Abundant & Cheap Energy: Time To Ditch The ‘Green’ Hype
Investors should by now recognize the critical role of energy prices in the business cycle, as energy costs directly impact an economy's efficiency, the output generated from energy inputs reflects the private sector's value creation across different phases of the cycle. When stock prices rise faster than oil prices, energy is used productively, supporting economic growth. Conversely, if oil prices climb more rapidly, growth weakens, leading inevitably to a bust cycle. To gauge an economy's position in the cycle, investors by now know that they can compare any domestic stock market's ratio to oil prices in local currency against its 7-year moving average as a ratio above the average signals a booming economy, while a ratio below suggests a bust phase.
For those scekptical of the stock market-to-energy ratio's importance, it's worth noting the strong historical correlation between energy and GDP, as energy represents a form of manpower or ‘servants’ powering economic output. In a study published in 2017, Smil estimates an average man provides 100W of work, equal to 876 kWh annually, meaning readily available energy grants each OECD resident access to the equivalent of 60 full-time servants (and 14 in poorer regions). Since 1800, the energy available per person has increased 3.5 times and may nearly double by century’s end, expanding economic potential across all income levels.
In 1800, wood was nearly the sole energy source worldwide, later partially replaced by coal due to wood scarcity, though energy use per person only rose 18% by 1900. Even by 1945, energy per capita was up just 50% from 1800 levels. Post-WWII, energy availability doubled by 1980, slowed by oil crises, and has seen slight increases since. Mid-range forecasts predict an almost doubling of energy use by 2100, while sustainable models suggest only a 30% rise. Energy’s value has grown faster due to efficiency gains. In the 1800s, steam engines converted just 6% of energy, while modern turbines reach 60%. Technological advances allow for more output per kWh; for instance, lighting has improved 21,000 times, from dim candlelight to efficient LEDs. The global energy mix has shifted from wood to coal, oil, and gas over time, adding rather than replacing energy sources. Contrary to popular belief, renewables have yet to dominate; renewable energy accounted for 14% of global energy in 2018, mainly from biomass and hydro.
A quick look at the relationship between GDPs per capita and energy consumption per capita shows that there is no such thing as a low-energy, rich country, as there is a strong correlation between energy consumption and ultimately prosperity.
Over the past few years, energy prices have been impacted not only by geopolitical events and the rising war cycle but also by recurring tightening regulations implemented by those who promote the climate change scam, which ultimately serves as an additional means to weaponize the economy. On that note, it’s worth recalling that John McCain himself, one of the political leaders linked to the American deep state, introduced the concept of climate change to spread more false narratives aimed at targeting Global South countries like Russia, which economic strength relies on selling affordable fossil energy sources to the rest of the world.
Last week, the UN Climate Change Conference (COP29) was held in Baku, Azerbaijan—though few seemed to notice. While last year’s COP in the UAE drew 86,000 participants, this year’s turnout has been not more than half that, as government and corporate leaders find reasons to skip it. For a decade, green advocates have focused on reducing carbon emissions to counter alleged man-made climate change. While many countries embraced this trend, the US and Europe have pushed policies that raised energy costs and reduced efficiency. Meanwhile, China has leveraged the West’s coal reduction stance to fuel its own industries, maintaining a leading role in global carbon emissions. The irony hasn’t been lost on the US working class, who showed strong support for Trump in the recent presidential election.
Since Covid, investors have navigated an increasingly polarized world, also visible in countries' divergent net zero commitments. Finland leads major nations with a 2035 target, followed by Iceland (2040), Germany, and Sweden (2045). In contrast, several Asian countries, including China, Saudi Arabia, Indonesia, and Russia, aim for 2060, while India and Thailand targets 2070, meaning that the Global South by delaying the unnecessary phantasmagorical Net Zero illusion have acknowledged in a politically correct way that this goal is not on their priority as they have understand that to promote their mercantilist agenda they need to provide abundant and cheap energy to keep their economy in the boom phase of the business cycle.
electrification, but politicians often overlook that electricity costs vary widely depending on energy sources. These costs fall into three main categories:
wholesale costs, covering capital, operations, transmission, and decommissioning,
retail costs paid by consumers, and
societal costs, or externalities.
Wholesale costs, measured per megawatt hour, may be passed to consumers depending on regulations.
