In Focus:
- Global Coal Consumption
- The difference between valuation and monetization…
- How much are we willing to pay?
- Solutions already exist…
A reckoning in the energy sector is coming. One that is recursive and counterproductive. One that involves an increasing dissonance between intentions and actions.
It isn’t about how we will ultimately change our energy consumption, the “Big Shift” long prophesied. History's long arc will pan out one way or another. The problem is the idealized timeline we're being sold has nothing to back it up, and a chaotic transition is happening.
How much can we truly accomplish if we continue to tepidly attempt to replace historically cheap, abundant energy earlier than we absolutely have to? Can we admit how long it will take and how much it will demand of us?
We stare from one peak to another on the horizon. The path is steep and fraught with peril. We think the valley between is easy to traverse.
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We are woefully wrong.
Global coal consumption is surging even as it falls in developed nations. The two nations that hold over a third of the global population — China and India — will never stop buying more coal as long as it is cheaper than anything else. It will be.
The situation with natural gas is unsustainable in many corners of the world. No one is selling into the spot or contract-based markets in any way that will move prices down where natural gas costs the most. Even then, shipping it from producers to the neediest markets involves supply lines with little excess capacity.
For similar reasons, oil is sitting around $80 per barrel with little expectation of a meaningful drop in the foreseeable future.
In spite of the rapid percentage gains for EVs and renewables, they are a mere fraction of the larger equation. Ever-increasing energy demand wears away at any gains they make. The mining pollution and baked-in costs for “zero carbon” tech has revealed many companies as shams at worst and “lesser evils” at best.
We are insatiable.
What we’re really starting to reckon with is the difference between theory and application, valuation and monetization. The transition from lab to foundry, scientists to engineers, and viability to profitability.
We face endless issues we choose not to address that are destined to delay, diminish, and thus doom. All the sweeping proclamations from marble parapets by politicians do nothing.
The problem is our “Plan B” or lack thereof. If we buy into this concept that there is a single path forward, an approved list of power sources instead of a flexible mix, we will adhere to dogma instead of demand. We will vilify what we should embrace and further entrench this hypocrisy.
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We have barely begun to stress the system we have today, and the inflation is breaking nearly everything.
We were cajoled with dulcet tones through all means of media that this could be solved by a redistribution of capital, one way or another. The tenured residents of the ivory towers were confident that there was plenty of padding for any contingency. Some chose to think it would happen through the free market. Some chose to think that government-dictated mandates would herd us to a brighter future.
Both have been proven wrong. We're learning we should have worried far more about the transition. This should not be much of a surprise. Assumptions and idealism from the top down have always been divorced from reality in the energy sector.
How much are we willing to pay? Not just in dollars or euros or rupees or yuan. How much can this transition consume as inflation, and scarcity, and the reality of day-to-day costs fall short of best case scenarios?
These are the questions we must answer now, and few that intend to demand more of us are willing to address them or what they imply.
A society that depends on a lack of change — an assumption that what it exploits will remain static — is a decadent one.
It will cannibalize itself until it doesn’t have the energy or drive — figuratively or literally — to follow a different path. History is replete with once vibrant and thriving times that could not persist because what seemed like constants ended up being variables.
This is the reckoning we face in 2022, then the next year, then the next. Ever-increasing until we do something, anything, to reduce the pressure in a meaningful way.
There is a real cost if we continue to fail to address the realities we face, and it increases the longer we delude ourselves.
Solutions already exist, but they need time, money, and effort. Will capital markets properly reward them? Will investors fund them and reward their progress?
That we shall see. We will fall short in many ways, I'm sure. Our track record all but proves it.
2022 can be a pivotal year for the stock market to prove it can carve a path forward for the energy sector as central planners continue to fall short. We shall see if it does.
Take care,
Adam English
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