Crisis: The podcast criticizes the European Union's energy policies, suggesting that reliance on expensive American LNG over Russian natural gas is leading to economic and political instability.
Renewable Energy Challenges: The discussion highlights the limitations of solar energy, particularly in Spain, where over-reliance on solar without adequate grid infrastructure led to blackouts.
Nuclear Energy and Uranium: The US's reliance on Russian enriched uranium is identified as a strategic vulnerability, with the Trump administration expected to address this by boosting domestic enrichment capabilities.
Precious Metals Outlook: Gold is viewed as regaining its status as a neutral reserve asset, with its rising price seen as beneficial for global financial stability.
Transcript
Hello everybody and welcome into commodity culture where we break down commodities markets, sound money principles and geopolitics all with the goal of making you a better investor in the commodities sector. My name is Jesse Day and on this episode I'm thrilled to welcome Doomberg to the program. The author of the Doomberg Substack, the number one paid finance newsletter on that platform where he writes about energy analysis, financial markets, and geopolitics. We're going to hone in on the energy sector today and discuss why he thinks the US is set for a full-on kinetic war with Venezuela. With that region's massive untapped oil reserves being a prize the Trump administration simply can't ignore along with breaking down the implications of the recentou signed between Russia and China that will send more natural gas to China via the power of Siberia 2 pipeline. gas that could have been flowing to Europe as that region descends into economic selfdestruction. All of this and so much more ahead. So, strap yourselves in for my conversation with Doomberg. Dune, it is great to have you back on Commodity Culture. I want to kick things off by discussing the Trump administration's aggressive stance towards Venezuela and its potential connection to energy. The US has now obliterated two Venezuelan boats and crew all crew members aboard, claiming they were trafficking drugs to the United States, along with deploying a significant naval and aerial force to the Caribbean. A move that some think could signal a preparation for potential strikes inside Venezuela. How much, if any, of this is driven by American desires to access Venezuela's massive untapped oil and gas reserves in your view? >> Sure. First, Jesse, great to be back. Always enjoy um our conversations. Um this is something we've been flagging for many, many months. Um on the Substack, um it's more than just Venezuela's Venezuela's energy. Right next door in disputed territory is, of course, as you know, Guyana, which is probably the fastest growing oil and soon to be natural gas hot spot uh in the world. All the majors have assembled there. Um but Venezuela itself is home to what many believe is the largest hydrocarbon resource in the world. Um Venezuela has the potential to be every bit the energy power that say Canada is. Um Canada's producing you know 5 million barrels a day plus or minus. Venezuela used to produce 4 and a.5 million barrels a day of relatively heavy crude that is really amanable to um being you know sent to the US Gulf Coast for refining. Um Chevron is the long history in Venezuela. They produce about a million barrels a day. Today it's it's of course a basket case, an economic basket case post Chevaz. And so we've long believed that um Maduro's days were numbered. Um on the day that Trump was inaugurated, we put out a piece called Misreading the Room where we made the point that the um the track record of strong man dictators on the critical path of the super majors is not a glorious one. and we suggested that perhaps Madura avoid flying private um because there's a long history of mysterious jet crashes um in the oil and gas business. Um and last point is that um whenever we hear drug cartels, you really have to replace that with um with energy pirates. So there's the interweaving of the Mexican cartels and the Colombian cartels and the Venezuelan cartels with the oil and gas business is far more comprehensive than many people understand. Um the cartels get billions of dollars a year um in a sort of classic mafia style of taking a vig for you know uh right of way through territories that they control pipelines in particular. They're sort of um midstreamers u you might say. Um and so they intercept all manner of of fuel shipments. There's a whole black market for diesel and gasoline and jet fuel. Um way more criminality in the oil and gas space in Central and South America than is um widely reported. And so when we hear the Trump administration say there's a war on the drug cartels, we really think it's a war on black market energy pirates. The sponsor of today's episode is Arc Silver Gold Osmium. Owner Ian Everard is praised even by his competitors as one of the most honest and level-headed bullion dealers in the United States. They have some great prices. You can see some of them displayed right now on screen. Take advantage of these specials today by reaching out to Ian at 3072649441 or by email at ianarchsg.com. Make sure to tell him of course that commodity culture sent you. And now back to the interview. So, do you think there's a real risk of this potentially escalating into a full-on, you know, involving strikes within Venezuelan territory by the Trump administration, whether under the guise of combating drugs? It's funny that we're bringing back the war on drugs that worked so great in the past, right? >> Sure. You know, one thing the US um the neocon wing of the US uniparty government um is not particularly good at is learning lessons of the past. um they tend to repeat a lot of mistakes. There's absolutely going to be a kinetic conflict between the US and the Madura regime. There will be efforts to do a regime change operation. Um they'll turn Venezuela into Libya. It'll be a disaster. Um sure, that's all coming. We've seen this play dozens of times. Um you know, when you're in the bomb making business, peace is a working capital problem. And so, you know, there's going to be some bombs dropped on Venezuela. Um, United Nation members will cry outrage. The US will ignore it. Um, yeah, sorry if I sound a little skeptical. Um, or cynical, I guess I should say. Um, but, uh, it's hard not to be sometimes. >> Yeah, I totally get that sentiment. Um, I want to talk about US oil production because they've consistently been one of the top oil producers in the world, frequently taking the number one spot on an annual basis. Trump came into office with a drill baby drill mentality. But with WTI crude now hovering around $63 and change, a lot of companies are not able to make much of a profit at these prices. In addition, several analysts have been pointing out that the shale fields in the US are starting to enter a decline phase and hint that perhaps the US will eventually lose its status as a major producer. Does the oil price need to go higher to incentivize companies to extract? And what is your current view on projections for US oil production moving forward? >> The the view that the U the US shale um is going into decline and the US will cease to be a major producer. I would just I would characterize that as as nonsense. Um the US has uh certain bottlenecks that once relieved um the spice will flow. So let's talk about oil. Um there's been a sea change in the US energy markets because of shale driven predominantly by the co-production of natural gas, natural gas liquids and oil in places like the perian. So when you talk about the break even price of oil in the perian, you are talking about a number that no longer matters. the break even price of oil, NGL's and natural gas combined is what matters because you're dealing with all three of them at the wellhead. And