“Reducing coal consumption is an incremental process.” That’s how China’s Foreign Ministry spokesman put it, explaining the change in the COP26 Climate Summit’s language for coal from “phase out” to “phase down.”
Without a doubt, support for de-carbonizing energy has never been greater on the part of governments, investors and industry. But oil, natural gas and coal also currently provide more than 80 percent of the world’s still-rising energy needs.
Even “phasing down” is going to take decades, trillions of dollars of investment and some major technological advances. And so long as the world relies on fossil fuels—as it almost certainly will for decades—whatever discourages investment in them will drive up prices.
By and large, energy sector investment is lagging levels seen at similar stages of past cycles. Rather, managements continue to favor paying off debt and returning money to shareholders with dividends and stock buybacks, just as they have all year.
Fear of future regulations and a still high cost of capital are two reasons for conservative spending policies. Another is fear of a relapse in prices, with the memory of 2020 still fresh. In fact, OPEC’s Secretary General Mohammad Barkindo said as much last week, forecasting “oversupply” in the global oil market as early as December due to a “very fragile (economic) recovery.”
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Elliott and Roger on May. 25, 2022
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