May 26, 2023
There’s no denying that things have gotten weird where the culture landscape goes.
This is a financial letter so I try to stick to topics of that nature. I don’t judge people’s personal beliefs. And I don’t want to make this about social issues per se… but the overlap between finance and culture these days makes that harder and harder.
You’ve probably heard about the recent Bud Light fiasco…
The beer brand promoted a partnership with “trans girl” Dylan Mulvaney by creating a single personalized can with the activist’s face on it celebrating one year of “girlhood.” I guess the idea was to dip their toes in the “alphabet market” pond. But once Mulvaney shared the gift on social media, it took little to no time for it to spread across the rest of the social sphere…
The snafu cost two marketing heads their jobs. And AB-Inbev has been backpedaling ever since. Their stock is down roughly 15% since the incident.
But these days social issues are starting to have a more significant impact on financial markets as well as the economy as a whole. And when they do, you have to address them in a serious light.
The point is, pushing agendas impacts markets. Some social uproars can disappear with the news cycle. Others can threaten to have a more significant impact. Bud Light (which has now become a verb as in “That company just Bud Lighted itself”) knows this all too well.
And one of the more serious threats comes from today’s climate warriors.
Nothing new there. I shared this off the rails rant from Davos with you earlier this year…
And I’ve written at some length about the topic of the green energy push in the past. You can check them out again if you like…
- The Great Energy Lie of 2021 (and Beyond)
- Biden’s War on Oil: The Truth Behind the Great “9,000 Permit” Lie
- Doubling Down on Stupid: Economic Warnings Already Coming to Pass
- Biden’s “Burn the Ships” Attitude on Green Energy Promises Energy Inflation for Years
- Refining the Truth: The Reality of Biden’s Latest War on Refiners
There is no doubt whatsoever that the current administration wants to placate those who would save the planet by forcing a zero carbon energy strategy on it. They have vilified the oil and gas industries at every opportunity. Even to the point of absurdity — by insisting these companies should continue to invest in infrastructure to keep the power on, while the government does everything it can to put them out of business.
But that kind of nonsense coming from the government carries a lot more potential impact than, say, a bad marketing decision by a beer company. And they’re getting really serious about it…
Francis Menton writing for the Manhattan Contrarian outlined it pretty starkly in a recent article. He cites three huge new regulatory proposals from the Biden administration that would deep-six much of our current energy infrastructure (and pretty much your way of life).
First they’re going after your car…
A proposal titled “Multi-Pollutant Emissions Standards for Model Years 2027 and Later Light- Duty and Medium-Duty Vehicles,” mandates an emissions standard of “82 g / mile CO2 emissions” which, according to Menton, “effectively bans internal combustion vehicles.”
Then they’re coming after your appliances…
In the DOE’s proposed new efficiency standards for dishwashers:
The proposal requires manufacturers to slash water use by a third, limiting machines to 3.2 gallons per cycle, down from the current federal limit of five gallons. New appliances must simultaneously cut estimated annual energy usage by nearly 30%.
Looks like it’s back to “Honey you wash, I’ll dry.”
Finally, from the EPA there’s a document called “New Source Performance Standards for Greenhouse Gas Emissions from New, Modified, and Reconstructed Fossil Fuel-Fired Electric Generating Units; Emission Guidelines for Greenhouse Gas Emissions from Existing Fossil Fuel-Fired Electric Generating Units; and Repeal of the Affordable Clean Energy Rule.”
If the title of that doesn’t give you a headache, the contents apparently will. Like the car emissions regulations, it sets emissions standards that essentially cannot be met. According to the document, fossil fuel plants will be allowed to continue operating if they implement a form of carbon capture. Menton has this to say about that technology (my emphasis):
I have previously described this idea of carbon capture as a “war against the second law of thermodynamics.” Trying to capture CO2 from power plant emissions requires energy, and the higher the percentage of the emissions you want to capture, the more energy it takes. If you insist on capturing all of the emissions and somehow storing them permanently, it’s going to take more energy than the power plant produces. There has been endless talk about carbon capture for more than a decade, and there is almost nothing in the way of functional carbon capture systems, because as they capture enough carbon to be meaningful, their cost soars out of control.
And you can bet the EPA knows it. That’s one way to make federally subsidized wind farms look reasonable.
One bit of good news is that these are all still in the proposal stage and have never been authorized by Congress so they’ll almost certainly be challenged in the courts.
Another bit of even better news is someone is finally pushing back.
The Fossil Fuel Empire Strikes Back
This past week, Shell’s annual shareholder meeting in London was delayed over an hour by environmental protesters demanding that the company’s board consider what’s known as Resolution 26 (and to tell them to go to hell…)
What is Resolution 26?
It’s a resolution by an activist investor group that essentially states (in the vaguest terms possible) that they want the company to accelerate its move to meet the Paris Climate Accord targets by 2030. And they leave it entirely up to the board and management to figure out how to do that without bankrupting the company and pushing the economy back into the dark ages.
The board pushed back in their annual meeting notice…
In a nearly full-page rebuttal, management basically summed it up by saying (my emphasis):
The world needs secure, affordable, and low-carbon energy. Moving too quickly away from oil and gas could cause disruptions to the world’s energy system, with the risk of shortages and high energy prices. Shell wants to continue to provide the energy the world needs today, while working with customers and governments to change the way energy is consumed tomorrow.
I’ve said this over and over before, the risks of forcing an end to the fossil fuel industry are a lot worse than high energy prices.
The vote is still out as I’m writing this article.
Then there was some other good news.
Back on this side of the pond, US supermajor Chevron made an even bolder statement…
The Journal reported (my emphasis):
Chevron deepened its commitment to oil-and-gas drilling in the U.S., spending more than $6 billion to acquire a rival with sizable operations in Texas and Colorado.
