We are making a terrible mistake when it comes to future energy policies. In previous letters, we have touched upon the challenges of the so-called “energy transition.” Today, we will explain in detail the imminent harm awaiting investors and policy makers who fail to acknowledge certain realities. Every green energy proposal we have examined relies on the trifecta of wind, solar, and electric vehicles combined with various battery technologies. In recent months, a renewed “hydrogen mania” has broken out as well, which adds a fourth leg to the green energy stool. Unfortunately, based upon our extensive research, these plans, including the current hydrogen craze, are bound to at best severely disappoint and, at worst, outright fail in what they attempt to accomplish...
Vaclav Smil, Distinguished Professor Emeritus in the Faculty of Environment at the University of Manitoba, is the best energy scholar we have ever read, in our opinion. In his Energy Transitions, he notes that historically a new energy source takes between 40–60 years to gain significant market share. The current proposals assume wind and solar will make comparable gains in only 20 years. Ambitious plans often carry ambitious budgets, and the green energy transition is no exception. Using extremely aggressive cost saving assumptions, a widespread move to renewable power is expected to cost $70 tr over 20 years, nearly $50 tr more than if we stayed on the current trajectory. Unfortunately, our research tells us this additional spending will not even come close to generating the expected reduction in global carbon. The sums involved are monumental, and much of it could fall into the category of “malinvestment” with disastrous results. The further down the current path we go, the less likely we will be able to change course later. A decade ago, a series of failed promises and bankruptcies plagued the battery industry, making it nearly impossible for subsequent ventures to find financing and move forward. We worry the same could occur on a much larger scale if tens of trillions of “green” investments are eventually written off.
Montanaro liked to call Moffitt “lobsterboy” because he had joined the company after working on a lobster boat — which is where he got his first taste of investing.
Rising long-term Treasury yields ultimately might not pose much of a problem for most stocks. But the bout of indigestion that higher yields are already giving to some of the past year’s biggest winners—shares of companies including Amazon.com, Apple, Tesla and Microsoft — could prove more lasting.
Some of that is because these companies’ steep valuations make them vulnerable to rising yields. But it also stems from how, even as the Covid-19 pandemic wreaked havoc, those stocks did so well.
While oil’s dizzying collapse is still fresh for many traders, rumblings are starting to emerge that by the end of next year prices could once again top $100 a barrel.
Oil prices will hit $80 a barrel this year as demand comes roaring back and producers won’t be able to immediately respond with sufficient supply, Socar Trading SA said, joining a chorus of bullish calls on the market.
Hayal Ahmadzada, Socar’s chief trading officer, said the glut of excess oil stocks that built up in 2020 in response to the pandemic will be fully drawn down by the summer. At the same time, soaring prices for steel used in pipes, wells and fittings as well as the high cost of capital for producers will crimp a meaningful supply response by an already hobbled industry even as demand returns.
“I will not be surprised if we see $80 a barrel in summer or before year-end and above $100 a barrel in the next 18 to 24 months,” Ahmadzada said in an interview from Baku, Azerbaijan.
Benchmark US crude prices have jumped more than 25% since the start of the year. But the return of $60 oil isn't tempting the country's largest shale producers to loosen the purse strings.
Management teams have used their recent earnings conference calls to repeatedly assure investors they will remain steadfast in prioritizing capital discipline over growth, with many maintaining guidance put forward when oil was stuck in the $40s.
"If commodity prices surprise to the upside, we will remain disciplined and won't chase growth. If the recent commodity price strength persists, we will not raise our capital spending … we will simply generate even more free cash flow," said Marathon Oil CEO Lee Tillman, capturing the sentiment echoed by others.