Energy News Beat Publishers Note: David Ramsden Wood hits it out of the park this morning. While David’s friends call him “DRW”, he is most known for speaking his mind. Personally, I think the DRW stands for David’s Real World outlook. What a concept; have real conversations about the best forms of energy for the best application. We call the “Balanced Diet of Power” the use of all forms of energy that deliver the lowest kWh to the consumer while taking care of the environment. Those two concepts combined with a respectful human-to-human attitude will move us closer to energy nirvana.
Our Energy News Beat “Friday with DRW” .
Earlier this year, I spoke of the ‘great shrug’ to address the misconception that oil and gas isn’t important while being vilified by ‘elites’ and the media as the enemy. The principal assumption was that as long as oil and gas are affordable, they remain invisible and easy to hate.
How to shrug? The recommendation was that each US producers, acting in their own best interest, take a page from ‘Saudi’s gift to the market’ in January and restrain production, prioritizing paying down debt and consolidating. From the lesson learned, oil prices flew up more than 25%, which more than compensates for lower production and resulted in a huge net cash flow win for companies. But the real win for the industry is consumer pain, and with that pain comes the path to the ears of politicians, who may finally see the errors of the current policy trade offs.
Before even Easter, the shrug happened all by itself and quite surprisingly, we were ‘blessed’ by a Texas energy crisis, which put energy reliability front and center of national debate. Despite best efforts to hijack the narrative and explain that “wind isn’t supposed to work. It’s winter and all that wind we installed and will keep installing isn’t really that good in the winter!”, it opened people’s eyes that when you decommission 20 coal plants in 10 years, gaps arrrive in your base load. And cold is a lot more existential than a predicted global temperature in 2080. Greta may complain that the planet is burning, but cold weather reminds us all that we are a temperate species. Burn, baby, burn.
And even those outside of Texas could not escape discovering that the natural gas market is national, so utilities like Xcel Energy, in entirely different parts of the country, spent $1.2 billion (10% of annual revenue) buying gas over 5 days to keep people warm in CO and MN and those charges will be passed to consumers in their bills over the next 24 months (here’s the letter).
But, even with all that, we needed an extra kick to make sure consumers felt the pain for longer and so far, Saudi Arabia has taken the prize. Big time. Today, they led an OPEC+ decision not to bring more oil back to the market and oil surged almost 5%. My beloved CDEV was up 15% and more than 25% in 2 days. It is not alone. US oil and gas company equities are ripping and it is challenging even the most ardent ESG hedge fund to decide against returns in favor of virtue signaling. CDEV is up more than 2000% from the lows and is simply at the valuation I thought it deserved pre COVID. Compare that to tech companies at 30x revenue and car companies with no revenue, it’s no wonder the Nasdaq has turned negative for the year.
The real win here though is that by keeping 1 mmbo/d off the market, oil is at level we haven’t seen since Oxy bid APC in April 2018 and consumers will feel gasoline and electricity prices in their wallets by May. Unfortunately, those most impacted are the poor and most ravaged by the economy during covid crisis who are desperately waiting for stimulus checks and behind on rent.
There is a remedy. All energy is good energy. Decommissioning plants before their useful life is up is crazy. Signing PPAs for power at prices that aren’t ‘market’ but are cost based, is another. But more timely, in April, a DAPL decision will be made, and one way or another, that oil is coming to market. By pipe (safe) or by rail (not safe but owned by Buffet). Gasoline prices are a hot button and failing to let DAPL continue to flow will increase both gasoline and food prices, as they compete for the same space in rail cars. The fed may not want to acknowledge inflation, but it’s getting much harder.
More importantly, perhaps President Biden has to take notice that the Green New Deal ignores a lot of realities that only a great shrug can expose.
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