The article continued…
…the U.S. oil major is aiming to build a bigger foothold in two prolific oil patches, particularly the Denver-Julesburg Basin that straddles Colorado and Wyoming, a region where Chevron already has a large stake.
The transaction also boosts Chevron’s position in its major U.S. onshore play, the Permian Basin of West Texas and New Mexico, the most prolific American oil patch but one where Chevron and many other companies have seen well-productivity issues over the past year.
Chevron clearly doesn’t believe fossil fuels are going away anytime soon. The same thing is true of another US supermajor — Exxon Mobil…
Again the Wall Street Journal reports (my emphasis):
Exxon Mobil Corp. has held preliminary talks with Pioneer Natural Resources Co. about a possible acquisition of the U.S. fracking giant, as the oil major hunts for a blockbuster deal in the shale patch, according to people familiar with the matter.
The article continued…
An acquisition of Pioneer, with a market cap of around $49 billion, would likely be Exxon’s largest since its megamerger with Mobil Corp. in 1999. It would give Exxon a dominant position in the oil-rich Permian Basin of West Texas and New Mexico, a region Exxon has said is integral to its growth plans.
And while Exxon has been shopping for dance partners, they’ve also been pushing back hard on activist investors…
The US supermajor pushed back against investors pressing the company to report on the risks to its business from restrictions on greenhouse gas emissions and potential environmental disasters when in a reply to proxy advisor Glass Lewis, Exxon said the prospect of the world achieving net-zero carbon dioxide emissions by 2050 is remote and should not be further evaluated in its financial statements.
Sorry folks. It ain’t happening. Period.
The fact that their businesses are directly in the crosshairs notwithstanding, the key is these companies are under no illusions that they and their products can be replaced in the near future. They understand the reality of the energy situation and how absolutely critical their products are.
And, in maybe yet another fortunate irony, it would appear that another unlikely party is beginning to back the fossil fuel industry as well…
The Biden Administration?
Between debt ceiling arguments, shipping funds off to Ukraine and coverage of the impending Trump/DeSantis bru-ha-ah, the media hasn’t widely reported on some recent developments from the Biden admin (which has pretty much pissed off their green contingent).
Earlier this year, the Biden administration approved a 30-year drilling project on Alaska’s Beaufort Sea known as the Willow project. It would allow ConocoPhillips to explore and drill for some 576 million barrels of oil.
Then, the same administration who promised to end fossil fuels had its Department of the Interior auction off some 73 million acres of federal Gulf Coast water for drilling leases as part of what’s known as Lease Sale 259.
The green cheerleader-in-chief then approved a $39 billion gas export project based in Alaska. The tentative plans here are to ship liquified natural gas from the Arctic to Asia. In addition to this, in 2022, the DOE issued permits to build two LNG export terminals in Texas and Louisiana.
Finally, pipeline-killer Biden’s Secretary of Energy, Jennifer Granholm, stepped up to help fasttrack the Mountain Valley Pipeline (MVP for short) — a pipeline that would connect fracking fields in West Virginia to central Virginia.
In a letter to the Federal Energy Regulatory Commission supporting permitting the pipeline, the energy secretary as much as admitted that renewables — the end goal that’s supposed to fix the climate change problem — aren’t up to the task of fixing climate change. According to The Hill (my emphasis):
She added that the rise of extreme weather — a euphemism for climate change — had continued to disrupt U.S. energy reserves, making “adequate pipeline and transmission capacity … critical to maintaining energy reliability, availability, and security.”
Pipelines. Who would’ve thought.
“…Twice the Current Global GDP”
Regardless of how well-meaning those opposed to fossil fuels are, they’re armed with too little information about the costs of their green utopia. For example…
Way back in 2021, Bank of America published a comprehensive report titled the “Transwarming World” in which the smartest people at the bank attempted to quantify how much a global transition to renewable energy would cost. Their number?
The bottom line: no less than a stunning $150 trillion in new capital investment would be required to reach a “net zero” world over 30 years – equating to some $5 trillion in annual investments – and amounting to twice current global GDP.
…$150 trillion of new capital investment! That’s a pretty nice payday if you’re on the receiving end of it.
But beyond all the cash there are, would you believe, environmental issues to be dealt with as well.
Renewable projects (namely wind) have a reputation for harming wildlife. Recent sonar surveying up in New York and New Jersey led to over a dozen whales beaching themselves in just two months early this year.
Wind turbine blades have been proven deadly to birds, bats and golden eagles.
Finally from the NIMBY (not in my back yard) contingent:
In Norway, climate activist Greta Thunberg has protested against a proposal to build two wind farms on the Sami reindeer grazing grounds.
Screw the climate… Save the reindeer.
Another consideration that needs to be dealt with is how are we actually going to connect all the new renewable generators to the current grid…
The renewable build-out is facing another giant obstacle in getting the transmission lines built to get them onto the U.S. power grid. The very green Rocky Mountain Institute says that we will need to double or even triple the size of our transmission grid to make huge amounts of wind and solar viable.
At current growth rates, that would take over 200 years.
And — maybe most ironically of all — with all those turbines running, it might not get that much cooler. From a 2018 study titled Climatic Impacts of Wind Power…
We find that generating today’s US electricity demand (0.5 TWe) with wind power would warm Continental US surface temperatures by 0.24°C.
Wind’s warming can exceed avoided warming from reduced emissions for a century.
Obviously a pro-solar study.
Renewable energy is currently incapable of replacing fossil fuels at scale. Maybe someday, when my grandkids’ kids are grown, there’ll be a viable alternate solution.
Fortunately (for now at least) oil and gas producers are ignoring the government’s blathering and are getting back to the business of producing the energy that will keep the economy running.
Make the trend your friend,
Editor, Streetlight Confidential