so today in the Perian natural gas prices or at least recently were negative again. Um and that's because uh there's been some you know unscheduled maintenance and a force majour on a pipeline and it's running so tight. Yeah. Yeah. So, at the Waja Hub right now, the spot price of natural gas is minus a$133 per million BTU. Um, the price of oil is is only one input into a complex equation that will determine the volumes which can be produced. If natural gas in the Perian today were $5 a million BTU, 12-mon strip, you could hedge it out. Um, the oil would become the nuisance byproduct that people would look to give away. So like there is no longer a break even price of oil. There's a break even price of oil, NGL's and natural gas. The bottleneck in the perian is natural gas offtake capacity. Pipelines are being built. The moment they're built they're full. Um there's so much gas that they the country can't get rid of it. Um over time that will all get worked out. Um but there's been a total sea change uh in the US energy sector and we've written many pieces on this. Um, we just wrote one called Shale Gas Arithmetic. Um, there is an infinite supply of natural gas in the US. Um, it's all about price, Jesse. And you know, with the 12-mon strip of, I don't know, 350 Henry Hub right now, that's the equivalent of what, $18 a barrel, $20 a barrel of oil. Uh, you get that up to five or six. and there's just going to be an avalanche, a tsunami of natural gas that hits the market, which is going to make the price of oil um irrelevant. >> Very interesting thoughts. And speaking of pipelines being built, I'm wondering what you make of theou signed between Russia and China giving China access to natural gas from the new Power of Siberia 2 pipeline. Um and increasing volume already incoming from Power of Siberia 1. A lot of people are pointing out that this is natural gas that could have been flowing to EU countries as they continue to experience a massive spike in their energy costs. Uh what what are your thoughts on thisou and its potential implications on the global stage? >> Yeah, that's a big deal. It's about 5 BCF per day. Um and just to benchmark you, you know, the US is currently producing 107 BCF per day of natural gas. Um it's it's it it tells us um two things. The world is bifurcating between the G7 US-led western financial system countries and the global south bricks SEO and Russia is going to power China, India um you know uh with its partners in BRICS and and the Shanghai Cooperation Organization. Um but the second and most consequential thing is it isolates Europe. I mean Europe has just it it is by far the biggest loser of the last five years. Um its entire economic system has been undercut. Um it traded cheap, plentiful, reliable natural gas via pipeline from Russia for expensive American LG. It is de-industrializing at a rapid alarming clip. and it is undergoing massive political upheaval that Brussels is trying to do its best to keep a lid on. But we think ultimately um that's going to boil over into revolutions and ultimately the end of the European Union um itself. Now this is not all because of the Parasiberia 2. The parasiberia 2 is a symptom of the greater disease. In this case, the European Union having no idea how to manage its energy portfolio or how critical fundamental energy is to their economic strength and by uh of course by definition then their geopolitical strength because one is just a derivative um of the other. So the natural gas for Power Siberia 2 comes from Yamal um uh you know the Arctic and um that gas was going to Europe and now it's going to go to China and by the way once pipelines are built as I'm sure you know expanding them maintaining them comparatively simple tasks um this will have a bearish impact on LG markets um post 2030 this awful lot of LG coming to the market right now. There's just so much natural gas in the world, Jesse. Um, everywhere. You know, you put poke a hole in the ground and there's gas coming out of it. Um, and so, you know, we're going to see Russia fueling the 7 billion in the global south. Um, along with its partners um, and we're seeing, you know, basically the rest of the world hooked on US energy. Well, you brought up the collapse of the EU at some point, so I have to just get your thoughts quickly on um you know, the recent elimination of the AFA candidate from a mayoral election in Germany. I'm not sure exactly what the jurisdiction was, but uh three separate courts, I believe, um convened to eliminate the IFA candidate from the election. They only had something like a 26% voter turnout, and it should be noted that the AFA candidate was leading in the polls. That's got to be it for democracy or any semblance of it in Germany, right? Because if they can do this for a mayoral election, then they can just do it for any election that takes place and just completely eliminate every AFA candidate that's trying to run. What are your thoughts there? >> So, this is an EU problem, not a Germany problem. Um, whenever you hear Ursula Vanderlane or any of her minions use the phrase um, our democracy, the emphasis is on our and not democracy. Um, our democracy means rule by dictate out of Brussels. So, they stole the election in Romania. I think that's not a controversial thing. Um, apparently they keep charging him with crimes. Um the name of a candidate who was going to win in a landslide. His name escapes me now. Um >> George. >> Georgescu. That's right. Um everywhere you look, look, Austria, populist right-leaning party wins and um they don't allow him to form a government. Um controversial election in Poland a couple years ago where Donald Tusk won quote unquote. I think there's an awful lot of creative vote counting going on in Europe if you ask me. um the seven mysterious deaths of regional candidates from the uh uh AFD uh just before the elections um a couple of weeks ago. Uh we lot of um stories right now about how Russia's flooding the field in Czech Republic with their elections coming up. There's a big election in Malddova this weekend. Um you know, a lot of interference from the EU. Um, it just has to be said, the European Union, the European Commission, is anti-democratic. It's borderline totalitarian. Um, it is not serving the people of Europe well at all. Is a giant bloating bureaucracy that exists to grow and to serve itself. And the quicker the European Union falls apart, the better for the people of Europe. Find me a leader in Europe. Sort of the globalist wing of the European leaders who's popular. Mcronone 15% approval rate. Starmer, even though the UK is not formally in the European Union, Starmer is doing his best to get Britain back into it for sure. What's his popularity? 