The climate change experiment is back on – Fat Tail Daily
Good news for the climate change wars. We are going to run the great carbon emissions experiment after all. And find out the hard way who is right about the settled science.
All over the world, the climate alarmists are folding in their campaign against carbon dioxide.
California is attempting to revive its oil industry with 2000 new oil well drilling permits. The closure of oil refineries is causing a spike in petrol prices there. And we all know winning elections is more important than saving the planet.
The Canadians announced plans to double their LNG production capacity, further boosting exports. And the Canadian government may scrap a cap on oil emissions as part of an effort to export oil to Europe. This from a Prime Minister who tried to force green energy onto governments by dragging their central banks into the climate wars.
US oil production is holding at record levels. Pipeline projects, export terminals and all sorts of other fossil fuel investment is booming.
Norway opened a record number of new exploration blocks in the Norwegian Sea, Barents Sea, and North Sea through its annual licensing rounds – the largest area ever.
BP is going “back to petroleum.” Countless companies are abandoning their renewable energy projects. Hydrogen is back in the dog house after yet another burst bubble in the Hindenburg gas.
The Germans are building LNG import terminals in an area saturated by “free” wind energy.
And in Australia…well, never mind.
Most important of all is news from the International Energy Agency (IEA). My mentor Greg Canavan covered that exceptionally well in The Insider on Wednesday.
Fossil fuels won’t go extinct after all
Greg began by pointing out that the IEA’s green goggles have come off. It’s gone from denouncing fossil fuels to warning there aren’t enough of them to meet rising demand!
Did the US’ threats to withdraw from the IEA if it didn’t drop the green dream delusions play a role?
Greg described the situation in terms of the amount of investment needed to keep supply stable over time:
Since 2019, nearly 90% of annual upstream oil and gas investment (around USD 500 billion out of USD 550 billion average) has been dedicated to offsetting production declines from existing fields, rather than meeting demand growth. So the world needs massive investment just to keep supply from shrinking.
To keep supply at current levels through to 2050, an additional 47 mb/d of oil and 2 000 bcm of natural gas would be needed from new, as-yet unapproved projects.
Investment in 2025 is expected to come in around $570 billion, which is enough to replace and grow supply.
But it ain’t enough to meet the rising demand that the IEA will acknowledge in its upcoming World Energy Outlook.
Given how long it takes to get oil and gas online, we could be in for a shortfall within years…
The point is that fossil fuels are back on the menu. Both for users and producers looking to develop new projects.
What does this mean for investors?
Delayed reactions are profitable
The first thing to note is that the crash in green energy stocks is well deserved.
Wind is struggling especially badly at the moment. But the idea that green energy will supplant fossil fuels is now laughable. After trillions spent trying, the share of fossil fuels remains the same in our global energy mix. After decades of subsidies, renewable energy still can’t stand on its own two feet.
It seems financial markets knew the green energy boom was a fraud as far back as 2021. That’s when green stocks peaked. Since then, it’s been a steady supply of bad news.
Green energy stock prices have fallen so far that even I’m tempted to buy in. But each time I take a look, I come away thinking the news will only get worse.
The second thing to notice is that, if you accept the IEA’s upcoming demand estimates, fossil fuel companies have been underinvesting in future supply. This sets up the opportunity I want to tell you about today.
Keep in mind here that the energy system is a self-balancing mechanism. But a deeply cyclical one.
If one source of energy becomes expensive because it is scarce, then it is used less. This cut in demand brings the price back down. That’s the demand side.
Supply responds to higher prices by producing more. But this takes time and money. Who knows where prices will be by the time new supply comes online?
These natural fluctuations in supply and demand are why you get the price swings in energy resources. Especially ones that take time and money to bring production online.
This cycle is what energy investors can profit from. So…
Where are we in the fossil fuel cycle?
It’s quite obvious. Fossil fuel companies have been ploughing trillions of dollars into green energy projects before abandoning them. They haven’t been investing enough in future fossil fuel production.
Now that the IEA has admitted we’re going to need more fossil fuels in the future, not less, we’re in trouble. An unexpected energy supply shortfall combined with an unexpected level of demand.
What could possibly happen next?
Not everyone was dumb enough to sabotage their own energy future, by the way. Some countries and companies ensured enough future supply.
My favourite is Norway. They have enough hydropower to produce their own electricity carbon free. But supply vast amounts of oil and gas to the world as exports.
Cheeky buggers!
Virtue signalling about their own green energy while supplying the dirty stuff to everyone else…
Just as clever are the Chinese. They use cheap and reliable fossil fuels to produce the green energy gadgets the rest of us have been buying.
Of course, that means they use up rather a lot of fossil fuels…
I wonder who has been selling it to them. They must be raking it in.
