As the oil crisis persists, the world is running on borrowed time and borrowed oil. Inventories are draining, and the pain that started in Asian petrochemical plants and Indian cooking fuel shipments is now spreading west.
Now, the traders who move the world’s oil are saying there’s a reckoning coming for the rest of the world.
This week, we dive into what happens if this keeps going. Does a shock this big finally weaken the world’s oil addiction? Or do we just go right back to where we started?
We also get into the emerging clean energy storylines: Countries are dusting off their transition plans, Chinese cleantech exports are surging, and Gulf states may pull back on climate tech investing.
Then we turn to the world’s most hyped data center developer, Fermi America, which raised nearly $750 million promising to build the largest campus ever. The company is now in freefall with no anchor tenant, a departed CEO, and a construction site that looks unchanged from six months ago. What went wrong?
Credits: Co-hosted by Stephen Lacey, Jigar Shah, and Caroline Golin. Produced and edited by Stephen Lacey, Sean Marquand, and Anne Bailey.
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Open Circuit is brought to you by FlexGen, a leader in integrated battery energy storage solutions and energy management software. FlexGen helps owners and operators gain greater visibility and control across complex energy systems to maximize performance. Learn more at www.flexgen.com.
Transcript
Stephen Lacey: God, I’ve had the busiest travel year in a long time and it just happens to be during the most historic disruption in energy supply ever. And I’m very worried about European travel getting completely eliminated.
Jigar Shah: I’m the buzz kill at every single birthday party in Bethesda now. Everyone’s like, “Jigar, what do you think?”
People are asking me whether they should book European travel this summer and I was like, “No, you should not. You should not. Unless your parents live there, you should save those seats for people that need family reunification.”
Stephen Lacey: So you’re just sitting there watching them blow out the birthday candles talking about oil demand destruction.
Jigar Shah: They’re all asking me. And then they go to some event at the Council on Foreign Relations and Rory Johnston comes out and says the same thing. So it’s not just me. Everyone is like, they will cancel your flight.
Caroline Golin: Is this what you talk about at birthday parties, the Council of Foreign Relations? There’s no easy thing ever. This is buzz kill territory.
Jigar Shah: This is buzzkill territory. Mostly we talk about whatever, bake sales and the stuff that our kids have to do the next week.
Caroline Golin: Y’all need to come to my birthday parties. We do not talk about any of that.
Jigar Shah: They talk about the Housewives of Atlanta.
Caroline Golin: Oh, I have one podcast very, very far in the future. We will talk about my experience with the Real Housewives of Atlanta, but there is … I’m just going to say there’s a story there. Just wait. Listeners, just wait.
Stephen Lacey: To be continued, you got to keep listening to the podcast for that story.
Jigar Shah: Spicy.
Stephen Lacey: From Latitude Media, this is Open Circuit. Two months. That’s how long the Strait of Hormuz has been closed and the world has been running on borrowed time and borrowed oil. Inventories are draining. The pain that started in Asian petrochemical plants and Indian cooking fuel shipments is now spreading west. And the traders who move the world’s oil are now saying it plainly. There’s a reckoning coming for the rest of the world. So this week we’re asking what happens if this keeps going and does a shock this big finally weaken the world’s oil addiction or do we just go right back to where we started?
Then the world’s most hyped data center is in free fall. Fermi America raised nearly $750 million promising to build the largest island of data center campus ever. The CEO is now gone. There’s still no anchor tenant and construction has stalled.
So what went wrong and what does it tell us about the AI hype machine? That is all coming right up.
Welcome to the show. I am Stephen Lacey. I’m the executive editor at Latitude Media, joined by Caroline Golin and Jigar Shah. Caroline is the chief growth and policy officer at NRG, and it looks like you are in Texas today.
Caroline Golin: I am. And it is already summer here. You can cut the humidity with a knife. I’m serious.
Stephen Lacey: So is today more of a growth day or a policy day?
Caroline Golin: Today, you can’t really separate those two in this country, can you, Stephen? No. No. We’re focusing today. I’m here and we’re doing a lot of deep dives on where we’re going to grow flexibility and the VPP product and as well as sort of meet data center demand. So it’s both growth and policy.
Stephen Lacey: Jigar Shah is the co-managing partner of Multiplier, man with no shortage of ideas and opinions. How are you, sir?
Jigar Shah: I am fantastic.
Stephen Lacey: I’m not implying that you wanted something like this disruption to happen, but it feels like this is the moment you’ve been preparing for.
Jigar Shah: We’ve talked about this for 14 years on our podcast. I think I’ve explicitly said to you and Katherine Hamilton at the time that our whole goal is to get the cost of our equipment down and to be cost effective and that when something disruptive occurs for us to be ready to scale up. And this is not how I planned it, but this is the moment.
Stephen Lacey: Here we are. Well, we’re going to get into all of that. So I want to break this conversation up into two pieces. First, let’s just talk about what is happening in oil markets and then in industry. The Strait of Hormuz is still closed, as we know. As of today, we’re recording on April 28th. There’s no deal. There’s no progress on negotiations. There’s this awkward stalemate between Iran and the US. And many analysts are warning about the next wave of demand destruction. So it started first in Asia and then Africa, and now it’s potentially moving west.
So here’s what that looks like in practice. Lufthansa just cut 20,000 short haul flights from its European summer schedule. United Airlines is pulling back planned capacity growth. American drivers are buying 5% fewer gallons of gas a year ago at just $4 a gallon. And diesel, the backbone of the world’s economy from moving goods around is already above $200 a barrel in Europe.
And when diesel gets scarce, it is trucks potentially not moving, freight costs spiking through the whole economy. What’s interesting is that oil futures are still low relative to the scope of the supply disruption, but the delivered cost of oil is actually much, much higher. So one part of this conversation is just figuring all this out. And then in a bit, I want to talk about some of the clean energy storylines that are emerging. But let’s start here, Jigar. Now that we’re headed into month three and we’ve burned a lot of the furniture to heat the house, so to speak, we’ve ripped through our reserves. What are some of the scenarios in front of us?
