Mark Lewis: “Oil faces structural, existential pressures”

Last week I was writing to you mainly about the energy transition. I did so because I think it could merit a place in the aggressive portion of your investments.

Remember, it’s never wise to go all-out attack or defence in investing, because of the two ultimate risks – losing money, and missing out on making money. Neither is ever at 0% or 100% in real life, nor should they be in your portfolio.

So, while I’m now a fairly well-established non-believer in this latest market surge, that doesn’t mean I don’t have any investments in brilliant, long-term trends like the energy transition.

The reason I chose last week to focus on it is because of the Beyond Oil summit I kept mentioning. On and on I went, telling you to sign up – I suppose it must’ve become a bit tedious. The thing is… some people need a few reminders, or to see things in a few different ways before being convinced. And some people procrastinate or forget…

Which leads me to an embarrassing admission.

This morning I realised I myself had FAILED to sign up!

The first interview went live at 9am with Mark Lewis who is responsible for the quote adorning today’s email… and I didn’t get it! Fool that I am, I wasn’t even invited to my own party.

I felt abashed as I scrambled through last week’s UK Uncensored articles looking for links to sign up – but anyway, I got there in the end.

Here it is for anyone in the same boat as me.

Anyway, it got me watching that first interview with Mark Lewis again. My first ever interview no less. As it was recorded a few weeks before the virus forced us all into a hasty retreat, to be honest I couldn’t remember everything as clearly as I’d hoped.

So I actually listened to the whole thing again this morning and he really is a brilliant speaker – we were so lucky to get him in.

And some of the things we speak about just look so prescient right now, it’s amazing actually.

I can’t reveal more than that for obvious reasons – sign up if you want to hear from him yourselfit’s free! – but when the BBC last week did its token segment on the oil crash and what it means for the future of energy, I wasn’t surprised to see that it was to Mark Lewis that they turned.

He talks about a post-coronavirus reboot for the global energy system, and why now is exactly the time for removing the subsidies for fossil fuels. He’s a great speaker, as those who’ve signed up will be able to attest, I’m sure.

I learned a huge amount from speaking to Mark Lewis, and how it applies to the new world we now live in.

As soon as the oil shock hit, it was to some of his key arguments that I turned to understand what the effect would be on renewables and the energy transition.

It has been such an interesting month or two on that front, because the immediate narrative was low oil prices are crippling for the energy transition.

… And the headlines are starting to catch up, finally.

Here’s what they were in the days immediately after the Saudi-Russia oil crash:

Source: The Financial Times

And…

Source: The Washington Times

Here’s what they look like now (both headlines I saw this morning):

Source: The Wall Street Journal

And…

Source: Bloomberg

Or most presciently, here’s what my boss, and the editor of Exponential Energy Fortunes, had to say as far back as 12 March:

Challenging the popular narrative

Almost everyone we’ve heard from or spoken to is of the firm view that lower prices for oil will be a big setback for renewables.

But is it that simple? Not by a stretch.

The argument is this. Low prices incentivise more use of oil; and it squeezes the budgets of oil companies, putting clean-energy projects in doubt. Some governments will also feel pressured to prop up struggling oil companies. It’s worth noting that there is talk of the US bailing out its decrepit shale industry. [Ed note – this has now been put in motion, something James has been predicting for around a year now.]

There are a few points on this.

Firstly, while lower oil prices correlated with struggles for the renewables and clean tech industries before, that correlation has been broken for upwards of a year now. This is something our colleague Eoin Treacy has been writing about lately. [Another note – Eoin is a guest on Beyond Oil, for those who’ve signed up.]

In 2012 and 2016, we saw low fossil fuel prices correspond with falls in green stocks. But since the beginning of 2019, as oil prices have fallen slowly and then all at once, renewables have performed brilliantly.

Why might this be?

Well this time round, the economics have certainly changed. Solar, wind, and storage are all dramatically cheaper than they have ever been, and the trend is continuing. Efficiency is improved, economies of scale are kicking in, demand is higher and supply chains are well established.

Also, if you look at OPEC’s attempt to crush US shale in 2014, it failed because US shale streamlined its processes and innovated its way out of trouble, becoming more competitive as a result. We would not be surprised if the economic challenge of lower fossil fuel prices drove the rate of change in the decarbonisation sector even faster.

Fossil fuel giants may have to lower their capital expenditure on green investments, but many clean tech and renewable energy business are already cash flow positive, and have the money to invest themselves (unlike fossil fuel dinosaurs which have to pay out most of their retained earnings just to keep investors interested).

Therefore, the renewable sector is vastly more competitive and competent now than it was before, so that’s one reason.

James Allen
Editor, Exponential Energy Fortunes

This is a key theme of my chat with Mark Lewis, which is live until 9am tomorrow for Beyond Oil insiders, and he goes into great depth on that subject and more.

Because the question is just not as straightforward as people initially believed.

The question with which I have grappled most over the last month is this:

Which is more powerful – a) the incentive for consumers to seek alternatives when oil prices are high, plus the ability of oil producers to fund research and development, or b) the necessity for the oil industry to seek alternatives and new business models when the oil price is too low for them to be profitable?

Only time will tell I suppose, and it’s certainly not an either-or – a balance between the two is guaranteed. But which way will it lean?

Well, a few factors seem different to me now, compared to at any point in history.

  • The Greta Effect has led to a greater degree of social, political and financial will behind the energy transition than ever existed before.
  • The economics of renewables are vastly different, offering both consumers and producers financially viable alternatives.
  • The coronavirus pandemic has instilled certain behavioural traits which actively discourage the use of oil in transportation and some forms of consumption, while air quality has improved markedly.
  • The monetary capability available for fighting crises is now almost unlimited, to use the central banks’ own terminology. Not to say I agree with central bank policy at all, but we must take note of the fact that the fiscal stimulus backed by central banks in nations the world over could be redirected towards climate-saving initiatives in the years or decade to come.

Whether you agree with me or not, the best place to test my theories is by listening to the experts themselves – my guests on the Beyond Oil summit. I am like a flea to their elephantine experience and understanding of these matters, and we are lucky to be able to share long-form, thorough interviews with them for free on this summit.

I believe, although I’m never quite in the loop on these things, that as the first interview (with Mark Lewis) is live for 24 hours from 9am this morning, you can still sign up until first thing tomorrow.

Here’s the link again in case you missed it.

Last chance saloon, for you, as well as for oil demand growth.

Just a little energy transition joke for you there, don’t mind if I do. (Don’t give up the day job Kit, I hear you, I hear you…)

Best wishes for now,

Kit Winder
Editor, UK Uncensored

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