13% 12%. Who elected Vanderland? you know, um, all across Europe with a few exceptions. Obviously, Hungary, Slovakia, um, but that it's breaking apart at the seams. Look, Hungary and Slovakia are not going to quit. Russian only gas, they can't. You're asking the leaders of sovereign nations to impale themselves um in the name of of some Brussels u adventure. It's just not going to happen. People aren't going to put up with it. Um, so we'll see. I think Muldova is the next hot spot. You're going to see headlines next week. You know, Transnistra is there, which is quasi Russian territory. Um there's all manner of historical grievances that are about to be um laid bare. Um you the European Union can't keep all of these plates spinning uh indefinitely. I want to talk about uh a piece you wrote on the blackouts in Spain in April titled Fessing Up where you wrote after Spain the true cost of solar can no longer be hidden from the public. Walk us through why you think an overreiance on solar energy caused this blackout and why the Spanish prime minister was so eager to dismiss that theory calling it misinformation. I believe >> yeah misinformation um the meaning of that word is undergoing a semantic shift. misinformation now means things our ruling elite don't want you to hear regardless of whether they're true. Um it was always known that if you overload a grid with too much solar um you become susceptible to the types of blackouts that we saw in Spain. Um what happened? Um there was a fault at a solar plant and because the grid was so overloaded with solar in that moment it did not have sufficient inertia to override that fault and the whole grid collapsed. So what do I mean by inertia? If you go to a coal fired power plant or a natural gas fired power plant or a nuclear power plant, you see giant spinning turbines that are ultimately creating the electricity, right? Those turbines, you know, a body in motion likes to stay in motion. Um those spinning turbines don't just stop on a dime and they often override those faults. Um small faults. They they impose a mirage of linearity on what isn't utterly chaotic, you know, sensitive to initial conditions type system. And solar doesn't have spinning turbines, doesn't have much in the way of moving parts at all. Solar is what's known as an inverter-based resource. We wrote about this several times. We've warned about it. Many people have warned about it. Um, and so in order to make a grid capable of operating that much solar, you need to have artificial inertia. You have big giant spinning turbines, synchronous turbines on standby, which cost a lot of money, which is why people don't like to do it up front, right? So solar is inherently expensive to use um when managing a grid because it is intermittent. There there's three three major types of power sources that a grid manager needs to consider. There's base load 24/7 always on. There's dispatchable which means you can control how much electricity is coming from that source over a span of minutes i.e. easily dial it up or dial it down. And then there's intermittent which is just unpredictable. So you can be both base load and dispatchable. So natural gas is both base load and dispatchable. Nuclear and coal while have they have some dispatchability. You you kind of want to run those plants 24/7. Um and then intermittency. So whenever solar decides to show up, you need to have dispatchable power to turn down. And when solar decides not to show up, you have to have dispatchable power to cover for solar. Well, that's expensive, right? So, yes, the sun is free, but it's not free to use. And as a general rule, we laid all this out in a presentation we gave to our um our subscribers called Cocktail Party Trivia, winning the renewables debate with friends and family, you know, um whenever intermittency exceeds dispatchability, things begin to break. Um, and so it's just everywhere you look, more solar, more expensive. I don't know how much more evidence you need the especially once you cross a critical threshold. Look, India barely 7% electricity from solar. It's all concentrated in a few regions. It's overwhelmed their grid. They have grid issues. They're curtailing solar. China is running into similar problems. California, of course, is a basket case. um the most expensive electricity in the US, uh the US Northeast running into it again. Germany, of course, the entire European Union. Um over and over and over again, this is exactly what we see. And now you can't hide it. They're fessing up. Like, yeah, well, we need to make um in that piece, I believe, we quoted the the UN Secretary General as saying, "For every dollar of solar, we need to invest at least a dollar into the grid so that the grids can use solar." Okay. So, the capital cost of solar is now twice what you've been telling us. sold. Understood. Thank you. So, you know, there's two ways to find these things out. You could read Duneberg, you could listen to Jesse's podcast, or you could go ahead and overbuild solar and then wreck your economy. And it seems like far too many countries um are taking the second approach. Last thing I'd say is wish I could have been in the room at the United Nations yesterday when Trump was calling, you know, climate change and green energy a scam. Uh you know, right in the right in the underbelly of the globalist movement. >> So, with all these problems you've outlined and obviously there's been a big push back and even, you know, people like the IEA are starting to wake up a little bit and say, "Okay, actually, maybe we're going to need more oil in the future than we thought." Um, do you think we're getting past peak ESG in terms of political class pounding the table about reducing global oil and coal production to zero, forcing everybody to drive an EV? Is that starting to get played out at this point or do you think these people are going to clutch on to that ideology, you know, to whatever the consequence? >> So, we called peak ESG in December of 2023 after COP 28. And I think if we go back to that piece that we wrote, um our predictions in this regard have played out, although Trump has certainly accelerated. Uh yeah, um that's all going to get washed away by physics. Um, you know, we study energy pretty carefully. The statistical review of world energy is sort of the bible. Um, 2024 numbers just came out in June. Record coal production, record natural gas production, record oil production. You know, we're doing a doom zoom presentation that we'll release next week called losing India. What bricks unity means for geopolitics and energy. And um, India is investing a huge amount in coal. Um it's desperately short oil, so it's going to make it up by producing an enormous I think there like 300 new mines coming online. Um China, subject of our next piece, is um building out huge cold chemicals on a scale that is actually material to oil. Look, you you can make jet fuel, diesel, and gasoline from any hydrocarbon. You just make sin gas and go from there. And China's doing it at scale. The Germans did it in World War II. South Africans had to do it during the apartheid sanctions. They still do it today. Sass has a huge coal to chemicals plant. China is burning an enormous amount of coal to make oil products to wean itself off of uh its oil dependency. Um all of these things are sort of predictably driven by arbitrage and national security. um things that obviously European leaders have no concept of and um so yeah nobody is the global south is not going to forego its development in the name of climate change. the latest example perhaps of this uh ESG mania rearing its head still although as you mentioned you think that it it peaked in 2023 was you know Austria and Luxembourg back in 2022 filed a lawsuit against the EU to try and enull nuclear energy and natural gas from the sustainable finance tax taxonomy. This month the general court dismissed the challenge but of course because these people do not learn as you mentioned Austria is moving to appeal to the European Court of Justice. I mean is this just a matter of the political class in Austria benefiting financially from solar and wind projects and fearing an end to that gravy train? Is it just complete incompetence or something else in your view? >> It's it's it's religious fanaticism. By the way, Austria is one of the countries where a plurality of the people voted for the opposite of this policy, but they were they could never form a government. Um, and so now you have the representatives of Austria pursuing this utterly insane policy. Um, there is no path to reasonable prosperity based on wind, solar, and batteries. There just isn't. By the way, I we something that we've borrowed from the uh the author of the Manhattan Contrarian um excellent blog. Why don't we just build a demo? Let's build a city. 10,000 people. You're only allowed to have wind, solar, and batteries. Let's see. Build a grid. Operate the grid. Let's see what the price is. Let's see how stable it is. Let's do it. Run the pilot. You know, in industry, you go from lab to pilot