Tag: Green House Gas

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What drives energy and oil markets in 2022 and beyond?

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Many factors are at work at the same time from different economic perspectives shaping the outlook for oil and energy markets in 2022. The world is more uncertain, climate change transitioning serving up its own realistic challenges, geopolitical tensions, as seen many years past, are at the order of the day, and the low investment in oil and gas, since 2015, is ushering in a period of high and rising oil prices. It is the overriding key factor driving the price, of not only oil, but key commodities too.

Commodities require vast amounts of cheap and reliable oil and energy resources to process and distribute it. Economics 101 teaches us that where demand exceeds the sustainable supply, the price will rise.

This is exactly what set in during April 2020 when a new commodity super cycle came into existence. The demand for Renewable Energy (RE) components drive the demand for critical minerals. Even such critical minerals need oil to process and transport them. To add insult to injury, there are not enough critical minerals easily and readily accessible to support an aggressive sustainable transition to RE.

Energy shortages fuel rising costs in all areas of the global economy. All peoples of the world will feel the bite attached to what is now quickly becoming concerns over energy and food insecurity. The world has lost sight of reality when aggressive climate change policies ramped up to support an ideology in which the effects are not fully being understood nor quantified.

An obsession with ideology, which is driven by consensus science, is leading to creating more uncertainty and more complex problems to solve as we move towards achieving the Cop26 and 2050 net-zero goals.

At the time of writing,  US Dollar strength (Dollar Strength) was not evident. Since writing in 2021, about the current commodity super cycle (that formed in April 2020), the million-dollar question remained then what Dollar Strength could do. We have seen both commodities (CRB Index, S&P GSCI Index) and crude oil pulling back. Mainly driven by Dollar Strength amid the sharp rise in US interest rates combined with the US Dollar as safe-haven status. With that, almost all short-dated yields in the USA are now above the long-term US government 10-year yield.

DXY

source: Trading Economics

DXY

source: Trading Economics

What we observe is contributing to the oil-financial market and the oil-physical market moving sharply out of alignment. The fundamentals, as I discuss and point out to them below, remain valid. The reality is the world is short oil and many other key energy commodities. Goldman Sachs, and specifically Jeff Currie, leading Commodity Economist, points out the imbalances that are prevailing in energy markets with the expectation that it will take a long time for supply and demand to be fully back in equilibrium.

Seeking Alpha writes: “Commodities took a dip in June, despite strong performance in the first half of 2022. We believe the outlook for shortened supply is unchanged and may keep commodities in a long-term bull market.”

Eugene van den Berg, May 2022 (updated July 2022)

EvB Market analysis_a
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Transitory Inflation? Think again.

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This Is Now The Worst Drawdown on Record for Global Fixed Income

https://www.bloomberg.com/news/articles/2022-03-23/global-bond-losses-deepen-to-11-from-2021-high-most-on-record

Eugene van den Berg, March 2022

Bloomberg writes:

“Global bond markets have suffered unprecedented losses since last year.”

It was evident then already, by mid-2021 that all the central bank talk, about inflation being transitory, was merely tactics to suppress rising bond yields.

Bond markets are predictors of what to expect going forward.

In early 2021 bond yields started to rise fueled by inflation concerns. Those concerns were valid because:

  • Commodity prices started rising during 2020. A new commodity supercycle started to form in April 2020;
  • Commodities’ rise is fueled by demand for core commodities used in renewable energy. This demand in return is fueled by policies backing the “green new deal” and climate change hysteria:
  • Demand for commodities drives the thirst for oil and gas. Commodities cannot be processed without the use of oil;
  • Increased demand for oil causes the oil price to rise. Oil and gas are major input costs in all goods and services being consumed, this transportation costs rises

Inflation is also fueled by massive govt spending on Covid-19 support programs. On top of that, the world is in a huge debt position considering all debt, both government and private sector debt, that exceeds ~500% of global GDP. Global government debt alone accounts for ~226% of global GDP.

Adding fuel to fire stemming from Quantitative Easying (QE) impacting money supply.

