I was interested to see Shell’s chief executive, Wael Sawan, not rule out moving group headquarters and main stock market listing to the US. He referred to the warm welcome extended by the New York Stock Exchange (NYSE) at a recent investors’ meeting, illustrated by the Shell flag flying alongside the NYSE flag; “they said we continue to value a company that provides us with the energy we desperately need”. Sawan continued that it would be dangerous and irresponsible to cut oil and gas production as moves to renewable energy were not happening fast enough to replace it. In addition, the market valuations of energy companies are also substantially higher in the US than in the UK and Europe, so if it’s logical for technology companies to seek higher valuations by listing in the US, it must be equally logical for a purveyor of fossil fuels to consider doing likewise.
Predictably, Sawan’s comments drew criticism from a host of experts who are so knowledgeable they are unable to comprehend just how difficult (make that virtually impossible) it will be to replace the world’s primary energy source in the timescale they deem appropriate. United Nations (UN) boss, António Guterres, said recently that investment in new oil and gas production was “economic and moral madness”. I counted 7 major UN conferences in 2023 although I’m sure there’ll be a plethora of others, not quite so visible. How did/will Guterres and hundreds of other delegates travel to such gabfests? Solar powered airliner?
The UK currently imports more than half its oil and gas and without further investment in the North Sea, that percentage will rise. Yet, tax on UK production is now 75%. With energy demand in this country still growing, would it be better to produce it ourselves, capturing not just the energy but the jobs and taxes that go with it or should we import it via carbon-discharging tankers? I ask the question believing the answer to be obvious but Shell has just decided to offload its 30% stake in the Cambo project, west of the Shetland Islands, to its majority owner, Ithica Energy. Cambo is the second largest undeveloped field in the North Sea, yet an energy giant such as Shell elects to move on. What does that tell you about the prospects for the UK’s offshore oil/gas industry and our energy security? And yet, Fatih Birol, head of the International Energy Agency, opines that “if governments are serious about the climate crisis, there can be no new investments in oil, gas and coal from now”. Is he nuts? Fools like him will ensure the price of crude breaches $100 and stays there due to supply constriction alone, never mind continuing growth in world demand, especially from Asia. And all that is before we consider the wild cards of foreign dictators, colder than average winters et al.
In 2022, China commissioned 6 times more coal-fired electricity generation capability than the rest of the world put together. You don’t build a power station in order to decommission it in 5 years’ time. The naivety of the likes of Birol and Guterres is frightening. It’s no different to Western governments agreeing to contribute money they haven’t got to finance the UN’s COP 27 promise to create a ‘loss and damage fund to provide assistance to poorer nations as they deal with the consequences of climate change such as rising sea levels’. I’m always interested in seeing for myself rather than blithely swallowing whatever lines mainstream media and governments peddle and the case of The Maldives is particularly interesting as it is a nation of atolls, often quoted as ‘being on the front line of climate change’.
I was surfing there last year (I know, it’s a dirty job but I can assure you, someone has to do it). It’s a place I’ve visited on numerous occasions but this was my first time post-pandemic. It was noticeable how much it had changed in such a short space of time. The Chinese influence was everywhere and the Beijing Construction Company appeared ubiquitous. There were more Russians than usual and even Mr Guterres wouldn’t have failed to notice the massive new airport terminal being constructed next to the dinky sized current one. I’ve also never seen as many passenger jets on the tarmac. The evidence would appear to suggest that whatever challenges ‘the front line of climate change’ presents, it wasn’t going to derail a significant expansion of the Maldivian tourism industry despite nearly all its customers arriving via ozone-depleting airliners. That said, I’m sure it wouldn’t stop its government accepting UN largesse dispensed by the hapless Guterres.
The developed world is sleepwalking into a self-inflicted energy crisis. Rishi Sunak has banned fracking and if Sir Kier Starmer becomes the next prime minister, all new North Sea permits will be blocked. In the US, both Toyota and Stellantis (Peugeot, Citroen, Fiat, Chrysler) has warned the Biden administration that the push towards electric vehicles risks overwhelming America’s charging infrastructure thus creating disastrous supply shortages. But what do the second and third largest vehicle manufacturers in the world know compared to a government whose energy secretary was unable to quantify the US’s daily consumption of crude oil?
The politicians of developed nations are imposing Stalinist top down net zero targets without a clue how to get there. I’ve never known a time when so many dimwits, disconnected from reality, held positions of power. In the UK, the political process resembles a game show, undertaken by folks who for the most part have never held a proper job. The Bank of England (B of E) couldn’t have been more wrong re inflation and interest rates while the regulation of every industry is beyond useless (OFWAT; why did you allow Thames Water to amass a £14bn debt pile?). But it’s not just a UK phenomenon. Despite the EU pushing a green agenda, Germany canned its nuclear plants in order to become addicted to Russian oil and gas which is now embargoed. Of all the nations to be dependent upon for a critical resource, they thought Russia fitted the bill? So now, it’s burning even more lignite despite original plans to phase out its use. Absolutely brilliant; maybe German politicians should have a go at setting our interest rates and the B of E take on German energy policy. Surely neither could be more of a mess than they already are? And now, the oil and gas that powers this world of almost 8bn souls is to be thrown overboard despite no credible plans to replace it in timely fashion. I mean, what could possibly go wrong?
Asia, however, suffers no such delusions. India and China account for approximately 35% of global population yet are responsible for around 65% of global coal burning. Those statistics illustrate the scale of the problem and it’s no coincidence both are currently hoovering up heavily discounted Russian oil. It illustrates all too starkly where their priorities lie. There’s little point in us decarbonising while simultaneously subsidising a region that doesn’t even view it as a priority. I’ll be very interested to see how much China ponies up to the ‘loss and damage fund’.
Perhaps part of the reason the world can support 8bn people is the result of fertilisers, intensive agriculture, global trade and efficient transport? Whether you like it or not, fossil fuels are at the heart of that system, so if it is to be replaced, we’d better be certain it’s both technologically feasible and crucially, is achievable within a realistic timescale. If not, the results will be catastrophic. This is what career politicians and bureaucrats, typified by the likes of Guterres and organisations like the UN, appear unable to grasp. To these people, every problem resembles a nail and the answer is obviously a hammer. But it’s not quite as simple as that. Their attractive salaries and pensions effortlessly float out of the ether every month, so sky-high food and energy prices won’t affect them. Unfortunately, the vast majority of the 8bn are not so lucky.
The value of investments and any income from them can go down as well as up and you may not get back the amount originally invested.
This material should not be considered as advice or an investment recommendation. Investors should seek advice from an authorised financial adviser prior to making investment decisions.
John Newsome can be contacted on 01423 705123 or john.newsome@williams-im.com. Williams Investment Management LLP is authorised and regulated by the Financial Conduct Authority.