to market development scale to a small commercial plant before you build the big large commercial plant. Like pretty well-known steps. We're talking about spending trillions of dollars without even running a small pilot. Like the fact that that experiment hasn't been done proves to you why it hasn't been done because it would flop. Like just take any community 10,000 build it from scratch and then that grid can only have wind, solar and batteries. For example, if California were not connected to other states and if California was a a standalone grid, that grid would have collapsed long ago. Um when the sun doesn't show up, its neighbors bail California out. And then, ironically, when the sun does show up now, California produces way too much electricity and dumps it at rock bottom prices to its neighbors because it has to put it somewhere. Um, it's insane what California has done. And the only thing that has bailed out California is its connections to other states via transmission lines. Let's build an island. Let's power it with solar, wind turbines, and all the batteries you want. Now we have to add up the costs. We have to do an honest accounting of the costs. Then let's see whether you can operate a grid at reasonable price with you know 59's stability that industry requires. They could do it in Liberland which is right on the border here with Serbia and Croatia. It's its own little little country that is currently undeveloped. So I mean the the perfect perfect plot of land to attempt this experiment. Why not? Luke, I mean, just take 20 billion dollars and build a city for 10,000 people from scratch. Like, who cares? Before you spend trillions, I I'd like to see the experiment done, please. >> The Department of Energy in the United States has recently been pushing for more domestic uranium production, more nuclear reactors in the US. Currently, the US grid is powered by around 20% nuclear and yet has no sizable domestic uranium production to speak of. um with around 250 tons produced in 2024. Meanwhile, China's planning 150 reactors by 2035, produce 1,700 tons in 2024. Of course, in addition to their strong cooperation with Kazadam Prom in Kazakhstan, the world's largest uranium producing region. Clearly, this is a race where China is so far ahead, it's very difficult to catch up. But do you think the Trump administration can make a meaningful impact here when it comes to domestic nuclear power production and uranium extraction? >> Yeah. So minor correction. Um uranium extraction is nowhere near rate limiting. What's rate limiting is uranium enrichment. The US is currently relying on Russia for the majority of its enriched uranium. And the US can enrich uranium. This is a10 billion check. Set it in forget it trade. And yes, the Trump administration is not only capable of solving it, but they will solve it. And they're probably already well on their way to solving it. Um, Secretary of Energy Chris Wright, um, is a very knowledgeable man. Um, he's, you know, very successful businessman. Um, and literally, um, if the US military has lost its ability to enrich uranium, uh, then we got much bigger problems than keeping the lights on. Uh so this to me has always been a bit of an overblown um sort of classic uh Twitter concept. Oh, you know, we rely on Russia to enrich uranium. If the US can't enrich uranium, I mean, give me a break. So this and this is this is a check measured in singledigit billions. Um and so the US military understands this. Um this will get solved rather quickly. um all you know shortages create gluts um and so to the extent that there's an artificial shortage look Russia has been a very good supplier of this material they've not threatened to cut it off despite everything that has been going on between um Europe and the US and Russia um contrary to how uh things are portrayed and so um this is not something that that keeps me up at night but um it's important to distinguish between uranium and enriched uranium and Um, you know, it's kind of like distinguishing between oil and gasoline and diesel and jet fuel. Um, if the refiners went down, the price of oil would collapse because you oil is worthless until it arrives in a refinery. Um, it's just mud before it gets to a refinery. And so, similarly with uranium, if if if it can't be enriched, you don't have much use for it, right? Um, and so it's it's the enrichment step that is rate limiting. It's the one that is relatively easy to solve. There's not nothing in the way of technology that needs to be invented. This is a financial constraint. And one thing I will tell you based on our channel checks and and industry partners is the US government is deadly serious about weaning the country off of all dependency on China and money will be spent on this problem. So this isn't China per se, it's Russia. Um but it is irresponsible to be basically soul supplied uh a critical aspect of the uranium fuel cycle to Russia when it's you know significant portion of your electricity supply. So that will be solved that that one doesn't keep us up at night. >> Well, I have to get your thoughts on gold here before I let you go. Breaking up to new all-time highs after being at around a 4mon consolidation pattern. Silver as well currently outperforming gold this year and looking like it could be ready to rip higher. What is your assessment of both precious metals and their trajectory moving forward? >> Yeah, uh we spend a lot more time thinking about gold than we do silver. Um I know some friends who are long silver. I hope it goes to the moon. Um I'd like to see my friends make money. Uh I don't own any meaningful silver. I have you know couple hundred silver eagles in a safe somewhere in case the uh uh you know what hits the fan and I need to do some bartering. My theory is that people will way overvalue a silver coin in such a scenario and maybe I'll get some bread for it. Um but I think about gold a lot more and I think gold is um returning to its rightful place as the eventually the most important neutral reserve asset for the settlement of imbalances in international trade. Um US treasuries and European debt are no longer neutral. It can can't be argued that they're neutral. And so um the world runs on a neutral reserve asset and gold is going to be that asset. And I think gold needs to be a lot higher for it to properly serve that role um for the global south at least. And um who gets hurt if the gold price goes up? It's an interesting question. Um the US could use the gold price to go up so it could revalue its gold and free up some room for Scott Bessant over at Treasury. Um everybody's balance sheet gets better when gold goes up. Um and so you know I I I think we own some. It's a savings vehicle. is not an investment. Um, when gold goes up too quickly, it it bothers me, but gold has been kind of going up in a straight line for since the war in Ukraine, basically. And I think um that's not a coincidence. >> Well, Duneberg, fantastic conversation as always. Tell us about the Duneberg Substack. >> Yeah, and I got another product to pitch too if you don't mind. So obviously you can find all of our all of our work at duneberg.com. But um we've also launched a sister publication. Um one of the Duneberg co-founders and its editor-inchief has launched a new substack called Classics Read Aloud. Classics read aloud.substack.com. Um as the name implies, uh it's a fun project. Um she's very passionate about great literature and um it's a really great product. We're super proud of it. We just launched it September 1st. It's been growing like gang busters. Um, if if you want to see the full breath of the Doomberg team, head over to classics readadaloud.substack.com. Jesse, always a pleasure. Uh, when I see your uh email request to come on your show, I'm always excited because I know we're going to have a great conversation. Thank you for joining us today. This episode is brought to you by Arc Silver Gold, Osmium, some of the best prices out there. They are displayed on screen right now. Take advantage today by reaching out to owner Ian everard at 3072649441 or by email at ianarchsgo.com. Make sure to tell them that Commodity Culture sent you. 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Russia's Energy Deal With China Changes Everything – EU 'Biggest Loser': Doomberg