Looking back now, who in their right minds could give thought, weighing everything together, that inflation in 2021 was transitory? The central bank elites with impressive PhDs got it wrong. Are we on our way to stagflation? The probability for that is increasing.

O, and it’s ridiculous to refer to the inflation landscape as “Putin-flation”. It is not. World events of late merely added to an already unfolding inflation story.

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Inflation surges

Reading Time: < 1 minuteCanada Inflation Hits 4.4%, Deepening Central Bank Challenge – Bloomberg.

Inflation Hits 4.4% in Canada, Deepening Central Bank Challenge

Eugene Van Den Berg, Oct 2021

As I have predicted earlier in 2021, inflation is going to be with us for some time. 

From the article:

“That’s the highest reading since February 2003, exceeding consensus expectations of 4.3%. Higher food, shelter, and transport prices were the main contributors. The hot inflation readings of the last six months are deepening a communications challenge for Governor Tiff Macklem, who maintains the spike in consumer-price gains will be short-lived. The data also comes as traders in the overnight swaps market bet increasingly against the Bank of Canada’s guidance that policymakers won’t raise interest rates until the second half of next year. Traders are pricing in at least three interest-rate hikes in Canada by the end of 2022, which would bring the policy rate to 1% from the current 0.25%.”

Raising rates from the current level of 0.25% to 1% in approx. one year from now will do very little to tame inflation.

Inflation patterns of the 1970s are evidently combined with the onset of a commodity supercycle I have been writing about regularly since earlier in 2021. A shortage of energy drives this commodity supercycle, demand for Renewable Energy (RE) core commodities to manufacture RE parts (industrial processes uses oil), and on top of that, deficit spending and high levels of debt.

Without productivity improvement, which in Canada has been weak for decades, the inflation spiral will subsist for a longer time. The risk for stagflation is also becoming more to the fore.

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Why supply chains matter

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https://www.wsj.com/articles/why-is-the-supply-chain-still-so-snarled-we-explain-with-a-hot-tub-11629987531?adobe_mc=TS%3D1634479540%7CMCMID%3D66329940426629611998333562908936619243%7CMCORGID%3DCB68E4BA55144CAA0A4C98A5%40AdobeOrg&wsj_native_webview=androidphone

Why Is the Supply Chain Still So Snarled? We Explain, With a Hot Tub
Utah manufacturer Bullfrog Spas depends on a complicated network to bring materials from across continents and oceans. The pandemic put it out of whack.

Eugene Van Den Berg, Oct 2021

The Wallstreet Journal writes about the interconnection of supply chains, which most take for granted as we only see the end product and have a “sort-of idea” of the input materials.

In this article, although the complex procurement system supporting the manufacturing of hot tubs is used to illustrate it, and there are thousands of similar manufacturers in the world, it is an excellent example of the different processes at work to bring a final product to the consumer. The type of process is not limited to only the manufacturing of hot tubs. All products are supported by procurement and supply chains running effectively.

Supply chains are akin to the oxygen flow in your bloodstream. Constraint oxygen causes multiple problems.

Think back to the 1700 and 1800 small towns: one street, a few businesses along the main street. Supplies were sourced locally on the main borders of the city. Think about the general dealer and local horse smith and iron-works depicted in The Little House on the prairies. Live was simple.

Today, sourcing and procurement are complex. It’s driven by globalization and massive integration. The internet, transport modernization, access to information, online transaction processing, communication technology, etc., played a significant role in shifting procurement from local sources, as it was in the 1800s to thousands of miles away on the other side of the globe today

A question I am asking, is how would prolonged supply chain challenges impact working capital and funds flow for businesses? Can it lead to seizing up working capital because of liquidity constraints brought on by delays? What does that do to interim borrowing, capital management, financial restructuring? What does it do to the recognition of liabilities stemming from pending order fulfillment? All these aspects in their own right causes are crowding out effects, and they all share a single dominator, “unforeseen delay.”.