Jigar Shah: So I think there’s a lot of people who are comparing this to the conflict in Ukraine because that was the most recent oil disruption. And that was on the order of, let’s call it two million barrels a day of disruption. And in that scenario, you could see how prices could bring the market back into balance, right? And so that’s what we saw. Gasoline prices went up to $5 a gallon and then it came back down, et cetera. I think what people are just having an impossible time doing right now is wrapping their brain around at 10 million barrels per day disruption, which is where we are today. And when you’re at 10 million barrels a day, there’s no amount of price shock that destroys 10 million barrels a day. It’s just not possible. Even if oil went to $10 a gallon, you wouldn’t destroy 10 million barrels a day, right?
To put this in perspective, the last time we destroyed 10 million barrels a day of demand was during COVID, right? So you would have to force everyone to just sit at home and work it from home, right? To destroy that much and to ground all the airplanes and all the things that we did during COVID, right? So that’s not in the cards. And so what we’re doing instead is rationing fuel, right? So we are going to people and saying, run your refinery at 75% of capacity instead of 100% because there’s not enough feed stock to run your refinery. Shut down these industrial facilities because we can’t supply you with feed stock. All the restaurants in India are being told we can’t get you LPG because we have to save it for residential customers. Farmers are being told we’re not going to give you enough fertilizer, so you should make sure you spread it much thinner than you normally do.
And so when that happens and you’re an oil executive, you’re not sure that oil prices are going up. Like that’s what’s confusing about oil markets, right? Is that when you start to tell people to destroy demand, right? Oil executives are worried that oil prices are going to $30 a barrel. They’re not worried about it going to $200 a barrel because when you decide to drill more oil today, a lot of the times that that oil doesn’t come online for a year, right? And so they’re worried that the world is going to discover that we actually did have the technologies to destroy oil demand or to shift supply markets. The other thing that’s going on though is remember, when you ration, the whole global GDP goes down, right? So now we might be going into a global recession. And when you go into a global recession, you also use less oil, right?
And so like oil executives are selling right now with their oil prices high. They’re not knee jerk investing. And in fact, like Chris Wright and Doug Burgum just had that call that was reported on with 200 oil executives saying, “You guys need to drill.” And they said, “You guys need to pound sand because we’re not getting the certainty from you that we need to believe that this is a good time to increase our capital budgets. We’re instead going to use all this extra money to buy back shares and pay higher dividends.” And so I think in general, all of the world’s smart people, whether it’s Council on Foreign Relations or CSIS or the Atlantic Council or Ian Bremmer’s like Arasia Group, whatever, they are all being caught flatfooted. When you listen to their analysis, they are trying to think about this as the Ukraine crisis.
They are having an impossible time understanding what happens when you have this large of a dislocation.
Stephen Lacey: Just one comment on the pricing there. I mean, I’m seeing an analyst groups stress testing $200, $300 a barrel of oil that sort of contradicts what you said about executives were worried about $30 a barrel.
Jigar Shah: Oh, analysts make up all sorts of stuff. Like Goldman stuff, I’ve never seen worse reporting. I’d say that like JP Morgan stuff is really good, our friend Michael Cemblest, but Goldman stuff, like they still believe that we’re on the path to being able to destroy demand with price, which we’re not. I just think that like for the people who are really smart, like think Rory Johnston, think like other folks who like are in the oil patch who are reporting on this constantly, like they are telling you that we are fully dislocated. Like this is not something that price can solve. So now the question is, once you’re in full rationing mode, who makes that decision? Because this market is the most liquid market in the world, right? It’s impervious to like being manipulated by somebody or whatever else. And so you’re in this place where everybody wants to say it’s being manipulated by the treasury secretary or whatever, but it’s too liquid to do that.
So these are actually real traders that are thinking, how is this going to play out? And what they’re saying is that there will be entire groups of people who are just told you don’t have access to the molecule, right? That that’s how we’re going to solve the problem. It’s not going to be that you’re going to price it higher. You’re just going to say, you don’t have access to molecules. We’re not giving them to you. Find alternatives. And then other folks are going to be told you’re essential, like let’s maybe TSMC chips or other things and like you will be able to get molecules. And so that world is one that nobody has planned for. And so as a result, all of the analysts, all of the people that I respect and are super smart are rethinking all their priors right now and trying to figure out how to educate world leaders and tell them what to do.
Stephen Lacey: Okay. Caroline, what are you paying attention to as we see reserves get depleted really quickly and this clock ticks forward and we get potentially toward a rationing environment in the West?
Caroline Golin: I think that it’s important to understand the two different markets, right? So on the one side, as Jigar pointed out, you have diesel supply, you have ammonia, aluminum, sort of critical processing materials, you have then LNG, right? And so on the pure pay at the pump politics of this, I think there is a real opportunity here for the electric vehicle industry in as much as electricity prices don’t also skyrocket simultaneously, right? And in as much as utilities are able to create an incentive sort of charging programs as well, because there’s a balance between both of them. And I do think there is a huge opportunity, but the problem is, is that when this is coupled with an overall insecurity about where the economy is going, people in general aren’t going to be buying new automobiles, right? So there’s sort of these counter forces at work.
However, and I think Jigar wrote about this on his LinkedIn posts, you’re seeing sales for EVs going sort of through the roof and globally and export globally. And I think that’s going to create some interesting geopolitics, which I think we’ll get into here. But what I want to make sure is that people understand that in the US, we’re still producing natural gas, we’re still storing natural gas at a higher clip than we were a year ago. So from a electricity market impact perspective, I don’t think that we’re there or going to be there anytime soon. That being said, manufacturing, diesel, backup diesel, backup diesel generators across this country and everywhere else, they’re going to have real price impacts. And so it’s all of a balancing issue. So I think we’re in certain parts globally, there’s absolutely going to be, and Jigar says the window of opportunity is sort of leapfrog over a fossil based economy.