Summary
Transcript
Hello everybody and welcome into commodity culture where we break down commodities markets, sound money principles and geopolitics all with the goal of making you a better investor in the commodities sector. My name is Jesse Day and on this episode I'm thrilled to welcome Doomberg to the program. The author of the Doomberg Substack, the number one paid finance newsletter on that platform where he writes about energy analysis, financial markets, and geopolitics. We're going to hone in on the energy sector today and discuss why he thinks the US is set for a full-on kinetic war with Venezuela. With that region's massive untapped oil reserves being a prize the Trump administration simply can't ignore along with breaking down the implications of the recentou signed between Russia and China that will send more natural gas to China via the power of Siberia 2 pipeline. gas that could have been flowing to Europe as that region descends into economic selfdestruction. All of this and so much more ahead. So, strap yourselves in for my conversation with Doomberg. Dune, it is great to have you back on Commodity Culture. I want to kick things off by discussing the Trump administration's aggressive stance towards Venezuela and its potential connection to energy. The US has now obliterated two Venezuelan boats and crew all crew members aboard, claiming they were trafficking drugs to the United States, along with deploying a significant naval and aerial force to the Caribbean. A move that some think could signal a preparation for potential strikes inside Venezuela. How much, if any, of this is driven by American desires to access Venezuela's massive untapped oil and gas reserves in your view? >> Sure. First, Jesse, great to be back. Always enjoy um our conversations. Um this is something we've been flagging for many, many months. Um on the Substack, um it's more than just Venezuela's Venezuela's energy. Right next door in disputed territory is, of course, as you know, Guyana, which is probably the fastest growing oil and soon to be natural gas hot spot uh in the world. All the majors have assembled there. Um but Venezuela itself is home to what many believe is the largest hydrocarbon resource in the world. Um Venezuela has the potential to be every bit the energy power that say Canada is. Um Canada's producing you know 5 million barrels a day plus or minus. Venezuela used to produce 4 and a.5 million barrels a day of relatively heavy crude that is really amanable to um being you know sent to the US Gulf Coast for refining. Um Chevron is the long history in Venezuela. They produce about a million barrels a day. Today it's it's of course a basket case, an economic basket case post Chevaz. And so we've long believed that um Maduro's days were numbered. Um on the day that Trump was inaugurated, we put out a piece called Misreading the Room where we made the point that the um the track record of strong man dictators on the critical path of the super majors is not a glorious one. and we suggested that perhaps Madura avoid flying private um because there's a long history of mysterious jet crashes um in the oil and gas business. Um and last point is that um whenever we hear drug cartels, you really have to replace that with um with energy pirates. So there's the interweaving of the Mexican cartels and the Colombian cartels and the Venezuelan cartels with the oil and gas business is far more comprehensive than many people understand. Um the cartels get billions of dollars a year um in a sort of classic mafia style of taking a vig for you know uh right of way through territories that they control pipelines in particular. They're sort of um midstreamers u you might say. Um and so they intercept all manner of of fuel shipments. There's a whole black market for diesel and gasoline and jet fuel. Um way more criminality in the oil and gas space in Central and South America than is um widely reported. And so when we hear the Trump administration say there's a war on the drug cartels, we really think it's a war on black market energy pirates. The sponsor of today's episode is Arc Silver Gold Osmium. Owner Ian Everard is praised even by his competitors as one of the most honest and level-headed bullion dealers in the United States. They have some great prices. You can see some of them displayed right now on screen. Take advantage of these specials today by reaching out to Ian at 3072649441 or by email at ianarchsg.com. Make sure to tell him of course that commodity culture sent you. And now back to the interview. So, do you think there's a real risk of this potentially escalating into a full-on, you know, involving strikes within Venezuelan territory by the Trump administration, whether under the guise of combating drugs? It's funny that we're bringing back the war on drugs that worked so great in the past, right? >> Sure. You know, one thing the US um the neocon wing of the US uniparty government um is not particularly good at is learning lessons of the past. um they tend to repeat a lot of mistakes. There's absolutely going to be a kinetic conflict between the US and the Madura regime. There will be efforts to do a regime change operation. Um they'll turn Venezuela into Libya. It'll be a disaster. Um sure, that's all coming. We've seen this play dozens of times. Um you know, when you're in the bomb making business, peace is a working capital problem. And so, you know, there's going to be some bombs dropped on Venezuela. Um, United Nation members will cry outrage. The US will ignore it. Um, yeah, sorry if I sound a little skeptical. Um, or cynical, I guess I should say. Um, but, uh, it's hard not to be sometimes. >> Yeah, I totally get that sentiment. Um, I want to talk about US oil production because they've consistently been one of the top oil producers in the world, frequently taking the number one spot on an annual basis. Trump came into office with a drill baby drill mentality. But with WTI crude now hovering around $63 and change, a lot of companies are not able to make much of a profit at these prices. In addition, several analysts have been pointing out that the shale fields in the US are starting to enter a decline phase and hint that perhaps the US will eventually lose its status as a major producer. Does the oil price need to go higher to incentivize companies to extract? And what is your current view on projections for US oil production moving forward? >> The the view that the U the US shale um is going into decline and the US will cease to be a major producer. I would just I would characterize that as as nonsense. Um the US has uh certain bottlenecks that once relieved um the spice will flow. So let's talk about oil. Um there's been a sea change in the US energy markets because of shale driven predominantly by the co-production of natural gas, natural gas liquids and oil in places like the perian. So when you talk about the break even price of oil in the perian, you are talking about a number that no longer matters. the break even price of oil, NGL's and natural gas combined is what matters because you're dealing with all three of them at the wellhead. And so today in the Perian natural gas prices or at least recently were negative again. Um and that's because uh there's been some you know unscheduled maintenance and a force majour on a pipeline and it's running so tight. Yeah. Yeah. So, at the Waja Hub right now, the spot price of natural gas is minus a$133 per million BTU. Um, the price of