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Energy crisis could threaten global economic recovery, IEA says – The Globe and Mail

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https://www.theglobeandmail.com/business/industry-news/energy-and-resources/article-energy-crisis-could-threaten-global-economic-recovery-iea-says/

Energy crisis could threaten global economic recovery, IEA says
Oil and natural gas prices have soared to multiyear highs recently, sending power prices surging to record levels as widespread energy shortages engulf Asia and Europe

Eugene Van Den Berg, Oct 2021

From the above article Reuters and The Globe and Mail states:

“A global energy crunch is expected to boost oil demand by 500,000 barrels a day and could stoke inflation and slow the world’s recovery from the COVID-19 pandemic, the economic recovery from the pandemic was “unsustainable” and revolved too much on fossil fuels. Investment in renewable energy needs to triple by the end of the decade if the world hopes to effectively fight climate change”

The article lacks expression about the true origins of the crisis. Since 2015 investment in oil and gas exploration declined sharply. That has led to an energy imbalance with demand exceeding supply.

Since the end of the first decade of the 2000s, climate activism and policy contributed to shutting in reliable electricity generation. The world is trying to take a short cut from coal, skip natural gas, and instantly land on utopia where solar and wind energy is the primary source to support base load, or worse even, as is the case with Germany, ditching nuclear for wind and solar. It did not quite work out as planned and Germany now is looking into the eyes of Russia to fall back on natural gas.

BIG MISTAKE! To have believed that natural gas and LNG are not a suitable replacements for coal fired powerstations.

Since April 2020 a commodity supercycle is unfolding. Growth in demand for commodities fuel the thirst for oil. That is because processing commodities rely on heavily industrial equipment and processes that drive the thirst for oil. Renewable Energy (RE) policy shifts too contribute to the rising demand for critical commodities used in RE component parts. On top of all this supply chain challenges are contributing to imbalances.

Eugene Van Den Berg - Ahead by a Century
Eugene Van Den Berg - Ahead by a Century
Commodity Supercycle
Commodity Supercyclews
Eugene Van Den Berg - Ahead by a Century

Without policy changes aimed at duality, and remaining stuck on policy that only supports ideology will not solve matters but instead grinding the crisis even deeper. The world cannot transition in a cost effective fashion without oil and gas. That view has nothing to do with climate denialism, it’s all to do with reality. Energy is mankind’s siamese twin. It’s inseparable, the two goes together like a horse and carriage. Energy sustain quality of life.

The challenge is up to solve RE reliability and storage. Without it net-zero looks pale.

When the world transitioned from horse and carriage to car over an approx. 50 year period, the world transitioned leveraging duality and transitioned to an energy source in unlimited supply. The notion that the wind and sun also provide unlimited, and even better, free, energy sources are true. The reality is the technology to make effective use of such free resources are lacking technological realibility and effective storage backup efficiency. Billions of dollars can be invested in more RE wind and solar over the next decade. If however investment is purely driven by constructing large energy farms and hoping that it will solve the problem, it is not likely going to achieve the desired outcome.

Wind and solar respectively yield approx. 17% and 25% of installed capacity. Quick math suggest to go all out wind and solar require 4x to 5x the amount of installed capacity that is required to get close to 100% yield of needed-installed capacity.

To support projected electricity demand to power a world driven by electric only energy would mean that the projected demand needs to converted to generation capacity and take that number and times it by 5 and from there configure the required generation and storage capabilities.

The Interstellar effect, as I call it. In the movie, for years mankind could not solve the math around defeating gravity on a cost effective basis. That illustrates that nothing gets solved doing the same thing and expecting a different outcome.

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Why The Left Cancels Any Climate Questioning | Science Matters

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Why The Left Cancels Any Climate Questioning | Science Matters (rclutz.com)

Why The Left Cancels Any Climate Questioning
Daniel Turner writes at The Spectator Big Tech is censoring the climate change debate. Excerpts in italics with my bolds. Wittgenstein wrote that as an ontological and epistemological foundation f…

Eugene Van Den Berg, Oct 2021

Form the source the author writes:

“He who controls the language also controls reality, something that today’s left understands brilliantly, even devilishly. The language around climate change and the green movement is one more area the left wants to control, especially given that trillions of dollars in spending are on the line. Big tech is now doing its part to protect the Green New Deal and radical green ideology from dissenting views. Google and YouTube’s recent announcement that they now prohibit “climate deniers” to monetize their platforms” 

What exactly is a Climate Denier? Are you in denial when asking question about feasibility, reality, costs, value for money and returns, affordability, etc.?

