Alboran Energy Strategy Consutlatns

July 2023

  • Energy Musings, July 30, 2023

    Energy Musings contains articles and analyses dealing with important issues and developments within the energy industry, including historical perspective, with potentially significant implications for executives planning their companies’ future.

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    July 30, 2023

    Climate To Be Stock Market Theme Of The Decade?

    Stocks move up and down based on investor optimism or pessimism about the economy and the earnings power of companies. But investment performance may be impacted by other considerations reflected in decade-long investment themes. From the Go-Go era to gold to Japan, Inc. and the dot.com boom and bust, every decade has had a theme that drove the performance of select stocks or assets. The current decade’s theme may be climate but not climate change. Climate is a ‘big tent’ concept yielding numerous investment opportunities. The reason for the theme may surprise you. READ MORE

    Climate To Be Stock Market Theme Of The Decade?

    Legendary stock market investor, Warren Buffett believes in long-term investing. He has said, “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.” That certainly isn’t the mantra of day traders or momentum investors. It isn’t the investment style of most active portfolio managers. In Buffett’s case, he often owns a stock for decades, and in some cases even buys the entire company to add to his Berkshire Hathaway conglomerate.

    If you focus on long-term investing, your portfolio will experience ups and downs as the stock market oscillates through periods of optimism and pessimism about the future of the world’s economy and its impact on company earnings. Stock prices reflect the mood of investors and the earnings power of companies. But other factors impact share prices such as investment themes that drive investors to favor certain types of companies at any point in time.

    We recently listened to a professional wealth manager interview the founder and managing editor of an independent global macro research and trading advisory firm with a focus on major investment themes. During the podcast, he was asked about what investment theme investors should be focused on now. Before answering the question, the strategist reviewed the history of investment themes. His narration covered almost all our investment career. We found his history of decade investment themes insightful as it characterized what was popular at the time and made money for investors until the theme stopped working. Often, investors fail to realize a theme has ended and another has begun, which is what costs them money.

    Exhibit 1. How Stocks, Bonds, And Inflation Performed By Decade

    Source: wealthmeta.com

    Let’s look at the investment themes the strategist identified. To make the review parallel our career, we will begin with the 1960s, a decade the strategist didn’t mention. To understand the theme of the 1960s, we must first understand the 1950s. That market was an extension of the post-World War II boom driven by rapid economic growth as the U.S. transitioned from a war footing to one capitalizing on the many inventions of the late 1930s and during the war, rapidly growing young populations, and rising incomes and improving lifestyles. The public’s inability to spend on goods, cars, appliances, and homes during the 1930s and 1940s led to a buildup of savings which fueled the 1950s economy. But investing during that decade was heavily influenced by the conservative approach of Americans who had lived through the Depression and WW II.

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  • Energy Musings, July 26, 2023

    Energy Musings contains articles and analyses dealing with important issues and developments within the energy industry, including historical perspective, with potentially significant implications for executives planning their companies’ future.

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    July 26, 2023

    Should We Stop Building New Homes?

    Real estate creates 30% of our carbon emissions and uses 40% of our energy, so it has become an important target of climate activists. An important ingredient in the emissions is concrete because of the coal burned to heat the limestone that forms the basis for Portland cement and the energy needed to turn it into concrete. Because cement accounts for between 4-8% of global emissions. Startup companies are working to find fewer polluting ways of making cement and concrete. One approach is to switch to building using ‘mass timber’. Wood can be a great way to reduce carbon emissions in building conventional buildings. And now there is a move to encourage remodeling that releases much less carbon than building new with significant embedded carbon in the construction materials. Look for a housing transition. READ MORE

    Should We Stop Building New Homes?

    Investors and economists focus on the latest housing data – new home starts, building permits, used and new home sales, and housing vacancy rates – for indications of the health of the real estate sector. Real estate represents 17% of the nation’s GDP, but importantly is the foundation of wealth building for the middle class and provides insight into the health of the flow of goods, services, and income for millions of Americans.