oil is is only one input into a complex equation that will determine the volumes which can be produced. If natural gas in the Perian today were $5 a million BTU, 12-mon strip, you could hedge it out. Um, the oil would become the nuisance byproduct that people would look to give away. So like there is no longer a break even price of oil. There's a break even price of oil, NGL's and natural gas. The bottleneck in the perian is natural gas offtake capacity. Pipelines are being built. The moment they're built they're full. Um there's so much gas that they the country can't get rid of it. Um over time that will all get worked out. Um but there's been a total sea change uh in the US energy sector and we've written many pieces on this. Um, we just wrote one called Shale Gas Arithmetic. Um, there is an infinite supply of natural gas in the US. Um, it's all about price, Jesse. And you know, with the 12-mon strip of, I don't know, 350 Henry Hub right now, that's the equivalent of what, $18 a barrel, $20 a barrel of oil. Uh, you get that up to five or six. and there's just going to be an avalanche, a tsunami of natural gas that hits the market, which is going to make the price of oil um irrelevant. >> Very interesting thoughts. And speaking of pipelines being built, I'm wondering what you make of theou signed between Russia and China giving China access to natural gas from the new Power of Siberia 2 pipeline. Um and increasing volume already incoming from Power of Siberia 1. A lot of people are pointing out that this is natural gas that could have been flowing to EU countries as they continue to experience a massive spike in their energy costs. Uh what what are your thoughts on thisou and its potential implications on the global stage? >> Yeah, that's a big deal. It's about 5 BCF per day. Um and just to benchmark you, you know, the US is currently producing 107 BCF per day of natural gas. Um it's it's it it tells us um two things. The world is bifurcating between the G7 US-led western financial system countries and the global south bricks SEO and Russia is going to power China, India um you know uh with its partners in BRICS and and the Shanghai Cooperation Organization. Um but the second and most consequential thing is it isolates Europe. I mean Europe has just it it is by far the biggest loser of the last five years. Um its entire economic system has been undercut. Um it traded cheap, plentiful, reliable natural gas via pipeline from Russia for expensive American LG. It is de-industrializing at a rapid alarming clip. and it is undergoing massive political upheaval that Brussels is trying to do its best to keep a lid on. But we think ultimately um that's going to boil over into revolutions and ultimately the end of the European Union um itself. Now this is not all because of the Parasiberia 2. The parasiberia 2 is a symptom of the greater disease. In this case, the European Union having no idea how to manage its energy portfolio or how critical fundamental energy is to their economic strength and by uh of course by definition then their geopolitical strength because one is just a derivative um of the other. So the natural gas for Power Siberia 2 comes from Yamal um uh you know the Arctic and um that gas was going to Europe and now it's going to go to China and by the way once pipelines are built as I'm sure you know expanding them maintaining them comparatively simple tasks um this will have a bearish impact on LG markets um post 2030 this awful lot of LG coming to the market right now. There's just so much natural gas in the world, Jesse. Um, everywhere. You know, you put poke a hole in the ground and there's gas coming out of it. Um, and so, you know, we're going to see Russia fueling the 7 billion in the global south. Um, along with its partners um, and we're seeing, you know, basically the rest of the world hooked on US energy. Well, you brought up the collapse of the EU at some point, so I have to just get your thoughts quickly on um you know, the recent elimination of the AFA candidate from a mayoral election in Germany. I'm not sure exactly what the jurisdiction was, but uh three separate courts, I believe, um convened to eliminate the IFA candidate from the election. They only had something like a 26% voter turnout, and it should be noted that the AFA candidate was leading in the polls. That's got to be it for democracy or any semblance of it in Germany, right? Because if they can do this for a mayoral election, then they can just do it for any election that takes place and just completely eliminate every AFA candidate that's trying to run. What are your thoughts there? >> So, this is an EU problem, not a Germany problem. Um, whenever you hear Ursula Vanderlane or any of her minions use the phrase um, our democracy, the emphasis is on our and not democracy. Um, our democracy means rule by dictate out of Brussels. So, they stole the election in Romania. I think that's not a controversial thing. Um, apparently they keep charging him with crimes. Um the name of a candidate who was going to win in a landslide. His name escapes me now. Um >> George. >> Georgescu. That's right. Um everywhere you look, look, Austria, populist right-leaning party wins and um they don't allow him to form a government. Um controversial election in Poland a couple years ago where Donald Tusk won quote unquote. I think there's an awful lot of creative vote counting going on in Europe if you ask me. um the seven mysterious deaths of regional candidates from the uh uh AFD uh just before the elections um a couple of weeks ago. Uh we lot of um stories right now about how Russia's flooding the field in Czech Republic with their elections coming up. There's a big election in Malddova this weekend. Um you know, a lot of interference from the EU. Um, it just has to be said, the European Union, the European Commission, is anti-democratic. It's borderline totalitarian. Um, it is not serving the people of Europe well at all. Is a giant bloating bureaucracy that exists to grow and to serve itself. And the quicker the European Union falls apart, the better for the people of Europe. Find me a leader in Europe. Sort of the globalist wing of the European leaders who's popular. Mcronone 15% approval rate. Starmer, even though the UK is not formally in the European Union, Starmer is doing his best to get Britain back into it for sure. What's his popularity? 13% 12%. Who elected Vanderland? you know, um, all across Europe with a few exceptions. Obviously, Hungary, Slovakia, um, but that it's breaking apart at the seams. Look, Hungary and Slovakia are not going to quit. Russian only gas, they can't. You're asking the leaders of sovereign nations to impale themselves um in the name of of some Brussels u adventure. It's just not going to happen. People aren't going to put up with it. Um, so we'll see. I think Muldova is the next hot spot. You're going to see headlines next week. You know, Transnistra is there, which is quasi Russian territory. Um there's all manner of historical grievances that are about to be um laid bare. Um you the European Union can't keep all of these plates spinning uh indefinitely. I want to talk about uh a piece you wrote on the blackouts in Spain in April titled Fessing Up where you wrote after Spain the true cost of solar can no longer be hidden from the public. Walk us through why you think an overreiance on solar energy caused this blackout and why the Spanish prime minister was so eager to dismiss that theory calling it misinformation. I believe >> yeah misinformation um the meaning of that word is undergoing a semantic shift. misinformation now means things our ruling elite don't want you to hear regardless of whether they're true. Um it was always known that if you overload a grid with too much solar um you become susceptible to the types of blackouts that we saw in Spain. Um what happened? Um there was a fault at a solar plant