No one needs a PhD in energy management to understand that the higher the energy cost to sustain an economy, the lower its energy efficiency, ultimately increasing the risk that the economy spends much of the business cycle in a bust. The average global electricity price is USD 0.154 per kWh for residential users and USD 0.149 per kWh for businesses. Europe has the highest residential electricity prices at USD 0.228 per kWh, while Asia has the lowest at USD 0.082. Prices for Africa (0.119), Australia (0.236), North America (0.142), and South America (0.185) fall in between. For businesses, Europe also has the highest rates at USD 0.195 per kWh, with Africa (0.108) and Asia (0.082) having the lowest. Rates for Australia (0.205), North America (0.161), and South America (0.189) are intermediate. With no surprises as Europe has set the most ambitious goals in terms of sourcing its electricity from supposedly green sources like wind and solar, this is also where the price of electricity is the highest across the world.
https://www.globalpetrolprices.com/electricity_prices/
In many countries with unregulated electricity prices, power generators must raise prices to stay solvent when primary energy costs rise. In the US, natural gas is the leading source of electricity, accounting for about 43% of utility-scale generation in 2023, according to the EIA.
In countries that have spread the false narrative of miscalled ‘green energy,’ energy input costs will not only continue to rise but will also lead to unreliable energy supplies. This will drive further deindustrialization and push these economies toward a bust. As a result, it should not be a surprise that the entire climate-organized scheme to change the world is rapidly imploding because it has been based on misinformation and outright fraudulent data and theories. The energy agenda is switching from impractical wind generation, which has proven to be more of a scam and solar than a practical alternative agenda.
In recent years, natural gas has surpassed coal as the leading source of electricity generation in the United States. According to the Washington Post, natural gas powered 34% of the country’s electricity in 2014, overtaking coal and nuclear energy. EIA data shows that natural gas became the top source of electricity generation in 2016, replacing coal. This shift is due to a decline in coal use and an increase in natural gas production and infrastructure. In 2023, fossil fuels, including natural gas, accounted for 83% of total energy production and 61% of U.S. electricity generation. Although renewable sources like solar and wind are growing, they still make up a smaller share of electricity generation.
https://www.eia.gov/energyexplained/us-energy-facts/
Total energy consumption by the end-use sectors includes their primary energy use, purchased electricity, electrical system energy losses (such as energy conversion and other losses associated with the generation, transmission, and distribution of purchased electricity), and other energy losses. The sources of energy used by each sector vary widely. For example, in 2023, petroleum accounted for about 89% of the transportation sector's primary energy consumption but less than 1% of the electric power sector's primary energy consumption.
Probably because investors were too busy focusing on the distractions of garbage’s surrounding the US presidential campaign over the past few months, US natural gas production from shale and tight formations, which accounts for 79% of dry natural gas production, decreased slightly in the first nine months of 2024 compared to the same period in 2023. If this trend continues for the remainder of 2024, it will mark the first annual decrease in US shale gas production since we began collecting these data in 2000.
US shale gas production from January to September 2024 declined by 1%, to 81.2 Bcf/d, while other dry natural gas production increased by 6%, to 22.1 Bcf/d. Total dry natural gas production averaged 103.3 Bcf/d, unchanged from 2023. The drop in shale gas production was mainly due to declines in the Haynesville and Utica plays, down 12% and 10%, respectively. In contrast, production in the Permian grew by 10%, and the Marcellus remained flat.
The Haynesville play in Texas and Louisiana is a dry natural gas formation, while the Utica and Marcellus in the Appalachian Basin also produce lease condensate. Investors must remember that natural gas prices drive drilling in all three plays, but the US benchmark Henry Hub price has generally declined since August 2022, reaching record lows in 2024, making drilling less profitable. Several operators in the Haynesville and Appalachian Basin have shut in production and plan to continue curtailments in the second half of 2024. In contrast, the Permian play, primarily driven by oil prices, has seen increased natural gas production alongside rising oil output. In September 2024, Utica production was 5.6 Bcf/d, 33% below the 2019 peak, while Haynesville production was 13.0 Bcf/d, 14% lower than its May 2023 peak. The Haynesville, the third-largest shale gas play in the U.S., averaged 14.6 Bcf/d in 2023, accounting for 14% of total U.S. dry natural gas production.
The US Henry Hub natural gas price fell 79% from its August 2022 high of $9.39/MMBtu to $1.99/MMBtu in August 2024. This year, the price has averaged $2.10/MMBtu, down from $6.89/MMBtu in 2022 and $2.62/MMBtu in 2023. As prices declined, production economics worsened, leading producers to shut in production and reduce drilling rigs. The number of natural gas-directed rigs in the Haynesville, Utica, and Marcellus plays has steadily dropped since 2022. In September 2024, the Haynesville had 33 rigs, 53% fewer than in January 2023, marking the lowest rig count since July 2020.
Given this, while the financial mass media have spread the word that ‘Drill Baby Drill’ will have additional negative effects on prices, the real question everyone should ask is whether there will still be any players in the sector to drill if there is no additional support from the new administration to keep the sector profitable over the long term.
