We are reminded of the below words of wisdom…
We noticed lately an uptick in analysis and commentary that is questioning the climate change narrative. Pieces like this one:
Clearly this climate change narrative/ideology too shall pass like every fad, but it will take time. This is ok. It just means that we will see the fossil fuel sector (oil, gas, coal, and related services) continually outperform the S&P 500 over the next 10+ years.
Take China… It Doesn’t Care…
I assure you, China doesn’t care about the ESG nonsense. What’s interesting is China’s dependency on coal – some 64% of their electricity comes from coal.
China produces (from domestic sources) about 85% of the coal it consumes (granted, this includes both coking and thermal coal).
With respect to coal, China has two big problems, and few appreciate the magnitude of the problems.
Firstly, China only has 35 years of coal reserves at today’s consumption levels, and secondly, the grade of those reserves is deteriorating. In other words, it is taking more coal to produce the same amount of heat.
Not only this but China wants to increase coal-fired power stations by 20-30% over the next 10 years or so. Where is all this coal going to come from if the volume and quality of China’s reserves are deteriorating?
This Bloomberg article highlights the deterioration in China’s coal grades.
From the article:
China’s coal imports, including low-grade lignite, climbed to an all-time high of 44 million tons in August, while domestic production of 382 million tons was also a record for the time of year. Imports over the first eight months have nearly doubled to 306 million tons, more than the country usually takes in a whole year.
The increases in supply come as the government seeks to avoid the power shortages that have crippled the economy in recent years. China’s rush to extract more coal has also degraded the quality of its domestic output so that more fuel is needed to generate the same amount of heat.
When energy security is discussed, few pay second thought to coal (particularly in light of today’s climate change ideology). China is going to have to source an increasing amount of coal from other countries, and there is only a few they can source it from (unlike oil).
How about the US? Only 17 days left ?!
While US government shutdowns make the headlines, quietly in the background the US only has 17 days of supply left in its strategic reserve.
Apart from the obvious (the US for all intents and purposes has no strategic oil reserve), there is a hell of a lot of buying that has to occur to build those reserves up. In other words, we aren’t going to see any selling pressure hereon in from the strategic reserve but rather a whole lot of buying. We suspect that Vlad Putin is well aware of this.
Would this be an opportune time to hit back at the US? Rockets, bombs, tanks — that is the way old fashioned wars were played. Yeah, it is still how regional conflicts are played, but wars on a global scale are likely to be fought using energy as the weapon of choice.
What is going on here?
We know it is just a chart but when we have seen this before (and we have seen a lot), “9 times out of 10” it has resulted in significant upside occurring within the following 12 months.
And finally, the Cherry on the Cake…
Europe’s Carbon tax goes on full speed. I know, you just can’t make this stuff up.
The climate change ideology force is strong…
The European Union has been accelerating its push to become the first climate-neutral continent. A new policy coming into force on Sunday will be a first step toward nudging other parts of the world to follow suit.
The measure will eventually place a levy on carbon-intensive imports so that European companies forced to comply with the continent’s strict climate laws won’t face unfair competition from producers outside the bloc. From Sunday, the start of the first phase of the so-called Carbon Border Adjustment Mechanism, importers from six carbon-intensive industries will be required to start reporting on their emissions.
This just leads to higher costs, more inflation, higher interest rates, and the like. Not to mention more companies shifting operations away from Europe.
We’ll see more of this.
Speaking of the “alternative energy” theme, you don’t have to be a technical analyst to figure out this isn’t bullish.
Source: MSCI World Alternative Energy Index
We think a whole lot more pain is coming, especially when folks realize that the renewable energy theme doesn’t work (as they were led to believe).
Here is an index we created. It is the Dow Jones Global Titans Oil & Gas Index (30 of the world’s biggest oil and gas stocks like Exxon, Shell, Total, etc.) vs the DJ Global Titans Index (top 50 stocks in the world).
Let’s cut to the chase: the next 10 years will see a repeat of 2000-2010. The outperformance may well last for a lot longer than this. The essence is that we don’t have to be concerned at all about energy related stocks underperforming the general stock market for a very long time.
The biggest challenge will be to stay on this trend and not get knocked out by the lure of the beauty of Miss Volatility or all of the “the world is coming to an end” banter we are subject to daily.
Editor’s Note: The Western system is undergoing substantial changes, and the signs of moral decay, corruption, and increasing debt are impossible to ignore. With the Great Reset in motion, the United Nations, World Economic Forum, IMF, WHO, World Bank, and Davos man are all promoting a unified agenda that will affect us all.
To get ahead of the chaos, download our free PDF report “Clash of the Systems: Thoughts on Investing at a Unique Point in Time” by clicking here.
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