The heading give's the rationale for the story, its the thinking process that should be interesting to a discerning reader.
The article is written by an economist I greatly admire in Greg Canavan, when you read this you may pick up some more information about climate alarmism. It is not a climate change article. just like the previous one that has gone unread (so be it) but one that more of the "unwashed" should listen to and understand where we are going.
Why am I publishing these things? because the ignorance around climate alarmism has been lost in the debate about "climate change".Underlined emphasis is mine.
You could see this coming…
I wrote as much in an article for The Insider back in June…
With the coming energy transition, does oil (and other fossil fuel energies) fade off into the sunset, or does it go out with a bang?
Most people I know think the fossil fuel industry is a dead man walking. Demand will relentlessly drop in the years ahead, and prices will fall along with it.
The court rulings and shareholder activism (against fossil fuel companies) will do one thing: make investment in new supply that much harder/more expensive. That wouldn’t be so bad if you think demand was going to drop off a cliff anyway. But it’s not going to happen.
Not unless you believe in fairy tales.
After reading the International Energy Agency’s (IEA) report about how we get to ‘net zero by 2050’, I’m even more bullish on energy prices long term. In my view, the sector will go out with a bang, not a whimper.
Let me explain…
In the document, the IEA provides a few scenarios:
The Stated Policies Scenario (STEPS)
The Announced Pledges Case (APC)
STEPS ‘takes account only of specific policies that are in place or have been announced by governments’. The APC ‘assumes that all announced national net zero pledges are achieved in full and on time, whether or not they are currently underpinned by specific policies’.
It is easy to make a virtue signalling pledge about net-zero emissions by 2050. Especially when you know you’re not going to be around then. But it’s another thing to make it happen.
So the scenario based on ‘announced pledges’ is not realistic. It might sound good, but it’s not realistic to make any investment assumptions based on it.
Let’s look at STEPS, then. This is more realistic because developing nations simply won’t jeopardise their growth by turning away from cheap fossil fuels.
‘There is strong divergence between the outlook for emissions in advanced economies on one hand and the emerging market and developing economies on the other. In advanced economies, despite a small rebound in the early 2020s, CO2 emissions decline by about a third between 2020 and 2050, thanks to the impact of policies and technological progress in reducing energy demand and switching to cleaner fuels. In emerging market and developing economies, energy demand continues to grow strongly because of increased population, brisk economic growth, urbanisation and the expansion of infrastructure: these effects outweigh improvements in energy efficiency and the deployment of clean technologies, causing CO2 emissions to grow by almost 20% by the mid‐2040s, before declining marginally to 2050.
‘In advanced economies, energy use falls by around 5% to 2050, despite a 75% increase in economic activity over the period. In emerging market and developing economies, energy use increases by 50% to 2050, reflecting a tripling of economic output between 2020 and 2050.
‘The global fuel mix changes significantly between 2020 and 2050. Coal use, which peaked in 2014, falls by around 15%. Having fallen sharply in 2020 due to the pandemic, oil demand rebounds quickly, returning to the 2019 level of 98 million barrels per day (mb/d) by 2023 and reaching a plateau of around 104 mb/d shortly after 2030. Natural gas demand increases from 3 900 billion cubic metres (bcm) in 2020 to 4 600 bcm in 2030 and 5 700 bcm in 2050. Nuclear energy grows by 15% between 2020 and 2030, mainly reflecting expansions in China.’
So coal demand falls by 0.5% per year, oil demand grows modestly, while natural gas demand grows 46%! What do you think will happen to prices when activism and regulations make it very hard and expensive to develop new sources of supply?
They’re not going to fall sharply, as the IEA expects, that’s for sure.
Look, long-term forecasts like this are a mug’s game. There are so many moving parts. And it is undeniable that the energy transition is underway in the world’s ‘wealthy’ economies.
But developing economies is another question entirely. China has pledged to be net zero by 2060. Anyone who believes that is an idiot. China has underwritten their growth for the past 20 years by ignoring the West.
Technological breakthroughs will ensure the energy transition continues. But in my view, this will occur with fossil fuel prices rising much higher than anyone thinks possible. That will occur due to robust demand and supply constraints.
Think about it. What better way to force developing nations to join the energy transition than through much higher prices?
You’ve seen the initial evidence of this over the past month, with natural gas spot prices exploding in Asia, Europe, and the UK. The desire to replenish supplies ahead of the Northern Hemisphere winter has also seen coal prices surge to record highs.
In addition, both Brent crude and West Texas Intermediate oil prices recently broke out to multiyear highs.
The supply side issue I discussed a few months ago is now a reality. A recent Bloomberg article highlights the extent of the issues:
‘Oil explorers need to raise drilling budgets by 54% to more than half a trillion dollars to forestall a significant supply deficit in the next few years, according to Moody’s Investors Service Inc.
‘Crude and natural gas drillers chastened by last year’s unprecedented collapse in demand and prices haven’t responded to the recent market rebound as the industry typically does by expanding the search for untapped fields. While international crude and U.S. gas have risen more than 50% and 120% this year, respectively, drilling outlays are only forecast to increase by 8% globally, Moody’s said in a report Thursday.’