I think it’s there. I don’t think … I’m not seeing any actual numbers around production and storage, right? If we’re still putting more in storage than we were putting or in reserves than we were putting a year ago, that somewhat indicates that we’ve still got cushion in this country in terms of LNG and the electricity market. But for everything else, I mean, rationing and price elasticity are sort of two sides of the same coin. It’s just whether you’re doing it from a planned perspective or whether you’re doing it by forcing people out of business. And I think what we’ve learned in these dynamic global impacts is that rationing preserves an economy whereas letting elasticity go bankrupts the small guys first, and then that just creates a feeding frenzy. And Europe went through that with the Ukraine invasion. They went through the small C&I sector, closing up shop, just deciding between … And it was actually between having to meet sustainability goals and the price of input.
They couldn’t compete anymore. And then you saw this feeding frenzy in the industrial space and consolidation, and it caused a lot of political unrest. And so I think that that’s the lesson being that was learned and that they’re trying to avoid that right now.
Stephen Lacey: I want to touch on EVs here in a second, but the US is the largest oil and gas producer in the world. Why do we need to worry about rationing?
Jigar Shah: Well, we don’t. I mean, we are going to get affected, but less than other countries, right? And so we are likely to come out of this in the short term, much stronger than our relative other allies around the world, right? So that part of it, I think, to Caroline’s point, like we have a lot of natural gas. I mean, Golden Pass is ramping up and that’s one BCF of gas. And so we’ll see when they start ramping up, which is I think right now. But I think that the bigger thing is that we now have a fleet of tankers that are coming into Houston and Galveston to take our refined product. And so we are now shipping diesel overseas. We’re shipping gasoline overseas. We’re shipping jet fuel overseas. And so that increases prices in the United States.
And so I don’t know, we’ll see if President Trump actually bans exports, but if he does, which China has already done and a few other folks have already done, then our prices may stabilize or go down while we create more and more pain for other people around the world, right? And then that creates geopolitical hostility because we’re not sharing. And so I just think that we’re going to have to figure this out together, but then there are certain things that we do import, right? To Caroline’s point, like for instance, fuel oil for the Northeast all comes from the Strait of Hormuz. And so you will not have enough fuel oil for the next winter without those rates of hormones, right? When you think about like aluminum, as Caroline suggested, we still import aluminum into this country. And so if you want that, you have that.
TSMC chips, right? All of that stuff, like 30% of helium comes out of Qatar and that they’re not producing that now or shipping it out. And so now I can imagine that the folks in the Netherlands who need it and the folks in Taiwan who need it can pay more than everyone else can for the helium that’s left, but not all of that helium will be available to them. So we might have to produce less chips than we were otherwise planning to produce, right? So I think that there’s going to be a lot of secondary effects that affect the US market. And if that flows through, you could imagine like if you saw an announcement that we were going to get 50% less chips shipped to the United States, I don’t know what that does to AI stocks, but I’m assuming that the stock market will respond in kind.
Caroline Golin: The entire conflict I think has removed, I mean, I guess it’s roughly like one fifth of the LNG supply. So what Jigar’s saying is that we can rally and then take over that competitively from a global perspective, but then what is the price destruction that that does locally and how do you balance that against the geopolitics? I think the one thing we haven’t added here yet is that it’s the actual infrastructure of the Strait of Hormuz and the refining infrastructure, fabrication infrastructure that I think is not going to get built back within the next couple of years. So I think the bigger question is, in that two year gap where you’re actually building up the processing infrastructure that’s been damaged in this conflict, is that enough time for new technologies, new feed stocks to take shape or is it not? Is it just going to be two years of scarcity and rationing in pain or is something poised to take over?
And I actually think the agricultural space, while this is not an agricultural podcast, is one of the more interesting spaces on this because you’ve seen this happen, we saw this happen in Ukraine when grain was not going to be able to be shipped globally, but fertilizer and feedstock from an agricultural perspective, that is a huge deal, right? And the question I have is when, right now we’re in a harvest season, right? When that starts to wane and we have to sort of replant, are we going to be in higher food prices, higher fuel prices, higher electricity prices, healthcare costs are already high in this country. I mean, the indirect cost, just the pressure, pressure, pressure, pressure starts to mount, but if it’s only a two year window, will something be able to take advantage of that? I don’t know. I think that’s the big question for investment into Jigar’s point.
I think that’s why betting on futures right now, betting on where it goes, it’s unclear if it’s enough time.
Stephen Lacey: Yeah, that is the central question. So let’s unpack that a little bit more. Jigar wrote this great piece on LinkedIn that we republished at Latitude on why countries have been preparing for this moment for the last 15 years. David Wallace Wells also had this really great piece in the New York Times outlining some of the shifting clean energy numbers. Solar grew four times faster than coal fell. Chinese clean tech exports surged nearly 40% from February to March. EV registrations have doubled in South Korea. Fatibural of the IEA said that he thinks that this demand loss from the crisis could be permanent and then the transition accelerates from here. So to your argument first, Jigar, what accelerates first?
Jigar Shah: Well, look, I mean, when you think about what we’ve been doing since the 2015 Paris Accord, right, we’ve asked countries around the world to fill out these nationally determined contributions, right? And that is an analysis that each country does saying, “Here is what would be cost effective for us to do to reduce emissions.” Basically, none of these countries, particularly developing countries, are going to promote things that cost more, right? And they were all pretty good, right? And some of them were aggressive and some of them were not aggressive and some of them had a base scenario and some of them have an aggressive scenario, right? And a lot of them were not implementing them because of inertia, right? So like Indonesia, for instance, has many, many, many islands that are running on diesel, right? Even though Indonesia has coal, some of those islands are so small, like shipping coal there didn’t make any sense, so they shipped diesel there.
They’ve been planning to change them to solar plus battery storage for 12 years and haven’t done it. Guess what? They’re doing it now. Why? Because they can’t even get the diesel to give to those islands. It’s not that they don’t want … I mean, the people who live there still want to leave, like still want to run a diesel grid. They’re like, “This is what we’re trained for. We want to do it.” But now they’re actually just in blackouts. They can’t get the diesel. And so the only way to run that island is solar plus battery storage, right? And so you’re seeing over and over again that all of these reports and all of these analyses and things that people have done since 2015 for this other process has resulted in a whole bunch of planning and people are ready for it, right? But there was inertia.
