ESG = Energy Stops Growing; an Energy Crisis is Here.

From Adventures in Capitalism dated 6/2/21:

For most of my career, oil demand has grown each year and supply has roughly kept up. Sure, it’s overshot in both directions. We’ve seen shortages and we’ve seen gluts. We’ve even seen oil go negative. Throughout this time, we’ve always intuitively known that the cure for high prices is high prices. Last week may have forever changed this prudent logic. I’m starting to wonder if ESG really means Energy Stops Growing.  

[Doug here: An Energy Crisis has already arrived. US natural gas prices are soaring to nearly $6, Brent Crude has vaulted to $80, Northern Europe natural gas and electricity prices have gone exponentially higher in a hyperinflation, major industrial plants are shutting down due to energy costs, UK energy companies are going belly-up on a daily basis.

UK, N.Europe Nat Gas Prices

Dutch natural gas for next month, the European benchmark, rose as much as 13.4% to 98.23 euros per megawatt-hour. The U.K. contract also surged 17.4% to a new high of 252.53 pence a term. Both contracts have more-than-doubled in price over the past month. German power for next year jumped as much as 12% to 132 euros per megawatt-hour, while the French equivalent gained 10.3% to 135.50 euros per megawatt-hour. Both reached record highs on Thursday. Converted to oil price equivalents, these are price rapidly approaching $200/barrel.

European stockpiles of everything from gas to coal and water for electricity production are in short supply and there are few signs the situation will improve anytime soon as demand continues to roar back from a pandemic-driven lull, Bloomberg writes today.]

For those not paying attention, an obscure ESG hedge fund, Engine No. 1, captured two Exxon Mobil (XOM – USA) board seats. It now seems that for companies in indexes, whoever controls the ETF’s votes, now effectively controls their corporate destiny. ETFs are about marketing and asset gathering. There is no better way to stay in the news, looking responsible, than to burnish your ESG credentials. Does an ETF manager care if energy, one of the smallest weightings in most indexes, is now forced to destroy capital by going into run-off while trying to do “green” things? Probably not—they’re all cheering as BP (BP – USA) does exactly that. The attack on XOM was meant as a warning shot to all of corporate America; go along with ESG—or risk a pirate attack.

Meanwhile, over in Europe, Royal Dutch Shell (RDS.A – USA) was told by a court in The Hague to cut emissions by 45% by 2030. Clearly this is impossible even if they don’t drill another well. I expect that this will only embolden similar lawsuits. Most will be thrown out, but enough will be decided against energy producers that it will move the needle. If courts legislate against energy production, then producers will go into run-off. It’s not like there are a lot of investors stepping up looking to fund production growth anyway.

If you hijack energy company boards and get them to stop drilling and you have courts telling energy companies to stop drilling, pretty soon there won’t be any new supply as producers will get the message and stop drilling. Meanwhile, demand will keep growing—it always does. As these data-points continue to stack up, I’m starting to wonder if we’re hurtling towards an energy crisis. [Doug here: You nailed it! A crisis is here now and worsening as we speak.]