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I’m not convinced…

This is one of those weirdo weeks in the energy world that bear some scrutiny and analysis, if only to offset the gleeful dunking that the environmental/energy transition movement is currently engaging in, because I feel that the celebration is premature. Kind of like the CBC and the Toronto-centric media anointing the Maple Leafs as presumptive Stanley Cup favourites while they still haven’t yet ousted the pesky but woefully over-matched Habs from the first round of the NHL playoffs (note to Canada, it is 100% fitting that the first playoff game with actual people in attendance since COVID will be played in Montreal and if the hockey gods are truly paying attention, they will allow a Montreal victory to occur).

 

But in my urge to get a dig in at Toronto, I digress. And what I really want to do is to look at and assess the recent developments that have many declaring that the fossil fuel era is done for, over, gone. And I’m doing this as stream of consciousness – I have no idea where it is going to end up, so I apologize in advance for anyone I might offend or confuse. Except Leaf fans.

 

First off, let me state for the record that I do believe we are in the midst of an incredible energy transition. One that appears to be gathering steam (no pun intended) with every minute. But as a sector participant and being painfully aware of the mind-boggling scale of the global energy complex and its many interactions and co-dependencies, I am extremely reluctant to buy too much into the fantasy that fossil fuels can be replaced as easily as some would believe or desire – whether by fiat or plain economics.

 

Secondly, as a self-protective measure, yes, I do believe that climate change is a thing and that it is materially man-made. And that realistic measures to address climate change are important to implement such as, for example, a carbon tax. So back off if you are inclined to call me a climate denier.

 

Finally, I believe just as strongly that every citizen on the planet has the right to aspire to improving their current living conditions and that to do that, they should have access to cheap, reliable and abundant energy in whatever form makes the most sense for that population at that time to achieve those aspirations.

 

All of this leads me to my last point – the smugness of the “energy transition” fanboys can be a bit much at times. Whether it’s the little guy taking on the big bad oil company or some faceless bureaucrats or enviro-conscious judges dictating against this particular project or development from the comfort of their COVID-safe video conference chamber, it’s getting exhausting and, I suspect, soon to result in vastly diminishing returns, especially as the results get more absurd.

 

So what am I trying to say? I don’t know. To the environmental dudes, I say don’t count your chickens before they’re hatched and stop gloating because what you’re celebrating may not work out as you think it will. And to the deniers out there, get your head out of your … and embrace the change, because there are some remarkably transformative things happening in the energy sector that will ultimately be massively beneficial. And it’s not all dependent on Tesla! And to everyone – stop being such hypocrites.

 

So, now that I’ve managed to piss everyone off at the same time (no mean feat to be honest), let’s take a look at some of this week’s events that have me scratching my head and wondering about stuff.

 

Exxon Shuffle Board

 

Earlier this week, Exxon found itself on the receiving end of a smack upside the head, as a small activist fund, that owns less than one-half of a percent of the outstanding shares of Exxon managed to get two board members installed at the company to advance their environmental agenda. How this happened is interesting – the fund managed to get the support of large institutional shareholders such as the California retirement system and Blackrock which gave it the plurality of votes it needed. Why it happened is also interesting because of all the major integrated oil and gas – sorry energy – firms, Exxon has been the one that has lagged behind the most in drinking the environmental kool-aid. Plus it is the largest US energy company and has been targeted by lawsuits and other tactics for years over its climate change (in)actions. So of course it stands to reason that this would occur. A more interesting question is why the push from a small fund and not, I don’t know, a large institutional shareholder like a pension fund or Blackrock? Instead they get to polish the green bone fides without actually risking anything. And the little fund that could gets to go out and fundraise like there’s no tomorrow. Meanwhile Exxon is dragged into the 2000’s. On a scale of 1 to 10 on the existential event scale for fossil fuels I rate this a 2.

 

Chevron

 

While the Exxon shareholder activism was both predictable and actually effective, what transpired at the Chevron meeting was both bizarre and, in my view anyway, environmental theatre.Chevron shareholders voted more than 60% in favour of a proposal to cut “Scope 3” emissions. For those of us (like me) whose eyes glaze over at climate lingo, Scope 3 emissions are those created by the use of a company’s product. So the point of the proposal, which had neither a target amount or a timeframe, is to get Chevron to discourage consumers from using its products – like gas. How this can reasonably be expected to actually happen requires some fairly elevated leaps of logic, but hey, at least everyone felt good about a vote on a plan that has little hope of ever happening. Existential rating – 1.