The utilities are like, “I don’t want to run a grid that looks like that. I don’t want to do DERs. I don’t want to do electric vehicle charging. I don’t want to do any of that stuff.” Well, guess what? Now they’re doing it. And when you think about why this is so acute, there’s also the fact that in Pakistan, for instance, when the Europeans stole the LNG train that was going into Pakistan because they were willing to pay double for it, right? And so then that plunged Pakistan into rolling blackouts. All of the people of Pakistan just put in off grid solar. And so it’s not like Indonesia has a choice. And so if Indonesia says, “We’re not going to give you enough electricity and we’re not going to let you do solar and battery storage, they’re going to have riots.” Because people can just pay $76 and get a battery in a solar panel now.
It’s not actually expensive at all. And so now they’re saying, “Well, maybe we should actually integrate this through the utility so we don’t bankrupt the utility.” And then it turns out that the Chinese are really good at shipping equipment, but not good at technical assistance. So now they’re calling the Europeans and the Americans and saying, “Hey, you know all of those companies that were funded by Powerhouse and all these other people, we’d love to talk to them because we don’t have the software to do this and we don’t have this and that.” And so you’re now in this frame where for the first two months, I think everybody was saying, “This is too much of a disruption. Even President Trump is going to capitulate to the Iranians and actually get this thing done.” Now they’re going, “There’s a little dust on this manual, but we should dust it off and open it and read what we submitted.” Because some of the countries, by the way, submitted those updated NDCs at the end of March, March of 26 is when most of them were due.
So they’re right there. They just worked on them, right? So now they’re looking at it and going, “Maybe we should actually implement this thing.” And so now you’ve got all these calls to the World Resources Institute, all these calls to like Rocky Mountain Institute, like all these folks who’ve been doing these analyses for 11 years with everyone saying, “Okay, this is a good doorstop. We’re not going to implement this.” To, “Wait, maybe we should implement this because otherwise we’re going to have social unrest.”
Stephen Lacey: So to your point, President Trump is shaping up to be one of the greatest climate presidents.
Jigar Shah: I’m going to personally nominate him for the Nobel Peace Prize on climate change.
Caroline Golin: Oh, don’t even. Oh my goodness.
Stephen Lacey: Caroline, you walked through some of the big questions in heavy industry and agriculture. I mean, what do you think kind of moves first to Jigar’s point in the electricity sector? You talked about EVs, solar plus storage, like what else do you see moving?
Caroline Golin: Yeah, I mean, I think solar moves, right? I think that this is a broader question of what’s your feedstock and what do the geopolitics of your feed stock mean for future global alliances. I mean, the Western world is not new to the concept of the reason why we keep getting involved in the Middle East is because we need to extract the natural resources that exist there and perpetuate conflicts for decades. Now it’s a question of, well, if China arises as the clear winner by a long shot in terms of being able to export the feedstock, which I’m loosely referring to as the technologies that allow you to power your homes, then what does that mean for the long-term geopolitics and our engagement, the Western world’s engagement with the East? I think that there’s no doubt to me that China is poised to sort of then become that untouchable power in a way.
And I think we should very, very clearly know what that means for Western dominance. The reason why China was able to do this is because they electrified first. So they focused on electrification and then focused on the backend being clean. They didn’t try to clean up the feedstock first and then forget about the fact that our entire system ran on fossil fuels. It didn’t run on an electric system. And so because they did that, they now have the institutional muscle to export in a way that no one else does. And you see it happening, right? It’s all a tariff war and you see countries all over the globe reducing some of their tariffs on Chinese imports because they recognize that now they probably need to shift into that space. And I think that has real implications for Western dominance that we should not take lightly.
Stephen Lacey: I can’t remember who said this, but I saw an observation from someone that it turns out that Chinese overcapacity was actually the world’s largest emergency buffer stock.
Caroline Golin: Yeah. I mean, I think they did 165 gigawatts of wind last year. I mean, if you think about that, and there’s still like 90% of the solar market, and I think the disconnect is actually, Jigar makes an interesting point, which is that, and this was the disconnect in the US for a long time, which is the existing workforce and the existing grid wasn’t built this way, right? And actually developing countries where everything is so micro, right? And everything is so distributed right now and people are relying on diesel generators or worth to power their lives, it’s an easy switch, but sort of in sort of areas where the grid has started to develop, certain areas, I think of India, definitely areas of Eastern Europe, it’s a harder switch over right now because you don’t actually have the workforce, you don’t actually have the grid knowledge, but maybe AI comes in and fixes that.
It’s all like a question of do you have the time before and if and when this resolves? It’s like what is that gap time and do you have the time to learn those muscles if we assume that this will all be resolved in two years, which is what most analysts think is sort of the long-term damage window.
Stephen Lacey: Yeah. So Jigar, we’ve seen Chinese clean energy exports boom. How has the storyline for China shaped up for you now that we’re eight plus weeks into this thing?
Jigar Shah: So I think that it’s been really interesting because remember, not only did China have all that over capacity, they also eliminated all of their subsidies over the last like six to nine months. So we had a big boom last June in solar production because they had their subsidies running out in June of 2025. They had a big boom in EVs because they were running out of their subsidies and EVs, so they’re no longer subsidizing EVs. So Chinese EV sales actually went down last month because they got rid of all their subsidies, right? But what’s happening is that everyone is wanting to import their EVs. And so the EV manufacturers are booming and are now at like full product. They had like seven million EVs of unused manufacturing capacity that are now being fully used. And they’re planning to go from 2.6 million EVs exported last year to about six and a half to seven million EVs exported this year.
