Frack baby Frack, for the planet’s sake!

I write this while listening to a #climateweeknyc presentation. Lots of heavy European accents - highlighting where the locus of this lies!

#Energy #transitions are inflationary. Think about it - our economic system is designed with two constraints namely labour and capital.

We are now asking for a third constraint to be added I.e carbon. The solution set with MORE constraints has to be SMALLER!

So how do you manage this?

Become more efficient using AI etc. clean up supply chains. More in that later.

BUT, more importantly

Extend your existing energy system (oil, gas) while investing in the new one (wind, solar, batteries, nuclear), so that the ramp off and ramp on period is not disruptive. Like it threatens to be today!

After all the progress on wind and solar, it is still less 5% of the total primary energy mix.

Rishi Sunak is calling this out - UK faces inflation of an unseen magnitude in a period when growth has crashed!

Oil and gas is 51% of the total. Down from 55 percent in 1975. In a period when primary energy demand has grown 2.5x. Within the oil and gas bucket - oil is down from 44% to 29%

https://lnkd.in/esNSub2U


This is why US onshore oil and gas production is the missing link. It is the shortest duration production in the market. The capex cycle can be short, very short. If you spend today, you can get oil tommorow (well almost!). On the other hand other projects like deep sea Gulf of Mexico, and Brazil take years to come in line. Liza the mega field in Guyana has been 10 years in the making.

When faced with the conundrum of strong demand today, but less demand tommorow, oil companies will reduce long duration capex. Compound that with activist pressure capex will be constrained! “Lower capex= lower production tommorow and the day after.

That will push prices up - especially when the marginal swing producer is Saudi Arabia who is happy to cut if required (both economically and politically) You are seeing this play out today.

The US had the ability to balance markets quickly. It needs to incentivise fracking and domestic production NOT curtail it! It needs to open the floodgates. At 95$ a bbl, US production can be very profitable. Permits and lisences take time!

Frack baby frack! With environmental constraints of course to ensure that Mother Nature is protected from spills and leaks!