Energy Politics and Resources
There have been a step change in the global energy policies in recent times. It is driven by human induced climate change, and an intent by most major government to act towards it. This policy change over the last few years have done a variety of different things to energy business and therefore price. Not too long ago, March 2020, a particular 'active' oil future traded negative. It was talked about a lot, but honestly the price at that time on that contract was meaningless. Without getting into details, let us say that oil prices were dramatically low during the March - April 2020, as can be seen from the chart below.
However, the prices bounced back rapidly and since the 'pandemic low' never looked back and currently trading at $90/bbl. This is an unprecedented rally on a cyclical commodity that most politicians think that 'we do not need' and world is 'phasing out' of it. That is all nice, but a globally traded commodity, over an extended period of time, trade on the basis of supply-demand (and not 'talk'). Also there is no way to hide the price and the price reflects supply and demand (production and consumption).
Above is the global supply-demand curve and forecast of world crude oil market. Numbers do not lie. Before the pandemic we were producing and consuming just above 100 MMBBL/day, from the 'pandemic low' we are back to the same levels on both curves.
The next two sets of plots are the monthly history of consumption and production with annual average and its forecast (to the best of EIA's ability). The rising average consumption is clear, and as lot of the exploration projects globally are off the table, there will be an eventual 'keel-over' of the production curve by the end of 2023. That is a certainty. So if production keels over (drops) and consumption keep of rising at a steady rate, what happens then to the price? No, you don't need a PhD to figure that out!
Look, its fairly basic. Crude oil is a volatile and cyclical commodity. It goes up and it comes down. If you look at the average return of oil and gas in the chart above it is fairly evident. So, it will continue to do what it does irrespective of what policymakers say or do.
Alternatives: How far away are they?
Well, alternatives to oil and gas are already here. There have been a steady growth of their use case more and more. That being said, lot of the rate of growth of alternatives that are projected on paper by policy makers are mostly pipe-dreams. However, major companies are changing/re-directing their policies based on the these national politics.
This is what Shell says at their website:
Shell's target is to become a net-zero emissions energy business by 2050, in step with society's progress in achieving the goal of the UN Paris Agreement on climate change.
They also said that their oil production as a company has peaked (mind you, it is by choice) and Shell will produced 1-2% HC less every year from now on: Again as per their corporate webpage
BP's message is very similar as per their corporate webpage
They are two of the major exploration production company in Europe, and they have made a choice to 'transition' into alternative energy right now. This is a direct reflection to the energy policy of Europe.
The rub is, 2030 is only 8 years away. UK is not building any new Natural Gas storage facilities and they are basically exiting exploration all together and also declining to build any new infrastructure. So it will be difficult for the alternatives to catch up quickly to meet the demand. It is almost a certainty that the growth of alternatives will be slower than expected and that will not only impact the price but also significant social unrest. I expect lot of the current policy makers to lose their respective support because what they are promising to the public is simply impossible to achieve in the near term.