And so they’re on a tear, same with solar and similar things. I think what’s interesting to me is that China I think is so confident that they have now announced that they are reunifying with Taiwan next year and they’ve basically set down exactly how it’s going to happen. And I didn’t hear anybody in the Western world complain or suggest that they were going to defend Taiwan. So I feel like that’s likely going to happen. And so if that happens, that is the only source of friction, major source of friction that China has with Europe. Once that source of friction goes, Europe and China are now best buddies, right?
And people don’t realize that China has hated Russia for 450 years because they share a border. And so like the Chinese Russian partnership is a partnership of convenience. And so I just think that in general, we’re in this place right now where the middle kingdom is getting strong again. And once that occurs, I actually am not sure that they’re going to hoard their technology. It would not be surprising to me if China announced a deal with the EU towards the end of the year saying, “We’re going to build 27 factories in the EU. It’ll be our companies. It’ll be very similar to the Japanese deal with the US in the 80s where Reagan limited the number of imported Japanese cars and said, you can make them here.” I think that the EU might do the same thing and say, “You need to JV with VW and all these other folks.” And the Chinese will be like, “We’re not threatened by you anymore.” We’ll do that because we’d love to take our technology and actually spread it around the world.
And so I feel like all of the misinformation or all of the analyses from seven years ago, you just throw that board game right in the air and you have to reset all the pieces. I don’t think that China’s afraid anymore of all of these other countries. And I think that they’re willing to flex their muscles and their industrial might.
Caroline Golin: I don’t think China was ever afraid of these other countries.
Jigar Shah: They were a little afraid because like the Chinese military has never actually had a conflict. All they do is build cool stuff, but they’ve never actually fought in a war. They’re a little afraid.
Stephen Lacey: I mean, they are absolutely benefiting from countries around the world looking to diversify beyond the US and where are they going to go? They’re going to go to China. So I think China clearly comes out of this a winner geopolitically.
Caroline Golin: I think let’s be clear, like the US was never a major exporter of solar, right? So we’re competing on different things.
Jigar Shah: We were in 1999 when I joined BP Solar.
Caroline Golin: Okay, good job. Yeah.
Jigar Shah: But that was a long time ago. I agree. Astropower and Solarex are no longer around.
Caroline Golin: Right. So at this point, it’s not a matter of is Europe going to choose between a US company and a Chinese company, it’s a question of are they going to actually force industrial electrification and industrial decarbonization? That’s the question in front of Europe right now, because they did not have the grid reliability to do that. And so everyone was sort of in the middle and now that may leapfrog because the prices are just going to become too steep that rather than lose their entire industrial sector, will they invest in that transition? But I’ll be honest about this, most industrial processing cannot function at the same efficiency under an electrified system. It has always been the rub.
So you’re still going to have a huge part of the industrial sector that is going to be relying on the goods and feed stocks and inputs that are coming out of the Strait of Hormuz. And so that is going to be a tension point for Europe for quite some time.
Jigar Shah: Well, this is where, but I think this is where context I think is important. The Chinese economy has gone from 25% of all of its energy being electric to 35% of all of its economy being electric. The rest of us are still at 25%, right? So I don’t know that we’re suggesting that we’re going to 50%. I think we’re suggesting that we should match China and go from 25% to 35%. And what that requires in Europe is 27 member countries actually working together, right?
I mean, and part of that has been solved by Victor Orban leaving, right? So they’ve had emergency meetings the last 10 days to get all of the things he’s been blocking the last three years approved, which is good. But I think the other piece of it is just longstanding cultural challenges in Europe. They’ve had a macro grid initiative for 15 years that they haven’t implemented because the French don’t want to share with Spain. The reason Spain had that problem is not because of like anything but the fact that there’s only 1,000 megawatts of transfer capacity between France and Spain. They should be 6,000 megawatts. And remember that the US nuclear fleet runs at 93% uptime and the French nuclear fleet runs at 73% because they pride themselves on being able to run it less efficiently because they don’t have enough grid connections with the rest of Europe to ship all of that excess nuclear power.
And so like it is in their best interest to take those damn grid, like macro grid analyses from 15 years ago and deploy them at scale in this moment for all of the reasons Caroline’s suggesting, but it has been so hard to get 27 member countries to agree to that.
Caroline Golin: Yeah. I remember when we were doing at Google and we were looking at deals that we were trying to initiate and at one point I sat down, maybe it was with EDF, I can’t remember, and we walked through the 28 different bureaucracies that we would have to get through in Germany for citing and we walked through the 17 different interconnection ties that we would have to build in order to pipe it correctly. So the same problems in Europe as we’re going to have in the US and that’s a lot of-
Jigar Shah: Isn’t there a German word for that? There must be a German word for the abundance movement.
Stephen Lacey: Share it with us listeners. Let’s close with a look at just the risks for clean energy. One that I saw reported on from the Financial Times was that Gulf sovereign wealth funds, which manage $6 trillion in assets and represent 40% of all sovereign wealth on earth are exploring whether the war is going to constitute force majeure and they could legally exit their financial commitments. That could have a huge cascading impact in clean energy and climate tech. Lara Pierpoint just had a great interview about this with Susan Su, venture investor Susan Su on the Green Blueprint. But I’m just curious, Jigar, if you have any reaction to it, does it feel like a potential cascading impact in this sector?
Jigar Shah: Not really, because I think that as you and I have talked about in the past, right, there are different cleantech lenses that people are talking about when they refer to that. I think the lens that you’re talking about is really corporate investing into companies, right? I think the lens that I’m talking about is the $2.2 trillion that we invested in clean energy deployment last year, and that number is going to hit $3.3 trillion this year, right? Not like a 20% increase, like a 50% increase this year, right? Because it is clearly the feedstock, as Caroline’s suggesting, that is available to replace 10 million barrels a day that we are short, right? And so like, I think that, look, I have always been somebody who has tried to pivot away from venture capital and early tech and like all of the valleys of death crap and like moving to who the hell’s doing $2.2 trillion and how do I get them into my country club?
