‘The entire world has changed since February’, Santos’ CEO told The Australian. It was a reference to changing his mind about developing an oil project in Alaska. But what if he’s right about far more?
The Energiewende is coming full circle all around the world, right back to coal, oil, gas, and nuclear — the energy sources it was designed to turn away from.
It’s as if the past 10 years of abandoning them was just a fad, with 2021 coal production matching levels from back then, the oil price surging, and nuclear rollouts all around the world.
The results for investors are impressive. Dirty fossil fuel investments were one of the very few success stories of 2022 so far.
In the UK, a coal miner that was spun off from mining behemoth Anglo American in a green PR stunt and dubbed ‘worthless’ by finance research firm Boatman Capital is now worth about £1.9 billion after a sixfold increase in its share price and a 3,000% increase in profits…
Four months after the coal miner was spurned by its parent company in June 2021, I asked Nigel Farage, ‘Are coal mining stocks the best way to profit from the green energy boom?’. Boy, were we right…
The reason for the divergence from ‘worthless’ to ‘worth billions’ was the flawed presumption that governments would actually deliver on their promises to turn their back on coal. Heh.
Instead, they’re back to destroying the planet with dirty power, with coal usage booming in particular. The new energy transition (to dirty energy) is in order to put financial pressure on Russia.
Germany’s economy minister even said it’s a ‘necessary evil’ to end life on Earth in order to avoid using Russian gas…more or less.
Unlike Anglo American, Glencore didn’t divest its ‘worthless’ coal business to virtue signal. And so, its share price is also soaring thanks to record profits. Especially relative to Anglo American…
My question to you is: How long can the shareholder-maximising corporate world cling onto green platitudes in the face of economics and energy physics? Because the politicians gave in at the first sight of trouble.
The answer is not long because of competition. While those companies that embrace energy are powering ahead, those that stick to virtue signalling will be left behind.
And Santos doesn’t want to be left behind, having done a 180 on funding an Alaskan oil project. It’s a reversal that’d qualify the Santos CEO for the top job at the German ministry for the environment.
Better still, Santos is doing so in open opposition to the green machine. From the Australian Financial Review:
‘But for Credit Suisse’s Kavonic, the risk is that market focus will shift to Alaska, and its poor optics around ESG putting off new investors.
‘Gallagher disagreed. “We are doing this because we believe this is a way in which we can deliver the highest value to our shareholders,” he said.’
How many CEOs have gotten gas companies to say that? A lot more than a year ago is my point.
But in Germany, the shift may have come too late. Germany’s energy utility Uniper reported a loss of more than €12 billion, which is amongst the biggest in German corporate history. And it’s summer not winter…yet.
Jim Rickards is worried about what’s coming in winter:
‘The headline says, “Germany reaches 75% gas stocks target ahead of schedule.” This sounds like good news. […]
‘But, here’s where a detailed read of the article reveals a very different state of affairs. The article says that German gas storage capacity is 23.3 billion cubic meters, which is about 20% of the actual 100 billion cubic meters of gas that Germany used in 2021. In other words, the 75% storage target is 75% of 20% of the gas actually used or 15% of the gas needed. That leaves an 85% shortfall relative to requirements.’
In other words, the Germans rely on gas continuing to flow, even if they manage to fill their storage capacity.
It’s not until September that the soaring cost of electricity will be passed onto German consumers thanks to the way the German power market works. But the crisis has already begun amongst corporations.
Bild reports, according to my translation, that ‘experts are warning of the loss of hundreds of thousands of jobs over the gas price explosion’. So power bills are going bonkers, jobs will be lost, companies will need bailing out, and inflation will soar.
No surprise that it’s not just the corporate sector that’s defying the Greenspeak. More and more politicians are waking up to the fact that they don’t just need coal, but they also need to stop vilifying and threatening it too.
It’s not just coal, of course. In Germany, the government claimed for months that it wasn’t possible to restart or extend the life of its nuclear power plants. Those claims were demonstrably false, and the nuclear plants are now expected to open.
The same goes for the UK’s gas storage facilities, which were shut around the same time Europe became reliant on Russia for gas…
In France, ‘Wildlife at risk as France issues energy giants with an environmental waiver to avoid shutdown’, reports the UK’s Telegraph. Yikes, what could go wrong?
To get back to the Santos CEO’s comments, the world has fundamentally changed. Saving the planet is now less important than fighting Putin, inflation, and the lack of energy supply and infrastructure.
The change is obvious at the political level. But also at the corporate level.
The narrative that only companies that take the energy transition seriously will survive in the zero-carbon future has been turned on its head. The companies that gambled politicians would persist with such policies in the face of disastrous results have had the rug pulled out from under them. And the windfall from those who focused on value for their shareholders has soared.
There’s nothing like a results season to sharpen the mind of corporate boardrooms and nothing like elections to wake up politicians.
What has the energy war on Putin achieved? Apart from inflation, an energy crisis, and recessions?
The Financial Times sums it up when it comes to oil: ‘Western sanctions have had “limited impact” on Russian oil output, says IEA’ and ‘Rerouting of Moscow’s crude to India, China and Turkey has helped offset curbs elsewhere.’ In the end, ‘Russian oil production in July was only 310,000 b/d below prewar levels, a fall of less than 3 per cent.’
Adjust for much higher oil prices because of the sanctions, and you get…humiliation.
As for gas, Gazprom’s output so far this year fell by a whopping 13.2% compared to the same period last year.
Look out, Russia! Sanctions for the win! They worked in Cuba, Iran, Japan, Iraq, and plenty of other places, after all…
Best of all, Putin is helping with the sanctions by further limiting his exports of gas to Europe, according to the media.
Wait, we celebrate the sanctions for reducing Russia’s energy exports and then accuse Russia of exporting less to squeeze Europe politically? You can’t have both.
No wonder nobody takes energy policy seriously anymore…
Until next time,
Editor, The Daily Reckoning Australia Weekend