Tuesday 14 December 2021

To Whom the (Energy) Spoils? A Genuine Puzzle

There's an interesting dynamic rumbling in the energy sector and associated financial elements, the dialectic of which is as follows:

  1. We can't use fossil fuels in future, oh dear me no.  Perish the thought.  Put my pension into something else.  Let me believe that the ambulance runs on pixie-dust and electricity comes entirely from wind.  Don't allow any more production of North Sea oil & gas.  Make Shell's life hell if it even thinks about such a thing.  I might even start to feel very strongly about all this.
  2. Actual disinvestment starts apace: actual pension funds switch out of fossil fuels by the billion.  For the BPs and Shells, the Centricas and even the EDFs (see below), the cost of capital starts to rise.  They actually sell some of, maybe all of, their hydrocarbon-related assets.  
  3. But in the world outside of all those tightly-shut eyes & heads-in-sand, the ambulance still runs on diesel and electricity is still generated using fossil fuels.  
  4. In fact, the market for fossil fuels right now is pretty tight (see previous post) AND, what with all this wind in the power fleet & other kinds of uncertainty, prices are exceptionally volatile.  They are likely to stay that way, even if in absolute terms they subside from today's level.
  5. Some people are making a Great Deal of Money from this - right now.  And the scope for a great deal more to be made in the coming years is huge: particularly via assets (and managements) that are responsive enough to make hay from all that volatility - e.g. efficient & flexible gas-fired power units.  Even just the continued supply of simple gas to western consumers (whether the green-woke like it or not) has a lot of mileage still in it (at least two decades, I'm guessing).
  6. But the 'traditional players' seem to feel themselves unable to make the usual response to an economic reductio ad absurdum, in terms of investment (long term) and arbitrage (short term) to take advantage of the mispriced assets etc.  
For present purposes, let's put aside the amusing cognitive dissonance that ought to be (though probably isn't) increasingly wreaking havoc with all those who like to mouth "we don't need fossil fuels" but still like to be warm etc etc.  It's the economic & commercial dissonance I'm interested in.

We can easily spot little Volodya Putin and other traditional upstream players making pots of money out of the situation.  They probably hope to make yet more.  China, though essentially an energy importer right now, will probably benefit in relative terms (that is, relative to the West) by being untroubled by 'green' scruples.  All this is easy stuff.  

But what of other business models?  Can 'western' firms somehow thrive in this crazy market?

Exxon:  it's been clear to me for a long time that Exxon, that ailing, blinkered and sluggish beast, is basically hoping it can quietly get on with not changing much at all, and not go down the costly, guilt-stricken route of Shell et al.  But is there anywhere to hide for a US stock-exchange listed firm of Exxon's prominence?  Can any others of its kind, smaller and perhaps less exposed to the limelight, pull off that trick?  

The big commodities players:  there are plenty of these big players - you all know who I mean, but slander is slander - who, if they have any scruples whatsoever, well I've never noticed.  (Ditto their shareholders: well they couldn't, could they?)   Some of these cos are indeed buying up fossil fuel assets: the energy version of money launderers and sanctions-busters.  Are the unscrupulous to be the big western beneficiaries?

A.N.Other Corp: this is where it gets really interesting.  Case study:  EIG Partners - ("Over the past decade, EIG has thoughtfully developed a quiet yet purposeful commitment to integration of ESG factors throughout our business")  - whose website homepage would encourage you to believe they are essentially investors in wind farms and solar.  But lo!  Earlier this year they quietly bought West Burton B, one of the UK's biggest, most modern and efficient gas-fired power plants, from EDF which is busily trying to reposition itself as 100% green.  And what magnificent timing: EIG has already made an absolute ton of money at WBB from the extreme market conditions of the second half of 2021.  

Here's another example: Vitol, who've also bought UK gas assets recently - this time from none other than Drax (who have problems of their own) -  and are likewise minting it this winter.  Here's how they brand this venture ('VPI'):  "We are part of the UK’s pathway to Net Zero, complementing the increase in renewable energy to power homes and businesses. Our portfolio includes hydrogen and carbon capture projects to help lower emissions and develop a future for decarbonised, dispatchable and flexible generation in the UK."  Oh and, errrr, gas-fired power plants.

So: is it all simply about greenwashing?   Maybe you just need the right "communications" firm in tow.  Good old capitalism at work:  assets change hands from those who don't know what to do with them, to those who do.  At distressed prices, if the former are panicky enough ...

Well, maybe.  I think Shell was hoping they could pull this one off, too.  Do we think it's all about shuffling the western-owned assets into less prominent, more media-savvy hands?  Or is it destined to be yet another massive transfer of wealth from the naive & decadent West to the hard-nosed East?   



CityUnslicker said...

Private Equity too - Crispin Odey piling into coal and other assets now.

Private money has no scruples and "ESG" is only if you a fund for the general public to invest in. If you already have the money yourself, hooray.