And then you’re like, you know, how are they going to respond? Because I think when you look at the EPC contractors, you look at the engineering firms, you look at all those folks, they are using AI like it’s going out of style, right? And they are getting twice as much productivity out of all of their engineers than they did last year, right? And so I don’t even think that they’re going to need to hire a lot more people. I think they’re going to be able to use AI to do one and a half times as much deployment this year than they did last year, and they’re going to be able to probably keep costs relatively flat, right? And so like we are in this extraordinary moment where we don’t have as much inflationary pressure on clean tech deployment as a lot of the other parts of the economy does because China has all this over capacity and for whatever reason, the Chinese companies never want to be profitable and so they’re happy to sell their equipment at basically the same prices that they were selling them last year.
Caroline Golin: Well, Chinese companies want to be profitable, but we don’t have time for the full planned industrial economy. I think one other thing on this Stephen, and not to give investment advice at all disclaimer, because no one should listen to me on that, but if insurers decide to reinsure the long-term refining and export infrastructure in the state, then I think that’s a signal that this is a window. If they choose not to, then that’s stranded capital for the long run, right?
And I think that that is a big question right now. Is this something that the market believes was a disruption or are the geopolitical issues and the politics too tense that they can’t trust that if they reinsure and rebuild all of that infrastructure, that it’s safe for the market moving forward or are they just throwing money after … What I would say is like, is it like the house on the beach that keeps getting hit by the hurricanes, you just keep rebuilding it and rebuilding. And if that’s what this becomes, then yeah, then there could be a lot of capital that’s lost.
Jigar Shah: Well, maybe just to pile onto that, I mean, I do think the thesis that I’m operating under is that we have past the point of people forgetting. People will never forget. I mean, to the extent that things get rebuilt in the Middle East, there will be a premium for that forever, right? People will be suggesting a security premium for the rest of time, right? And I think that that is important because the single biggest problem that clean energy has had is not the lack of McKinsey cost curves or NDC reports or net zero reports or whatever it is. It has been inertia. Like people have said, we get it, we see the analysis, but we are used to doing things this way. We need a lot of pushing to think about doing things in a new way. And I think that the amount of pushing here is not a two year thing.
I think that the amount of time it’s going to take to get any sort of normalcy out of the supply chain will be much longer than two years. And in that time period, I think the amount of inertia is going to go down by so much that you will see countries out competing each other around how to localize their supply chains and to achieve energy sovereignty. No one wants to import molecules ever again. They’re forced to, don’t get me wrong, we will have a robust LNG trade and oil trade and whatever else, but every single day, the energy minister in that country is going to be like, “How do I make that number smaller?” And that will be persistent for the next 20 years.
Stephen Lacey: Well, after all this chaos, let’s talk about a company that is the Paragon of stability Fermi America. Oh, wait.
Caroline Golin: No comment.
Stephen Lacey: Last October, Fermi went public raising almost 70 to 50 million to build what it called the world’s largest data center, this 17 gigawatt campus near Amarillo, Texas. It was co-founded by Rick Perry, backed by two cabinet secretaries who personally intervened to secure gas turbines. The CEO named the project after the president, the political connections were basically the pitch. But here’s what happened. They have no anchor tenant, a $150 million deal fell apart, and they had an earnings call where the CFO floated selling the turbines that the cabinet secretaries had helped get them before the CEO said, he jumped in and said, “I would rather auction off my two boys first before letting a single generator go.” And then on April 17th, that CEO was out, shares are down 69% from the IPO.
There’s been a lot of analysis on this. I thought Michael Thomas at Cleanview had a really good one that published satellite imagery comparing Fermi site to Meta’s Hyperion campus and to the Stargate builds in Abilene and Anson. And it’s just a totally stark difference. The site looks essentially the same as it did six months ago, no buildings.
So let’s talk about what is going on. Will it ever work? Was it ever designed to work? And I guess Caroline, I’ll turn to you. What’s your reaction to the troubles at Fermi?
Caroline Golin: I mean, I think that like someone at HBO should be filing for the rights for this saga is what I think. I mean-
Jigar Shah: Apple TV. Apple TV.
Caroline Golin: Apple TV. Yeah, sure. I won’t watch it. I mean, it’s almost not worth the conversation because it’s so clear what happened. I’m sorry, but it’s like this man sold a very risky and undisciplined dream, was a seemingly toxic leader and-
Stephen Lacey: And you’re talking about this man, CEO- Toby Neugebauer.
Caroline Golin: Toby Neugebauer. Yeah. And he mismanaged his company and you know, did he really say he would rather auction off his tutorial? I mean, I think that’s like the period at the end of the sentence. I just think that this is something where they raised a lot of money on a little bit of Wizard of Oz type vibes and then lost a bunch of money. And I’m not sure that it’s … My biggest concern about all of this is that it cast a shadow on the folks that are trying to do gas nuclear development responsibly and are trying to do large responsibly.
Jigar Shah: Who are those folks that are doing gas nuclear responsibly?
Caroline Golin: Oh, there are a lot of folks in the industry trying to … I mean, doing SMRs and doing … I mean, I work for one of them Jigar, but you know, I think that there are a lot of folks in the space who are doing it responsibly. I mean, I think look at like little shops like Blue Energy and stuff that they’re really trying to do this thoughtfully.
And Jake’s trying to really think about this for the long run and he’s not over promising and other SMR shops that are not over promising and they’re going to get hit potentially. But here in Texas, I’ve asked around, people are not talking about this like it’s the big catastrophe that maybe Solyndra was for the cleantech industry. It’s like, yeah, it was a bunch of reckless bros that raised a bunch of money, lost a people’s bunch of money, and then other people made a killing on this and maybe it’s borderline criminal, but it is what it is right now.
Stephen Lacey: Yeah. Jigar, how do you read this story? What is the lesson of this story for you?
Jigar Shah: So let me start by saying, I really, really don’t like it when in any like news, any television show, someone’s like, “I swear on the life of my kids.” That is such a red flag. And so we should definitely not allow that to occur anymore. The other thing I would say is when I was starting to Google Fermi for this story, it came up with the meltdown of the Fermi nuclear plant in Michigan in 1966. And so I was like, wait, did they name the company after Chernobyl? They should have like picked a name that wasn’t like the first search result in Google.