and because the grid was so overloaded with solar in that moment it did not have sufficient inertia to override that fault and the whole grid collapsed. So what do I mean by inertia? If you go to a coal fired power plant or a natural gas fired power plant or a nuclear power plant, you see giant spinning turbines that are ultimately creating the electricity, right? Those turbines, you know, a body in motion likes to stay in motion. Um those spinning turbines don't just stop on a dime and they often override those faults. Um small faults. They they impose a mirage of linearity on what isn't utterly chaotic, you know, sensitive to initial conditions type system. And solar doesn't have spinning turbines, doesn't have much in the way of moving parts at all. Solar is what's known as an inverter-based resource. We wrote about this several times. We've warned about it. Many people have warned about it. Um, and so in order to make a grid capable of operating that much solar, you need to have artificial inertia. You have big giant spinning turbines, synchronous turbines on standby, which cost a lot of money, which is why people don't like to do it up front, right? So solar is inherently expensive to use um when managing a grid because it is intermittent. There there's three three major types of power sources that a grid manager needs to consider. There's base load 24/7 always on. There's dispatchable which means you can control how much electricity is coming from that source over a span of minutes i.e. easily dial it up or dial it down. And then there's intermittent which is just unpredictable. So you can be both base load and dispatchable. So natural gas is both base load and dispatchable. Nuclear and coal while have they have some dispatchability. You you kind of want to run those plants 24/7. Um and then intermittency. So whenever solar decides to show up, you need to have dispatchable power to turn down. And when solar decides not to show up, you have to have dispatchable power to cover for solar. Well, that's expensive, right? So, yes, the sun is free, but it's not free to use. And as a general rule, we laid all this out in a presentation we gave to our um our subscribers called Cocktail Party Trivia, winning the renewables debate with friends and family, you know, um whenever intermittency exceeds dispatchability, things begin to break. Um, and so it's just everywhere you look, more solar, more expensive. I don't know how much more evidence you need the especially once you cross a critical threshold. Look, India barely 7% electricity from solar. It's all concentrated in a few regions. It's overwhelmed their grid. They have grid issues. They're curtailing solar. China is running into similar problems. California, of course, is a basket case. um the most expensive electricity in the US, uh the US Northeast running into it again. Germany, of course, the entire European Union. Um over and over and over again, this is exactly what we see. And now you can't hide it. They're fessing up. Like, yeah, well, we need to make um in that piece, I believe, we quoted the the UN Secretary General as saying, "For every dollar of solar, we need to invest at least a dollar into the grid so that the grids can use solar." Okay. So, the capital cost of solar is now twice what you've been telling us. sold. Understood. Thank you. So, you know, there's two ways to find these things out. You could read Duneberg, you could listen to Jesse's podcast, or you could go ahead and overbuild solar and then wreck your economy. And it seems like far too many countries um are taking the second approach. Last thing I'd say is wish I could have been in the room at the United Nations yesterday when Trump was calling, you know, climate change and green energy a scam. Uh you know, right in the right in the underbelly of the globalist movement. >> So, with all these problems you've outlined and obviously there's been a big push back and even, you know, people like the IEA are starting to wake up a little bit and say, "Okay, actually, maybe we're going to need more oil in the future than we thought." Um, do you think we're getting past peak ESG in terms of political class pounding the table about reducing global oil and coal production to zero, forcing everybody to drive an EV? Is that starting to get played out at this point or do you think these people are going to clutch on to that ideology, you know, to whatever the consequence? >> So, we called peak ESG in December of 2023 after COP 28. And I think if we go back to that piece that we wrote, um our predictions in this regard have played out, although Trump has certainly accelerated. Uh yeah, um that's all going to get washed away by physics. Um, you know, we study energy pretty carefully. The statistical review of world energy is sort of the bible. Um, 2024 numbers just came out in June. Record coal production, record natural gas production, record oil production. You know, we're doing a doom zoom presentation that we'll release next week called losing India. What bricks unity means for geopolitics and energy. And um, India is investing a huge amount in coal. Um it's desperately short oil, so it's going to make it up by producing an enormous I think there like 300 new mines coming online. Um China, subject of our next piece, is um building out huge cold chemicals on a scale that is actually material to oil. Look, you you can make jet fuel, diesel, and gasoline from any hydrocarbon. You just make sin gas and go from there. And China's doing it at scale. The Germans did it in World War II. South Africans had to do it during the apartheid sanctions. They still do it today. Sass has a huge coal to chemicals plant. China is burning an enormous amount of coal to make oil products to wean itself off of uh its oil dependency. Um all of these things are sort of predictably driven by arbitrage and national security. um things that obviously European leaders have no concept of and um so yeah nobody is the global south is not going to forego its development in the name of climate change. the latest example perhaps of this uh ESG mania rearing its head still although as you mentioned you think that it it peaked in 2023 was you know Austria and Luxembourg back in 2022 filed a lawsuit against the EU to try and enull nuclear energy and natural gas from the sustainable finance tax taxonomy. This month the general court dismissed the challenge but of course because these people do not learn as you mentioned Austria is moving to appeal to the European Court of Justice. I mean is this just a matter of the political class in Austria benefiting financially from solar and wind projects and fearing an end to that gravy train? Is it just complete incompetence or something else in your view? >> It's it's it's religious fanaticism. By the way, Austria is one of the countries where a plurality of the people voted for the opposite of this policy, but they were they could never form a government. Um, and so now you have the representatives of Austria pursuing this utterly insane policy. Um, there is no path to reasonable prosperity based on wind, solar, and batteries. There just isn't. By the way, I we something that we've borrowed from the uh the author of the Manhattan Contrarian um excellent blog. Why don't we just build a demo? Let's build a city. 10,000 people. You're only allowed to have wind, solar, and batteries. Let's see. Build a grid. Operate the grid. Let's see what the price is. Let's see how stable it is. Let's do it. Run the pilot. You know, in industry, you go from lab to pilot to market development scale to a small commercial plant before you build the big large commercial plant. Like pretty well-known steps. We're talking about spending trillions of dollars without even running a small pilot. Like the fact that that experiment hasn't been done proves to you why it hasn't been done because it would flop. Like