I would suggest the Middle East will be a good source of money for the schemes too as well as Russia.

They will all make hay out of this situation.

Don Cox said...

The next few years will be tough for us consumers who just want to keep warm.

Don Cox

jim said...

Nature cannot be fooled, those who would ignore reality will need a good spin doctor. Oh, and free lunch is always popular.

What we have is a reminder of that oldest of natural laws, The Conservation of Trouble. Whichever way you turn Trouble can be squeezed down but will pop up somewhere else. Maybe the best money making strategy is to keep a low profile and well hidden. Government is not going to stir up too much s&*t while there are no better ideas on offer.

Interesting as to why Shell et al stick their heads above the parapet when if they look in their chemistry box and their physics box they find those boxes almost empty.

Still, the long term is merely a concatenation of short terms - until you need a really big infrastructure built. Boris take note.

Anonymous said...

Agree that this is a job for PE and their lack of 'scruples' a.k.a. business sense.

Look at the ASDA situation where they were usually the loss leader to get traffic into their stores - and now with PE/EG Group have decided to max their advantage very, very quickly.

And they will have spotted that their locations will be lucrative as long as there is a delay in providing charging points - and the GW capacity to replace fuel.

Anonymous said...

bring back the 1970’s.

Said no one.

Graeme said...

Given that the deemed dirty companies are getting nagged constantly by green activists and the CoE etc and the Government and LSE are ramping up idiotic disclosure requirements for "carbon", why would any company stay listed? Either just go private or sell to a PE house or a wealthy Indian. It's not as if there is an imaginable future without coal, oil and gas. At least then, they wouldn't have their offices trashed by dishevelled, dirty, unwashed middle-class teenagers

Anonymous said...

anon - the 1970s were a relative paradise for working people. Even families on below average wages could afford a house on a single income. You could actually have your wife at home with the kids if you were on any kind of decent wage - something only the very rich or the very (benefit dependent) poor could otherwise do.

It's true we didn't have 50 inch tellies and flights to Barcelona weren't £39 return, but what tellies we had were made here.

If you look at photographs of town centres in the 70s and compare them with the same places today, they look positively ghetto now.

lilith said...

Shell just became my leccy provider when my current one went bust last month. I didn't know they did domestic electricity?

Bill Quango MP said...

Shell recently bought the Broadband from post office.

Essential services ?

Nick Drew said...

Shell is doing all sorts of things to diversify. I wish them luck (and am glad they are despite-brexitting back to a solely UK HQ: https://www.bbc.co.uk/news/business-59288593)

But I'm not convinced they are on top of the new directions they are taking ...

This has all happened before. In the 1990's, when Enron had showed the world that energy and money were basically the same thing if approached correctly, every man-jack in the oil & gas business thought they could do electricity: Shell, BP, Statoil, Total, Conoco, Amerada - the list goes on. Well, how difficult can it be? We all have power plants in our refineries. We all have great brand names. Leccy is like gas, isn't it ...?

They all failed miserably to emulate the Big E - save only one: good old Centrica, which alone did the job properly

Part of the reason was, they imposed their standard management style - indeed, their standard managers - on the assets they acquired and built. But hey, it turns out, despite certain similarities, leccy is NOT the same as gas in vital aspects. Also, they crushed the life out of the entrepreneurial spirit they needed to make a go of it.

This time around, they (Shell) have at least remembered the lesson. Sadly, however, they seem to have gone to the opposite extreme and are just leaving the managements of their new assets to do more-or-less as they please. I'm not sure that'll work, either ...
It could have been worse: Exxon tried diversifying into office systems!

Elby the Beserk said...

Not to mention that the meeja totally fail to report on extended bouts of extremely cold record all over the planet, as one would expect in a Grand Solar Minimum. Many think this means just cooling, but history shows us that, yes, there it does cool (the LIA as hell in Northern Europe and caused chaos all over the planet - see Geoffrey Parker's "Global Crisis: Climate Change and Catastrophe in the Seventeenth Century" they also create more extreme weather than even CO2 (HA HA HA - levels are pretty much as low as they have been ever since the planet appeared), with worse storms, very hot summers and very cold winters.

In effect we are having a real time test of the CO2 hypothesis. And the beyond useless models...



As for clouds, there is more and more evidence that cosmic rays affect cloud formation, and that the more the planet gets the more cloud we get and hence more cooling.

Interesting that WRT Covid, the talk now is not of "science" but "The Science". His happened with global warming. What "The Science" actually means is the "Current Ideology".

If anyone wants links to peer-reviewed papers that show that it is solar activity (and of course Milankovich) and not CO2 that runs the show, say so.

Here's this for starters...