However, investors know that, more than other commodities, the natural gas market has a long history of boom-and-bust cycles, driven by oversupply from the shale oil industry, weather conditions like hurricanes, and regulations that limit the potential for additional exports via LNG terminals on the U.S. East Coast.
Outside of the ‘Drill Baby Drill’ policy, with Donald Trump expected to return as the next tenant of the White House, he will bring with him a platform that is largely pro-fossil fuel and anti-climate change. The broad implications of the election for the energy transition are already clear: oil and gas, especially those companies active in the oil and gas service segment, should fare well despite everyone expecting lower prices, while electric vehicles will not. Some climate-related sectors, such as nuclear, hydrogen, and carbon capture, lie in the middle and may even benefit from the incoming administration. Other questions remain. Will Trump push Congress to repeal the Inflation Reduction Act, outgoing President Joe Biden's signature piece of climate legislation? Will his promised tariffs strangle renewable power projects that rely on foreign-made parts?
Trump may have made Elon Musk his ally, but that won’t save electric vehicles (EVs) from his policies. With Republicans in control, several EV-related provisions are at risk of repeal. The clean car tax credit (30D), offering up to $7,500, and the credit for used EVs could face congressional pushback. However, Trump could act unilaterally to close the commercial EV leasing loophole, cutting $7,500 in incentives without congressional approval. Fuel economy and emissions targets will likely be relaxed, as they were during Trump’s first term, leading to potential legal battles with environmental groups and states like California.
While a full repeal of the IRA is unlikely due to its popularity and economic benefits in Republican-leaning states, Trump is set to reshape key clean energy regulations. He is expected to tighten requirements for IRA credits, making them harder to claim, and impose tariffs on wind, solar, and storage imports, which could hurt companies reliant on foreign supplies. These moves could slow renewable growth and favour fossil fuels, aligning with Trump’s push to relax coal and gas regulations.
At the end of the day, Trump aims to unleash US oil and gas production by easing regulations and lowering taxes. He has also proposed reducing corporate tax rates from 21% to 15%. If this goes through, the US oil patch could potentially see billions of dollars in tax savings. Oilfield service companies should benefit the most in this environment as more money becomes available across the industry. However, oil producers may still be reluctant to rapidly increase output, having been burned by overproduction and subsequent price crashes in the past. While the oil service sector appears to be the obvious winner of the US energy policy to be implemented by the 47th US president, the industry has not only underperformed the S&P 500 Energy Index but also the S&P 500 as a whole since the start of the year.
Relative performance of the US Listed Oil Services 25 Index to S&P 500 index (blue line); Relative performance of the US Listed Oil Services 25 Index to S&P 500 Energy index (red line) year-to-date.
While the 47th US president will inevitably impact the country’s energy mix and influence the climate change narrative that has been weaponized to shape the economy for over a decade, the world did not wait for Donald Trump's return to denounce the excesses of green policies. These policies have driven up energy costs and hindered companies' ability to generate profitable growth, ultimately weighing on the ability of the U.S. and Western economies to escape the bust phase of the business cycle.
Aswath Damodaran, a finance expert and professor, has discussed net zero emissions in various contexts. He suggests a global carbon price index to help reach net zero by 2050, with a proposed price of $100/tonne to incentivize emissions reductions. Damodaran also examines how the transition to low-carbon models impacts company valuations and investment decisions. In a 20-minute interaction with the Canadian parliament, he highlighted the contradictions of the net zero concept, criticizing its negative impact on businesses, consumers, and investors.
It is an undeniable fact that the climate change narrative has increased costs for businesses and burdened consumers, who are unfairly blamed for climate issues despite a lack of scientific evidence supporting human-caused climate change. Instead, some models suggest Earth is entering another ‘grand solar minimum,’ expected to last from 2020 through the 2050s. This phase could result in a global cooling period, with reduced sunspot activity, lower ultraviolet radiation, and diminished magnetism. This cooling could mirror the Maunder Minimum, which contributed to the Little Ice Age from the 1300s to the 1850s.
For investors, it doesn’t take a Wall Street guru to understand that climate change and ESG-related products were not created by Wall Street to benefit the planet or enhance investors' wealth. A look at the relative performance of the MSCI Energy sector, which includes the world’s largest fuel producers, and the S&P Global Clean Energy Index, which includes the world’s largest clean energy producers, shows that while the past 20 years have seen rallies and bear markets for fossil fuel energy suppliers, the same period has been far more painful for those following the supposedly ‘green precepts’ of Wall Street bankers.
Performance of $100 invested in MSCI World Energy Index (blue line); S&P Global Clean Energy index (red line).
