“Change for the sake of change, as we see in architecture, food, and lifestyle, is frequently the opposite of progress.” ― Nassim Nicholas Taleb
Harnessing energy was the single most important human achievement of the past three centuries. England's Queen Victoria could not have imagined the luxury of air conditioning or the joys of having a scotch in an airplane zipping from New York to Dubai, but thanks to low-cost, abundant energy, even a plebe like me has managed to enjoy both.
So much of our lives rely on cheap, constant and abundant energy. From our daily commute to our food, essential services and this very e-mail. Yet, most people in the world consume a fraction of the energy you and I take for granted. They don't benefit from piped water, let alone one of Scotland's finest contributions to mankind.
In my #oldwall days, I was once asked "what now?" for LNG since renewables have solved our electricity needs. My client, bureaucrats from Japan, were surprised when I advised them that they should look for any and all long-term contract to ensure low-cost energy access.
As Taleb says in today's quotation, change for the sake of change opposes progress, and that is true of today's energy transition mandates. Intermittent, high-cost renewable mandates are dampening demand (see Germany) and sentencing those in the developing world to a much steeper hill to climb into the standards of living we enjoy in the US and Europe.
On April 2nd at 10:00 AM ET, we'll officially launch coverage of the Energy sector. We'll lay out our #process, why this is a pivotal time for the industry and which of the oil majors are best positioned to for the shift back to traditional energy.
(Editor's Note: If you'd like more information about the imminent launch of Fernando's energy research, please email . You can also follow Fernando on X/Twitter @HedgeyeEnergy.)
Back to the Global Macro Grind
The average American consumes around 46 barrels of oil equivalent a year of primary energy. In my native Brazil, we consume just over 10 barrels a year on average, while in Africa that figure is only 2! There's a significant need for more energy supply in the world if we are to meet the needs of the developing world and even our own desires to advance our society and improve equity and prosperity.
While most of #OldWall will tell you there's room for all types of energy in that paradigm, I'd argue that could only be true after we have exhausted the most efficient and dense forms at our disposal.
Affordability and abundance are critical to our lives and to our economies. Would Germany be in a recession if its industrial complex was not hampered by rising energy costs? Perhaps, but it is almost certain that it cannot emerge from this recession without sustainably, pun intended, without improving its energy matrix. New York's insistence on the Empire Wind project will raise bills across the state by $25 a year and generate a whopping 0.02% of the state's consumption.
The war in Ukraine precipitated a key change in the energy industry. No longer are we focused solely on appeasing the ESG crowd and reducing emissions. We are back to the industry's first-order principle, to provide abundant, low-cost energy to the world. To do so will require massive investments, but not to the tune that a wholesale shift to renewables would demand. It is also far more likely to drive positive returns on capital, not only to the developers, but also to governments, consumers and the environment as a whole.
This is a pivotal time for the industry and for our economy. Access to low-cost energy may be what separates countries in the aftermath of #MOAD (whenever that may be). Data centers, infrastructure development, even EVs, will require a robust energy supply chain.
After years of underinvestment, there's a lot of wood to chop in energy, but also a lot of opportunities.
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets
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Fernando Valle
Energy Sector Head