A remarkable publication on solar influence on climate goes unnoticed
By Prof. Fritz Vahrenholt (Die kalte Sonne)
(Text translated/edited by P. Gosselin)

On November 3, 2021, the renowned scientific journal Climate published a paper on solar influence on climate. The paper by the renowned solar researcher Dr. Frank Stefani from the Helmholtz Zentrum Dresden-Rossendorf is entitled: “Solar and Anthropogenic Influences on Climate: A Regression Analysis and Tentative Predictions” and concludes that the influence of CO2 on the development of global temperatures from 1860 until today was only about half as large as the last report of the Intergovernmental Panel on Climate Change (IPCC) assumed.


Also worth checking - Svensmark's papers on cloud nucleation and cosmic rays, and Valentina Zharkova's work on the sun's magnetic behaviour. She's predicting cooling for three decades.

Perfect time to ramp up the cost of fuels.

The lunatics have truly taken over the asylum

Oh and whilst we are here, I can't waste the oppo to announce that the WHO said yesterday that the global death toll for Omicron is...


Someone needs to deal with Johnson. He's out of control and needs locking down. Or better, putting down.

Elby the Beserk said...



Modern Grand Solar Minimum will lead to terrestrial cooling
Valentina Zharkova
Author information Copyright and License information Disclaimer
This article has been cited by other articles in PMC.
In this editorial I will demonstrate with newly discovered solar activity proxy-magnetic field that the Sun has entered into the modern Grand Solar Minimum (2020–2053) that will lead to a significant reduction of solar magnetic field and activity like during Maunder minimum leading to noticeable reduction of terrestrial temperature.

BTW, till 2011 the NASA website stated clearly that the sun drove climate. Then the page suddenly disappeared. Amazed it stayed up that long


What are the primary forcings of the Earth system?
The Sun is the primary forcing of Earth's climate system. Sunlight warms our world. Sunlight drives atmospheric and oceanic circulation patterns. Sunlight powers the process of photosynthesis that plants need to grow. Sunlight causes convection which carries warmth and water vapor up into the sky where clouds form and bring rain. In short, the Sun drives almost every aspect of our world's climate system and makes possible life as we know it.

E-K said...

The cognitive dissonance I would like addressed on greenism AND lockdowns for that matter...

Individuals advocating them - why are they waiting for the government to tell them what to do ? (Invariably these are well offf middle class people.)

Oh, I see. Those sacrifices are for others to make.

NO ! Your £60k Tesla ISN'T greener than my old Skoda that runs on recycled parts.

DJK said...

Elby: Since you cite the WHO as an authority, I took the trouble to see what there advice is wrt omicron. They say (https://www.who.int/news/item/28-11-2021-update-on-omicron)

"The most effective steps individuals can take to reduce the spread of the COVID-19 virus is to keep a physical distance of at least 1 metre from others; wear a well-fitting mask; open windows to improve ventilation; avoid poorly ventilated or crowded spaces; keep hands clean; cough or sneeze into a bent elbow or tissue; and get vaccinated when it’s their turn."

So there you go: open the windows, mask up and get vaccinated.

Serious question on oil and gas disinvestment: where is the investment trust I can put my money in that invests in non-ethical companies? Surely not all the gains are going to PE and individual billionaires?

Elby the Beserk said...

Anonymous DJK said...
Elby: Since you cite the WHO as an authority, I took the trouble to see what there advice is wrt omicron. They say (https://www.who.int/news/item/28-11-2021-update-on-omicron)

"The most effective steps individuals can take to reduce the spread of the COVID-19 virus is to keep a physical distance of at least 1 metre from others; wear a well-fitting mask; open windows to improve ventilation; avoid poorly ventilated or crowded spaces; keep hands clean; cough or sneeze into a bent elbow or tissue; and get vaccinated when it’s their turn."

Would that be the same WHO who at the onset stated - as do most medical papers - that masks do not work. They are positively harmful to kids, as they restrict oxygen and increase CO2 in the circulation. Check YouTube - videos showing vapers using masks - vape escapes all round.

0 deaths means that the variants are degrading the infection. This is the usual pattern. It's not dangerous unless you are already sick. The full blown first version the same. We need to let Omicron spread in order to attain herd immunity - more and more jabs simply drive the virus to mutate.

I guess you are scared of Covid. I'm not once I realised the Chinese videos were fake. Xi must be pissing himself. A few fake videos and he's collapsed the West and turned it totalitarian. We are beyond stupid. And Johnson needs removing ASAP before he does more damage.

Elby the Beserk said...

Latest EUDRA (EU) figures (again, most unreported)

32,649 dead (c300,000?) to Dec 04
3,003,296 injuries

From the total of injuries recorded, almost half of them (1,409,643) are serious injuries.

“Seriousness provides information on the suspected undesirable effect; it can be classified as ‘serious’ if it corresponds to a medical occurrence that results in death, is life-threatening, requires inpatient hospitalisation, results in another medically important condition, or prolongation of existing hospitalisation, results in persistent or significant disability or incapacity, or is a congenital anomaly/birth defect.”