 

Royal (not Dutch for much longer) Shell

 

This one was fun. A court in the Netherlands ruled this week in a landmark case that in order to play its part in the race for zero emissions that Shell must reduce its emissions by 45% from 2019 levels by 2030 and that the Shell Group is responsible for its emissions, those of its suppliers and those of its customers. OK then. Never mind that the Netherlands isn’t going to come close to that  level of reduction, this kind of judicial activism against a company that operates around the globe is a bit unprecedented. While no doubt this will be appealed to higher courts and likely over-ruled, it is only a matter of time until producers worldwide see themselves subjected to similar legal maneuvers since as we know from pipelines, the ENGO movement is exceptionally skilled at developing, deploying and replicating legal strategies that delay and confound big energy companies. If I were Shell I would simply relocate my world headquarters to London and be done with it, but instead I suppose it will continue and likely augment the already huge multi-billion dollar investments it is making in low-carbon initiatives. Look, everyone needs to do their part, but this type of ruling seems both unenforceable and without legal basis. But what do I know. Existential rating – 4.

 

What is more interesting to me is the strategy underpinning Exxon, Chevron and Shell that seeks to target producers of fossil fuels to try and mitigate emissions. The logic is that if you can cut back supply, then consumers will just have to go whole-hog to renewables and the climate battle is over. The problem with this approach is that you’re not actually cutting supply, you’re just moving it somewhere else. And that somewhere else is more than likely to not give a crap about the environment and will likely have more than ample reserves to supply the market and manage prices to their benefit for decades. I’m looking at you Russia, Saudi Arabia, Iran, Venezuela, Nigeria. So if the goal of the activist legal strategy is the handover of energy security and accompanying economic supremacy to a rogues gallery of despots, demagogues and dictators, I say congratulations. You have achieved nothing with respect to emissions reduction. In fact, you probably have led to more as these highly regulated first world energy companies continue to greenwash themselves and push the poison further down the value chain.

 

I much prefer the position taken by Suncor whose CEO, when challenged about selling assets to reduce their carbon footprint said the following: “We will not sell assets to achieve our emissions reduction targets. Emissions are global and the world will only get to net zero by focusing on emission reductions, not by changing who’s reporting them.”

 

Presumably the climate activists think this is what they are doing by going after the producers, but given how much supply is controlled by malign state actors, it’s far more likely that the opposite will be the case.

 

Of course all is not lost. There are plenty of ways to reduce emissions that have been proven to work that don’t involve targeting individual companies and giving Vlad “the Impaler” Putin even more keys to additional kingdoms. And what are those you may ask? Well carbon taxes for one, emissions credits and regulation as another. You know all those things that “nations” and “governments” can implement via policies and laws to incentivize and nudge consumption patterns onto different tracks.

 

Another thing that can happen to affect the demand side is to give consumers different options, like an Electric Vehicle that isn’t propping up the bizarre and annoying lifestyle of a smug, crypto-destroying, South African megalomaniac.

 

Like an actual electric Pick-Up Truck that doesn’t look like a 12-year old designed it in Minecraft.

 

F-150 Lightning

 

Sure this was two weeks ago but I never covered it. The new F150 Lightning is the slickest marketing rollout that Ford has done in a long time. And if it works, it is indeed game-changing. The Lightning is designed to usher in the fleet conversion in earnest by providing an alternative version of the most popular vehicle in North America at a reasonable price parity to its existing ICE cousin. No longer do self-respecting red-blooded pick-up truck drivers who want to go electric have to choose either the over-priced abomination being flogged by Muskrat or humiliate themselves with a Nissan Leaf to maintain affordability. Nope, this is a true truck, complete with towing capacity, high load and acceleration that puts any ICE truck to shame. Price parity is close, if you run fleets or are a commercial buyer. But if you want more range, bigger battery, bells and whistles that advantage quickly evaporates. Still, it’s awesome and if you watched the video of Corvette-loving Joe Biden take the prototype from 0 to 80 in less than 6 seconds it’s hard not to get excited and send your $100 “deposit” to Ford to secure your place in line. Never mind that the battery configuration and ultimate tech hasn’t been settled yet, for sure you will have one of these babies in the driveway by March 2022.

 

If this vehicle grabs the imagination of the average North American vehicle buyer, it will be a seminal event for the electric vehicle movement, because no matter how much penetration Tesla gets into different classes of auto, it is still considered a high-end, elite vehicle while the F150 is as classically American a vehicle as there is. And it looks like a truck. Thank god.

 

My benchmarks for EV penetration come down to range, price and convenience. The F150 Lightning is almost there. The gauntlet is thrown.

 

Next up, Chevrolet and Dodge. Oh, and Volkswagen, Toyota, Nissan, Honda, Hyundai, Kia and, of course, Mercedes. Existential rating for fossil fuels – 6. Existential rating for Tesla – 8.

 

So there you have it, another week of supposedly existential events for the fossil fuel industry gone by then engendered much celebration on the part of the climate change movement and much teeth gnashing by entrenched stuck in the mud oil and gas types.

 

All trumped by something that happened a week earlier, because that is the only new development that will materially impact emissions at the consumer level.

 

But that is just my opinion. You are free to disagree.

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