    According to the United Nations Environmental Program, the real estate sector produces around 30% of the world’s annual greenhouse gas emissions and consumes nearly 40% of the world’s energy. Ten percent of those emissions come from cement, a key building material for world economies. Concrete is the second most used material in the world after water and it is the most used construction material. It is estimated we produce around four tons, or just under 60 cubic feet (a cube measuring four feet on each side), for each person in the world annually. It represents between 4-8% of global emissions. If cement were a country, it would rank fourth in annual carbon emissions.

    As the world focuses on decarbonization in addressing climate change, cement and real estate are moving into the target zone, after aviation and shipping (industries we addressed in Energy Musings, July 19, 2023). Eliminating carbon emissions from cement is hard. That’s because manufacturing it is highly energy- and emissions-intensive since extreme heat is needed to produce it. Emissions come directly from the heating of the limestone that releases CO2. The burning of fossil fuels to heat the kiln indirectly results in the release of CO2.

    Producing a ton of cement requires about 4.7 million BTU of energy because the kilns must be heated to 2700o F to break down the limestone which is then mixed with gypsum to make clinkers that are ground up to make cement. The energy needed to heat the kilns is the equivalent of burning 400 pounds of coal, which releases nearly a ton of CO2. One way to cut emissions is to switch the kiln’s fuel source from fossil fuels to renewable electricity, but that can be a challenge because of the energy density of coal that allows it to burn extremely hot and the level of heat needed.

    In Greece, according to a European energy podcast, the government is working on a plan to switch kilns from coal to renewable electricity. The problem, according to the owner of the nation’s largest cement manufacturer, is that amount of renewable energy currently available is insufficient to power all his kilns, let alone any of those of his competitors. Therefore, the government is trying to ramp up investment in new renewable energy plants. However, because renewable energy is part-time, the grid is susceptible to brownouts and blackouts. The cement company’s CEO said the loss of power for four hours will destroy a kiln. To protect his kilns, he is contracting backup power to the supply he receives from the electric company because he expects more outages. This becomes expensive insurance which will force him to raise the price of his cement.

    Cement companies worried about the destruction of their kilns from blackouts have few alternatives other than independently securing backup power or praying a lot. Could there be other solutions to cement’s emissions problem? Are there ways to make the process more efficient, such as improving how kilns work? Maybe cement can be made from lower-carbon raw materials, or produced differently, such that when blended with the other necessary materials it will still make a product equal to traditional concrete.

    Read the full article on Energy-Musings.com »

  • Energy Musings, July 19, 2023

    Energy Musings contains articles and analyses dealing with important issues and developments within the energy industry, including historical perspective, with potentially significant implications for executives planning their companies’ future.

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    July 19, 2023

    IMO Pursues Carbon Emissions “Deal of the Decade”

    The IMO’s recently completed a meeting where it agreed to a revised GHG emissions reduction plan, reaching net zero by about 2050. We explored some of the actions and challenges facing the global shipping industry. Green fuel technologies remain immature and expensive. Their use will boost global shipping costs when other remedies exist. Slow steaming, adding sails to assist propulsion, and increased use of compliant fuels will help reduce emissions. This industry remains difficult to decarbonize. Yielding to the demands of climate activists to accelerate the pace of cutting may lead to expensive mistakes, not just for shipping but for the world’s economy.  READ MORE

    IMO Pursues Carbon Emissions “Deal of the Decade”

    Having failed to get on board with the 2015 Paris Climate Agreement, the United Nations International Maritime Organization (IMO) came under severe criticism. Instead of chasing CO2 emissions, the IMO elected to attack the shipping industry’s sulfur emissions problem first, recognizing this as a far greater pollution problem for coastal nations. Putting CO2 emission second, however, was not popular, especially with climate activists.

