The renewable energy cult reckons “coal is dead”, but the market says otherwise.
Thermal coal prices are off the charts, with record demand driving record prices: Australian thermal coal prices recently hit $US$400 ($548 a tonne), with prices still on the rise.
The crowd that tells us that we’re only a heartbeat away from an all wind and sun powered future have been telling all who care to listen that investing in fossil fuel producers, in particular coal-miners, borders on insanity; with lots of talk about “stranded assets”, the prices of which will plummet, to never recover.
Well, that’s the cult’s mantra, anyway.
Meanwhile, back on Earth, Terence Corcoran explains that, in an energy hungry world, fossil fuel producers are a very safe bet, indeed.
Which energy assets will be stranded?
4 May 2022
Oilprice.com covered the latest energy trends Monday with a report that U.S. investment giant Warren Buffett is “betting big on oil and gas stocks.” One assumes that Buffett is not a follower of Mark Carney, former central banker and chief proponent of climate financial strategies based on the assumption that fossil fuels will become stranded assets and should be divested ASAP. Back in 2015, as governor of the Bank of England, Carney warned of a “potentially huge” risk that reserves of coal, oil and gas could become “literally unburnable.”
Carney has continued to present a fossil-fuel doom scenario since his 2015 warnings, telling banks to get out of the oil and gas corporations that risk bankruptcy. As recently as last October, Carney was joined by a bevy of Canadian bank CEOs who rushed to sign on to Carney’s Net-Zero Banking Alliance and participate in the great move away from fossil fuels and join a global financial industry transition to green renewable energy.
According to oilprice.com, Buffett is moving in the other direction. After decades of plowing money into the banking industry, Buffett is now unloading bank and investment stocks and taking new multi-billion stakes in computing companies and energy stocks. He has dumped Wells Fargo and JPMorgan stock and picked up companies such as Occidental Petroleum and Chevron (although JPMorgan remains a big fossil fuel backer).
Buffet is not alone. In March, the Financial Times reported that global banks poured US$750 billion into fossil fuel finance. On the markets, the S&P/TSX Capped Energy index has doubled over the last year from 120 to 240 and rose another nine points to 250 on Tuesday — its highest point since 2014 — after Imperial Oil nearly tripled its quarterly profits and Brent futures hit US$106 a barrel. In the U.K., the Conservative government continues to talk of boosting North Sea oil and gas activity.
The fossil fuel explosion is clearly the product of a multitude of changing political and economic circumstances, from the pandemic to the Ukraine war to supply chain crises to inflation and other shifting economic circumstances. The global economic and political system is all messed up and in turmoil. In others words, situation normal. Alberta energy writer David Yager summed it up in a recent commentary: “Rendering fossil fuels obsolete was conceived in a different environment than the one we live in today. That was Mark Carney’s world, and he was a star. But in our tumultuous new world, does Mark Carney’s stranded asset definition still mean anything?”
That’s the question. If Carney’s world view of the energy market has been overtaken by geopolitical and economic forces, another question arises. If fossil fuels persist and continue to dominate the world energy market, other assets could end up stranded, particularly energy assets that are already non-viable and cannot survive today without massive injections of state funding.
There has been no mention of Buffett or anyone else rushing to gobble up shares of General Motors, Ford or Stellantis, whose market values are down by around 40 per cent since the beginning of 2022. In Canada, the major investors in these and other companies associated with the auto industry are the governments that are picking up risk that investors would not otherwise fund. In Windsor this week, Prime Minister Justin Trudeau and Ontario Premier Doug Ford grabbed headlines when they showed up for a Stellantis announcement that it was investing $3.6 billion to convert a Chrysler plant to EV production. It’s all part of a $16-billion electric vehicle investment effort, much of it backed by billions in federal and provincial subsidies.
As a result, government-backed battery plants are popping up in Quebec and Ontario, an essential part of the electric vehicle production system since transporting manufactured batteries long distances is difficult. Will all this investment, which the private sector obviously considers too risky to take on, end up on the stranded asset pile as time and global economic and political shocks continue as usual to rock industry?
Will all the wind farms and solar panel projects now dotting the countryside of many nations continue to survive as electricity markets evolve? Will governments continue to fund massive expansions of their electricity grids and power distribution systems in an attempt to knock out fossil fuels, the same fossil fuels that are now in high demand, especially in developing nations?
Another at-risk sector is the carbon storage industry. It is obviously a money-loser before it even gets going. Any carbon capture and storage (CCUS) projects built today would be viewed as instant stranded assets. That was the message last week from Cenovus Energy CEO Alex Pourbaix. “These are multibillion-dollar projects. And we have to have certainty that they are investable, and that we can manage those investments over the entire commodity price cycle,” said Pourbaix, whose company is a member — along with Imperial Oil and other oil firms — of the Oil Sands Pathways to Net Zero consortium.
Ottawa announced new investment tax credits for CCUS projects in last month’s budget, but Pourbaix and the consortium say the tax credits are insufficient. The industry will need “more help” from government before sinking money into future stranded assets. Imperial Oil shares hit a record $68 on Tuesday, thanks to oil and gas operations — and to its non-existent CCUS operations.
via STOP THESE THINGS
May 27, 2022 at 02:31AM