Caroline Golin: That was it. The branding doomed it.
Jigar Shah: That was it. I was like, I mean, were they telegraphing what they were doing and no one caught it? So then like the other thing I would say is that the entire company was built on their access to Trump, right? And so the first thing they did was they had water rights, that’s how they raised their initial money, but then they like really browbeat Chris Wright and Doug Burgum to get access to Siemens generators, right? And they really pushed Siemens to sell them generators ahead of other people that were in the queue, right? And then there was a high profile screaming match between Toby and Howard Lutnick at one of these conferences about how Howard Lutnick had not twisted the arms of the Koreans enough to get them to invest in the Fermi facility, right? So one of the things that I think troubles me the most is the entire business plan of the Trump administration because this is not the only group whose claim to fame is their ability to get access to cabinet secretaries to get favors done for them. There are a lot of others in the critical minerals space and in other spaces who have basically been right behind the resolute desk for the strategic signing of an executive order.
And I wonder whether we should be shorting all of those stocks right now because like, because it’s not clear to me that anyone in the Trump administration did a bunch of due diligence before doing friends favors, right? And so like, so a lot of those stock prices are up because of their proximity to power and now I’m wondering whether that’s actually a liability because it wasn’t the golden ticket that people thought it was going to be.
Caroline Golin: Yeah. I will say in that window between Google and NRG when I was advising, there were a couple of shops where they came to me on this and I was very clear with them. I would not engage. I don’t see the through line there. I don’t think it’s a smart investment and they were shocked and I think they didn’t work with me because of my stance on this and I’m like, told you to some degree. I mean, I think like I said this to Jigar offline a little while ago, but the nuclear industry, the natural gas industry, while perhaps has been a little sleepy, there are incredibly skilled and incredibly thoughtful and incredibly seasoned people in this country who understand how to build natural gas and they understand how to build nuclear. There aren’t enough, but they are there. And none of these people thought that Fermi had what it took other than a lot of hype.
So I mean, I think the people in the know on this space or the people who I respect in this space were not surprised by this. In fact, I think they were all sort of being like me, which is a little too cute right now.
Jigar Shah: What’s their over under on the SoftBank project in Ohio?
Caroline Golin: I’m not taking stance online. Nope. Well, what’s interesting is like, I was saying to Jigar if this was ever the episode where I was going to say, you don’t have to be that nice, it was going to be this episode compared to all the other ones where you’re so kind and like loving and gentle with the development companies in this country.
Stephen Lacey: Well, there’s sort of the mismanagement story and then there’s this, the idea generally. So unpack the viability of building a 17 gigawatt data center campus that is islanded. That is a concept-
Caroline Golin: That’s not an island. Okay, so let’s be clear, that’s not an island.
Jigar Shah: That’s an entire country. There are states that don’t have 17 gigawatts of generation.
Caroline Golin: I mean, you have to build an up redundancy into that. It’s not an island and eventually they were going to build a grid tie back in just for the sake of it. But I think we have to be very clear when we’re building at that scale, that’s a district, right? Not an island. It’s very different. Yeah.
Jigar Shah: Can I just say that like the thing that I found so shocking … So I have a friend of mine here in Bethesda, Maryland who knows Governor Perry really well and so was like an early investor in it and made like a hundred X’s money or whatever on it. And I was just like, I looked askance when I saw them last. But like I think when they announced their IPO, they had a 68 megawatt interconnection with Excel, which is like the owner of that particular part of the grid right away that was expandable to 268 megawatts in like, I don’t know, like two years or something, right? And I was like, “That is so valuable.” When you think about the fact that you could have run a grid connected data center at 268 megawatts over the next like two years, and they prided themselves in saying that once our gas turbines are online, we are going to sever that good connection because we don’t want it, right?
We find that grid connection to be a liability was their official stance, right? And so like as soon as I heard that garbage, I was like, it was like the last episode. I was like, when you hear that, that’s like red alarm, red alarm.
Caroline Golin: Well, I actually, I think I understand their calculus on this while I may not agree with all of it. I think that the calculus was that if you are connected to the grid, then you are subject to whatever political thumb comes down on you.
And that there was inevitably going to be political thumbs that were going to require certain actions that they just didn’t want to be a part of. This is the longstanding conversation we’re having about, it’s not the grid that they want to get away from. It’s the humanity that comes along with the grid, right? The other thing is-
Jigar Shah: That feels very damning, Caroline. That humanity is what they want to get rid of.
Caroline Golin: Well, it’s true. It’s the politics of the grid as a common good, right? And I don’t think that’s just the basics of it, right?
Stephen Lacey: I think you need to hold a humanities course for grid professionals.
Caroline Golin: Yes, sure. They would all listen to me, I’m sure. But the other thing that comes along with this, I mean, if you even look at what’s going on in Texas right now, I mean, essentially what big parts of the development community are saying is that if we can’t get above 200, 300 megawatts, just drop us out of the queue. It’s not worth it if we’re coming in with a gigawatt request and you’re going to come back and say, “You can have 180 megawatts.” It’s not even worth it on our balance sheet to hold that interconnect if we don’t know if it’s going to be at least above 500. So I think that there is this huge divide right now where the sweet spot used to be in that 200 megawatt range. And I mean, I remember even with Google, we were pulling up everything we can.
That’s now at least you have to 3X that for it to be worth the balance sheet costs of holding that interconnection spot because it requires collateral payments, minimum demand charges and all that stuff. And they really need to concentrate their capital in certain areas, which makes me question what’s going to happen to sort of this edge market moving forward. And maybe we can have that conversation.
Jigar Shah: Well, Jensen Huang actually addressed it, right? He said a week ago that basically anyone who is not leaning into demand flexibility and not looking at these smaller footprints of data centers is not like basically on the cutting edge of where we’re at today, right? And all of the powered land bros started dunking on him and I was like, “I feel like Jensen Wong probably has better info than all of the powered land bros who are really just real estate people fishing for a tenant.” They’re not experts in energy or anything else. They’re just trying to figure out a way to flip their land. Like this whole thing to me has several more shoes to drop in my opinion.