The Google and Youtube ban comes into effect in November 2021. The ban will cover ads for – and the monetization of – content that contradicts the “scientific consensus around the existence and causes of climate change”.

To question is not denial. Denial means:

de·ni·al
/dəˈnīəl/
noun
    • the action of declaring something to be untrue. “she shook her head in denial“
Similar:
contradiction, counterstatement, refutation, rebuttal, repudiation, disclaimer, retraction, abjuration, negation, dissent, disaffirmation, confutation, retractation
a statement that something is not true.
plural noun: denials
“official denials”
 
Opposite:
confirmation
 
    • the refusal of something requested or desired. “the denial of insurance to people with certain medical conditions”

The interesting words are: a) “content that contradicts the “scientific consensus”, b) “causes of”.

What happens if there are more evidence out there that reflect on the drivers of global warming not limited to Green House Gas (GHG) emissions only? There are reputable peer-reviewed research undertaken that focuses on all causes. What exactly is scientific consensus? A group of PhD’s that meet and drink tea and shake their heads in agreement with each other? Is scientific evidence not based on fact, hypothesis and proven theories. The boundaries with which science operate today is far different from the time of Einstein.  Steve E. Koonin’s “Unsettled” aims to explain the concept around consensus. This book received a lot of criticism. However, one need to maintain an open mind. Another great book “Inconvenient facts, The science that Al Gore doesn’t want you to know”, by Gregory Wrightstone

So by questioning the causes of climate change leading to people being banned, marginalized and de-platformed (seems to be the modern-day in-thing to do as we live in a snowflake and cancel culture) infringes directly on freedoms of expression.

No matter how we look at it ALL SCIENCE matter not only selective science (I am not talking about pseudo science. I am talking about science that can be backed up by fact). In addition to that, without energy live on earth cannot be sustained given the strong data correlations between energy consumption, growth, poverty eradication, improvement in life expectancy all driven by population growth. Are the Climate Activists next going to petition the culling of people given these correlations? 

emissions population

The only way to bring all the pieces together is:

    • to focus on duality for the interim amid the current energy crisis;
    • vast effort and money to be invested in solving RE (wind and solar) reliability and battery storage efficiency for Electric Vehicles and RE (wind and solar); and
    • disconnect the aforementioned from hard emissions reduction targets. solve the conundrum in a piece-meal fashion. Not everything can be solved at once.
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Rex Murphy: This energy crisis has been 30 years in the making. Why is anyone surprised? | National Post

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https://nationalpost.com/opinion/rex-murphy-this-energy-crisis-has-been-30-years-in-the-making-why-is-anyone-surprised

Rex Murphy: This energy crisis has been 30 years in the making. Why is anyone surprised?
None of the elite bound for the grand climate shindig in Glasgow have to worry about unmeetable energy bills

Eugene Van Den Berg Oct, 2021

The current energy crisis playing out in large parts of the world is driven chiefly by the onset of a commodity supercycle that commenced in April 2020, combined with massive under investment in oil and gas since 2015. Such under investment causes demand for oil and energy commodities to exceed supply.

From the above article, The National Post writes:

“The inevitable collision between 30 years of global warming hyper activism — the howling demonization of available, proven energy resources — and reality, is upon us. There is an atmosphere of semi-panic as many of the countries most committed to “getting off” oil and gas and turning their economies over to wind and sun find winter approaching and they, environmentally virtuous as they are, are wondering if they have enough oil and gas and even coal to get through it.”

Commodities in turn drive the demand for oil. Vast amounts of oil is needed to drive the machinery and industrial equipment used to process such commodities. This cycle compounds increases in inflation.

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