just take any community 10,000 build it from scratch and then that grid can only have wind, solar and batteries. For example, if California were not connected to other states and if California was a a standalone grid, that grid would have collapsed long ago. Um when the sun doesn't show up, its neighbors bail California out. And then, ironically, when the sun does show up now, California produces way too much electricity and dumps it at rock bottom prices to its neighbors because it has to put it somewhere. Um, it's insane what California has done. And the only thing that has bailed out California is its connections to other states via transmission lines. Let's build an island. Let's power it with solar, wind turbines, and all the batteries you want. Now we have to add up the costs. We have to do an honest accounting of the costs. Then let's see whether you can operate a grid at reasonable price with you know 59's stability that industry requires. They could do it in Liberland which is right on the border here with Serbia and Croatia. It's its own little little country that is currently undeveloped. So I mean the the perfect perfect plot of land to attempt this experiment. Why not? Luke, I mean, just take 20 billion dollars and build a city for 10,000 people from scratch. Like, who cares? Before you spend trillions, I I'd like to see the experiment done, please. >> The Department of Energy in the United States has recently been pushing for more domestic uranium production, more nuclear reactors in the US. Currently, the US grid is powered by around 20% nuclear and yet has no sizable domestic uranium production to speak of. um with around 250 tons produced in 2024. Meanwhile, China's planning 150 reactors by 2035, produce 1,700 tons in 2024. Of course, in addition to their strong cooperation with Kazadam Prom in Kazakhstan, the world's largest uranium producing region. Clearly, this is a race where China is so far ahead, it's very difficult to catch up. But do you think the Trump administration can make a meaningful impact here when it comes to domestic nuclear power production and uranium extraction? >> Yeah. So minor correction. Um uranium extraction is nowhere near rate limiting. What's rate limiting is uranium enrichment. The US is currently relying on Russia for the majority of its enriched uranium. And the US can enrich uranium. This is a10 billion check. Set it in forget it trade. And yes, the Trump administration is not only capable of solving it, but they will solve it. And they're probably already well on their way to solving it. Um, Secretary of Energy Chris Wright, um, is a very knowledgeable man. Um, he's, you know, very successful businessman. Um, and literally, um, if the US military has lost its ability to enrich uranium, uh, then we got much bigger problems than keeping the lights on. Uh so this to me has always been a bit of an overblown um sort of classic uh Twitter concept. Oh, you know, we rely on Russia to enrich uranium. If the US can't enrich uranium, I mean, give me a break. So this and this is this is a check measured in singledigit billions. Um and so the US military understands this. Um this will get solved rather quickly. um all you know shortages create gluts um and so to the extent that there's an artificial shortage look Russia has been a very good supplier of this material they've not threatened to cut it off despite everything that has been going on between um Europe and the US and Russia um contrary to how uh things are portrayed and so um this is not something that that keeps me up at night but um it's important to distinguish between uranium and enriched uranium and Um, you know, it's kind of like distinguishing between oil and gasoline and diesel and jet fuel. Um, if the refiners went down, the price of oil would collapse because you oil is worthless until it arrives in a refinery. Um, it's just mud before it gets to a refinery. And so, similarly with uranium, if if if it can't be enriched, you don't have much use for it, right? Um, and so it's it's the enrichment step that is rate limiting. It's the one that is relatively easy to solve. There's not nothing in the way of technology that needs to be invented. This is a financial constraint. And one thing I will tell you based on our channel checks and and industry partners is the US government is deadly serious about weaning the country off of all dependency on China and money will be spent on this problem. So this isn't China per se, it's Russia. Um but it is irresponsible to be basically soul supplied uh a critical aspect of the uranium fuel cycle to Russia when it's you know significant portion of your electricity supply. So that will be solved that that one doesn't keep us up at night. >> Well, I have to get your thoughts on gold here before I let you go. Breaking up to new all-time highs after being at around a 4mon consolidation pattern. Silver as well currently outperforming gold this year and looking like it could be ready to rip higher. What is your assessment of both precious metals and their trajectory moving forward? >> Yeah, uh we spend a lot more time thinking about gold than we do silver. Um I know some friends who are long silver. I hope it goes to the moon. Um I'd like to see my friends make money. Uh I don't own any meaningful silver. I have you know couple hundred silver eagles in a safe somewhere in case the uh uh you know what hits the fan and I need to do some bartering. My theory is that people will way overvalue a silver coin in such a scenario and maybe I'll get some bread for it. Um but I think about gold a lot more and I think gold is um returning to its rightful place as the eventually the most important neutral reserve asset for the settlement of imbalances in international trade. Um US treasuries and European debt are no longer neutral. It can can't be argued that they're neutral. And so um the world runs on a neutral reserve asset and gold is going to be that asset. And I think gold needs to be a lot higher for it to properly serve that role um for the global south at least. And um who gets hurt if the gold price goes up? It's an interesting question. Um the US could use the gold price to go up so it could revalue its gold and free up some room for Scott Bessant over at Treasury. Um everybody's balance sheet gets better when gold goes up. Um and so you know I I I think we own some. It's a savings vehicle. is not an investment. Um, when gold goes up too quickly, it it bothers me, but gold has been kind of going up in a straight line for since the war in Ukraine, basically. And I think um that's not a coincidence. >> Well, Duneberg, fantastic conversation as always. Tell us about the Duneberg Substack. >> Yeah, and I got another product to pitch too if you don't mind. So obviously you can find all of our all of our work at duneberg.com. But um we've also launched a sister publication. Um one of the Duneberg co-founders and its editor-inchief has launched a new substack called Classics Read Aloud. Classics read aloud.substack.com. Um as the name implies, uh it's a fun project. Um she's very passionate about great literature and um it's a really great product. We're super proud of it. We just launched it September 1st. It's been growing like gang busters. Um, if if you want to see the full breath of the Doomberg team, head over to classics readadaloud.substack.com. Jesse, always a pleasure. Uh, when I see your uh email request to come on your show, I'm always excited because I know we're going to have a great conversation. Thank you for joining us today. This episode is brought to you by Arc Silver Gold, Osmium, some of the best prices out there. They are displayed on screen right now. Take advantage today by reaching out to owner Ian everard at 3072649441 or by email at ianarchsgo.com. Make sure to tell them that Commodity Culture sent you. 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