Caroline Golin: Well, but also Jensen’s motivation is mass distribution of its product, right?
Jigar Shah: Isn’t that everyone’s motivation who believes in AGI?
Caroline Golin: I mean, well, it is. It is, but I mean, I don’t know that they have a particular view on infrastructure scale, right? It’s more of speed to deployment of chips. Whereas you can see in the market, especially from the hyperscalers perspective, I think they’re largely still running on the idea that concentrated growth is going to be the quickest way to deploy chips, right? And that is really a question of your long term procurement strategy, which has never been consistent across any of the big players and is, I think, largely going to be questioned after … If two or three more firmies happen, then yes, I agree that it’s going to start to question whether these men can.
Jigar Shah: Well, that’s obviously going to happen. The question is which date upon which date are two or three more firmies going to happen?
Stephen Lacey: Right. Well, that was actually kind of my last question, which is to put you on the spot, who is the next Fermi?
Caroline Golin: Oh, I want to keep my job, and so I don’t want to say anything too inflammatory across the sector, but yeah, I think there are some out there. There are some out there.
I mean, I think they are … I think you’ll see a few in the SMR space for sure, but I’m not … Again, the issue is how much capital was lost on this and who did it affect. If it didn’t affect residential rate payers, then the politics of it become less severe when it comes to development moving forward. If you get to a position where you have … And this is what everyone’s trying to insulate, this is what regulators are all trying to insulate from right now. So I think what this affects the most is probably the regulator conversation. Do they need to be more stringent on things like this?
Jigar Shah: But this is … I mean, we’re not going to solve this on this particular episode of Open Circuit, but I do think that we do need to get broader about this, right? The fact that they were given Siemens turbines that other people could have responsibly deployed faster does affect residential customers.
Caroline Golin: Yeah. I agree with that. Yeah.
Jigar Shah: The fact that the hyperscalers, and I’ve talked to all of them in the last several weeks since the Transition-AI conference, and I said, “Tell me what I said that was wrong.” And they’re like, “Nothing, but we’re not sure that we want to correct the record yet. We like the fact that everyone thinks that a hundred gigawatts plus are going to get connected to the grid.” And I was like, “Why? When you and I both know you’re not going to get more than 45 gigawatts onto the grid by 2030.” And they’re like, “Yeah, maybe you’re right. Maybe we should actually deflate the bubble.” And I was like, “But that bubble is causing enormous amounts of inflation in transformers, in wire costs, in high voltage and medium voltage circuits.” And all of that is being passed through by utilities to rate payers, right? And I think it is a travesty that all of these folks think that all of this excess hype is costless.
Stephen Lacey: I have been increasingly convinced by that argument. I think that that’s right. I know Fermi’s looking for a new CFO, probably a new global head of policy and growth, and maybe a new communication firm. We could all throw our hat in the ring. What do you say?
Jigar Shah: I mean, I have been auditioning for that job this entire episode.
Caroline Golin: Gosh.
Stephen Lacey: You know where to find us.
Caroline Golin: I don’t want to discount. Yes, of course it has ramifications. And I just think that what I don’t want to communicate is that because Fermi was so grossly mismanaged and so clearly not real from the very beginning, that that means that all large developments or all large co-located facilities or all natural gas development or all nuclear development in this country is now deemed to the same fate.
Jigar Shah: But to put you on the spot, Caroline, and I know that you’re not going to name names, right? I’m not going to name names. But what we’ve said on this podcast before is that the entire industry is tagged by its worst actors. That’s right. And so if nobody in the industry is willing to name names around who the worst actors are, then we all have to wait until the worst actors self-emulate like Fermi, right? And then we do a postmortem after the fact saying we all knew that they were going to self-emulate, but we couldn’t because of our job, say so. And so we end up in this place, and I’m not blaming you or anyone else, because obviously all of my friends are getting big contracts at Scale Microgrid or at AlphaStructure or at all these other places, and I get it, right? They don’t want to lose those contracts, but at the same time, I do think there are consequences for letting all of these bad actors continue to lose trust from communities.
Data centers now have a lower approval rate than the Iran War does.
Caroline Golin: No, listen, I don’t discount that. And I’m not naming names because of my job. I’m not naming names because honestly, we don’t know in this industry … I’ve seen things come to pass that I would have never thought would have happened and get funded in there. They’re getting out there and they’re doing it, and that’s great. I think the risk here full stop is going to be whether or not politicians open doors for big risky investments. And I think you made that point, Jigar. And I think they’re going to be held accountable to that. I think there was a New York Times piece recently, and I think that local commissioners, governors are going to be held accountable to whether or not they’re opening doors for irresponsible development, and hopefully that means that the more responsible developers will be able to capitalize on it.
Stephen Lacey: Or it could be limited opportunities for the responsible developers.
Caroline Golin: It could. And that’s what I said. That’s my biggest fear is that the ones who are trying to do this well are going to get sort of lumped into this wild west tech bro situation. And that’s … I know at least, I never speak for energy on this podcast, but I know at least here, that’s one of the things I’m most concerned with. I was like, if we’re competing on a platform against other seasoned natural gas developers, then so be it. But if we’re competing against these Frankenstein, that’s my worst nightmare because that’s what destroys the market.
Stephen Lacey: Well, good to see you both. What a fun conversation. Open Circuit is produced by Latitude Media. The show is edited by me, Sean Marquand and Anne Bailey, Jigar Shah and Caroline Golin are my co-hosts.
You can find all of our episodes on YouTube, just subscribe to Latitude Media’s channel, and you can find the audio version anywhere you get podcasts, including transcripts at latitudemedia.com. And of course, we cover all the stuff or most of the stuff that we talk about on this podcast, and you can head on over to latitudemedia.com and subscribe to our newsletters to read more background coverage. Thanks everyone for being here. We will see you next week.