In recent years, Wall Street has pushed investors to follow bureaucratic ESG principles, which prioritize environmental, social, and governance issues. ESG, a term first popularized in a 2004 UN-backed report, has grown from a corporate social responsibility initiative to a global movement managing over $30 trillion in assets by 2023. The reality is that if ESG has been profitable, it has only been for asset managers like BlackRock, which have been colluding with plutocratic governments to spread the climate change narrative over the past 20 years. For investors seeking the feel-good factor of investing responsibly, BlackRock charges an expense ratio of 0.15% on its MSCI US ESG Aware ETF (ESGU US).
https://www.ishares.com/us/products/286007/ishares-esg-msci-usa-etf-fund
This is more than 5 basis points higher than the expense ratio of the standard S&P 500 ETF (SPY US).
https://www.ssga.com/library-content/products/factsheets/etfs/us/factsheet-us-en-spy.pdf
Therefore, it should come as no surprise that, in order to comply with the misleading ESG narrative, investors not only pay higher costs to their asset managers but also receive lower returns compared to if they had invested in a standard passive S&P 500 ETF.
Relative performance of iShares ESG Aware MSCI US ETF to S&P 500 ETF since December 31st, 2020.
ESG as an investment style was already on life support, and with Trump’s return, it may get its final death certificate. It seems evident that one thing that the 47th US president will easily achieve is that he will ‘bury’ ESG for good. The U.S. has seen ESG investing sharply decline, as it’s become politicized and failed to meet its promises. Initially promoting sustainable business practices, ESG is now entangled in cultural debates and sidelined as US priorities shift towards nationalism and mercantilism. Even former advocates, like BlackRock CEO Larry Fink, have distanced themselves, with Fink calling ESG ‘weaponized.’
Heritage Foundation President Kevin Roberts has branded BlackRock ‘decadent,’ lumping it with the Boy Scouts. Many investors now view ESG as a gimmick, with firms like Invesco facing fines for ‘greenwashing.’ Unlike Europe, which has tightened ESG standards, the US is scaling back, as the SEC disbanded its ESG task force in September, a move that could accelerate as Trump returns to office. BlackRock’s clean energy ETF has significantly dropped since 2021, as funds shift back to traditional energy sectors. Investor and media interest in ESG is waning, with search activity, media coverage, and corporate mentions all in decline. BlackRock’s support for ESG proposals has plummeted, backing only 4% last year, signalling a retreat from reshaping capitalism through ethical investing. This shift raises questions about what will replace ESG’s influence. ESG fund managers, meanwhile, are also now advised to ‘keep lawyers close.’, as legal risks around antitrust and fiduciary duty are high, especially given that anti-ESG laws gain traction in various states.
As the US is still in an inflationary boom, the fact that the S&P 500 index to gold ratio is struggling above its seven-year moving average indicates that the economy is likely to transition into an inflationary bust sooner rather than later. This impending inflationary bust will most likely be triggered by inevitable escalating conflict in the Middle East, as anyone with a basic understanding of how Washington operates and who really holds power has a vested interest in perpetuating the forever bankers' wars.
Combining the business cycle with the Browne Permanent Portfolio, we see that in an inflationary boom, investors should overweight equities and underweight the asset classes which are represented by contracts (like Cash and government bonds) in the portfolio, while replacing these contracts by the ultimate property which has no counterparty risk, and which cannot be confiscated: Gold.
However, a look back at history shows that when the S&P 500 to gold ratio crosses below its 7-year moving average, this event is typically associated with the peak of the 12-month rate of change in the S&P 500 index for that cycle.
Upper Panel: S&P 500/Gold ratio (blue line); 84 months Moving Average of the S&P 500/Gold ratio (red line); Lower Panel: S&P 500 index 12-month rate of change (yellow histogram).
In conclusion, as the US economy is slowly but surely shifting from an inflationary boom to an inflationary bust, gold, not government bonds, is the antifragile asset to hold. Access to cheap, abundant energy is crucial for maintaining economic growth that benefits all citizens, not just the elite. Investors familiar with the business cycle and the Permanent Browne Portfolio understand that despite Wall Street's misleading advice to buy long-term bonds and sell gold, the opposite strategy is wise: sell rallies in fixed income and buy gold dips. As the US economy likely moves into a bust, investors should also, shift from energy consumer sectors like IT to energy producers like oil and gas once the S&P 500-to-oil ratio dips below its 7-year average. Unlike government bonds, which can be altered at the issuer's discretion, gold offers the unique advantage of no counterparty risk, making it a crucial asset as investors prioritize the Return OF Capital over Return ON Capital.
Read more and discover how to position your portfolio here: https://themacrobutler.substack.com/p/abundant-and-cheap-energy-time-to
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