    Given the criticism, in 2018, the IMO embraced a greenhouse gas (GHG) emissions reduction plan calling for a 50% cut from 2008 levels by 2050. Even then, climate catastrophists demanded a 100% reduction by 2050. Forget whether such a target was or even is achievable. But in a world of virtue signaling, just saying you will get to net zero emissions by 2050 seems to be enough. Leave the details to others and ignore the costs until they bite the activists.

    The relentless climate catastrophe talks of its boss, United Nations Secretary-General António Guterres, have driven the IMO’s actions. In July, it convened the 80th meeting of the Marine Environment Protection Committee (MEPC) with the mission to advance the IMO’s GHG reduction target. The committee agreed to reduce shipping’s GHG emissions to zero “by or around, i.e., close to, 2050.” The plan includes interim “checkpoints” ‒ cutting emissions by at least 20% but hopefully, 30% by 2030, and then by 70% if not 80% by 2040. Although cheered by some, the IMO’s agreement was called “wishy-washy,” “falls short of expectations,” and even “a great disappointment” by climate activists and their media friends.

    Shortly after the meeting, we attended a webinar discussing various aspects of the IMO agreements plus the European Union’s (EU) ‘Fit for 55’ emissions reduction plan approved in 2021. The Fit for 55 plan, a template for the IMO’s new GHG strategy, includes various actions.

    Extending the EU Emissions Trading System (ETS) to maritime transport, thereby capping maritime transport emissions as part of the overall ETS cap, creating a carbon price signal that should foster the reduction of GHG emissions in a flexible and cost-effective manner, and generating revenues to tackle climate change and encourage innovation.

    Boosting demand for marine renewable and low-carbon fuels, by setting a maximum limit on the greenhouse gas content of energy used by ships calling at European ports and by encouraging zero-emission technology at berth (where boats stay in ports), with a technology-neutral approach.

    Read the full article on Energy-Musings.com »

  • Energy Musings, July 14, 2023

    Energy Musings contains articles and analyses dealing with important issues and developments within the energy industry, including historical perspective, with potentially significant implications for executives planning their companies’ future.

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    July 14, 2023

    SouthCoast Wind Paused But Not By Lies

    Rhode Island Energy Facility Siting Board pauses SouthCoast Wind cable approval process until late 2024 over financial uncertainty and not potential management lies to the board. READ MORE

    Renewables Make New England Electricity Expensive

    New England electricity prices have climbed rapidly despite power consumption falling. The cost of meeting renewable energy mandates is driving those rapid price increases. READ MORE

    Tale Of Whale Deaths Not Pleasant Reading

    From December 1 to July 12, whale deaths off the East Coast totaled 56, or about eight a month, yet government regulators continue ignoring the possibility of a link to offshore wind construction. READ MORE

    SouthCoast Wind Paused But Not By Lies

    Recently, it came to light that a staff member of Rhode Island’s Coastal Resources Management Council (CRMC) sent an email to the administrator for the Rhode Island Energy Facility Siting Board (EFSB) claiming that the testimony of representatives of SouthCoast Wind at its June 12 show-cause hearing included several lies. The nature of the claims and how they arrived required the EFSB to notify all parties involved and make the email public. At the end of the day, it wasn’t this controversy but rather the uncertain future for the project that sank its transmission cable permit application.

    On Thursday, the EFSB voted unanimously to pause the cable application process until October 1, 2024, to give SouthCoast Wind time to secure new power purchase agreements (PPA) to finance the $5 billion, 804-megawatt (MW), 147 wind turbine project assuming it is selected in Massachusetts’ next offshore wind auction. It was this uncertain status that convinced the three EFSB members that it was inappropriate to use the agency’s limited resources to process the application only to have the project fail to secure new PPAs and be built.

    Read the full article on Energy-Musings.com »

  • Energy Musings, July 9, 2023

    Energy Musings contains articles and analyses dealing with important issues and developments within the energy industry, including historical perspective, with potentially significant implications for executives planning their companies’ future.

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    July 9, 2023

    Costly Decarbonization Of Aviation And Shipping

    The two most difficult transportation sectors to decarbonize are stepping up their efforts. Aviation and shipping are embarking on aggressive steps that will reduce their emissions by 2050, but those efforts are challenged by technology, supply chains, industry growth, long-lived assets, and costs. Both planes and ships will operate for decades, so totally changing their fuel options to reach net zero emissions by 2050 means immediate actions. But none of the technologies or fuel supply chains and quantities exist. Moreover, we do not know the optimal technology, nor do we have the infrastructure to service the new industries. The biggest problem is the cost of these new technologies and fuels. How will we handle the pending inflationary spike that will come from these decarbonization efforts? READ MORE

    Costly Decarbonization Of Aviation And Shipping

    Heading into the Fourth of July holiday, the number of Americans flying exceeded 2019 pre-pandemic levels. June’s passengers increased 7% month over month and was 1% above 2019’s level. Passengers going through TSA checkpoints for the first half of 2023 slightly exceeded 2019’s traffic. In Europe, daily flights in June rose 9% month over month but remained 9% below 2019 levels. June’s global flights were 4% higher month over month and 14% above 2019’s flights. People are traveling, despite higher airfares. Airline executives are upbeat given record reservations for the rest of 2023.

    Offsetting air traffic’s gains, cargo, and container shipping are experiencing slower demand after the consumption-driven Covid-recovery surge wanes. China’s economic reopening lags, which is depressing shipping volumes. Forecasts call for global shipping volumes to only grow about 2.2% annually for 2023-2027, down from the historical growth rate of 3+%.

    Overhanging both industries is the push to decarbonize them in keeping with the world’s Net Zero emissions goal. Although most emissions reduction efforts within transportation target cars and trucks, the shipping and air transportation industries are also pledging to cut emissions by 2050. The challenge is how to do it.

    Transportation emissions account for roughly a quarter of global emissions. Of that share, road transportation emissions represent about three-quarters while aviation and shipping are each slightly over 10%. For those industries, whose assets are very long-lived and require them to transport their fuel, managing decarbonization will necessitate new fuels and new technologies.

    Exhibit 1. Transportation Sector Emissions Share By Mode

    Source: ICCT

    Read the full article on Energy-Musings.com »

  • Energy Musings, July 5, 2023

    Energy Musings contains articles and analyses dealing with important issues and developments within the energy industry, including historical perspective, with potentially significant implications for executives planning their companies’ future.

    Download the PDF

    July 5, 2023

    China Demographic Data Will Impact Our Future World

    The latest Chinese population data shows that the aging exhibited in its old data has gotten worse. Moreover, the Shanghai Academy of Sciences says the country overcounted the 45 and younger population by 100 million making the aging worse and contributing to a rapidly shrinking labor force. As a result, China’s labor costs are rising rapidly erasing its global competitive advantage that forces us to reassess our outlook for the country. READ MORE

    Energy Stocks Struggle: Will The Struggle Continue?

    June marked the best month for Energy stocks this year. Still, Energy was the second worst-performing sector for the second quarter and the first half of 2023. Many investment strategists believe Energy will continue to underperform. But there are possible green shoots in the stock market. Additionally, crude oil price action suggests we could easily experience a sharp move upward. READ MORE

    China Demographic Data Will Impact Our Future World

    The latest demographic data from China suggests we need to revise our thinking about the world’s trajectory. That means thinking differently about China’s role in the geopolitical sphere, which may explain why it has become more aggressive in courting some and threatening other countries. The population data has implications for future world inflation rates, as well as energy demand and carbon emissions predictions. It does not mean all future global scenarios are wrong. More likely, we need to consider others – ones not now considered mainstream.

    Peter Zeihan, a geopolitical strategist, and author of The End of The World Is Just The Beginning, obtained the population data China recently sent to the United Nations Population Division. In a recent presentation, he showed the following three charts. The first was China’s old population pyramid data that displays the number of people in 5-year increments reflecting the youngest birth year. The pyramid showed how China’s population age groupings peaked in 1990 and have consistently been smaller with each five-year increment. The 2025 data shows the smallest

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