An historic decision at COP28 … is green energy truly less expensive than fossil fuels? … Louis Navellier’s short-term forecast for oil … 5 wildcards that could send prices higher
The 2023 United Nations Climate Change Conference or “Conference of the Parties” (known as COP28) just ended in Dubai, and the takeaway was an historical move that commits the world to transition away from all fossil fuels.
From Bloomberg:
The final agreement calls for countries to quickly shift energy systems away from fossil fuels in a just and orderly fashion, qualifications that helped convince the skeptics.
Under the deal, countries also are called to contribute to a global transition effort — rather than being outright compelled to make that shift on their own.
To be clear, the COP draft text did not include a specific fossil fuel “phase out” as some wanted. But no prior COP text has been so specific about moving away from oil and gas.
So, what does this really mean for fossil fuel consumption and demand?
Let’s go to legendary investor Louis Navellier in yesterday’s Platinum Growth Club Flash Alert podcast:
[The COP28 countries) could not agree on a statement to phase out fossil fuels, so the final statement now says, “they will transition away from fossil fuels in a just and orderly fashion.”
Essentially, that word “just” is key.
As long as green energy is more expensive than fossil fuels, Brazil, India, China, Indonesia, Malaysia, emerging economies will continue to burn more fossil fuels.
This notion of “more expensive” is an interesting discussion topic.
As I researched this Digest, I looked for an apples-to-apples comparison of the respective costs associated with fossil fuels and green energy.
I was surprised at the overwhelming quantity of results suggesting that renewables are a cheaper energy source than fossil fuels today thanks to various technological advancements.
I found that illogical. If green energy truly is less expensive, then we’d likely see developing nations clamoring for this more cost-effective energy source as they industrialize.
Looking deeper into the matter, it seems green energy can be less expensive, but there are conditions attached to such an outcome that are often downplayed
For example, last year, a report by the International Renewable Energy Agency (IRENA) showed that renewable power capacity had lower costs than the cheapest coal-fired power plants.
From Francesco La Camera, director general of IRENA:
Renewables are by far the cheapest form of power today. Renewable power frees economies from volatile fossil fuel prices and imports, curbs energy costs and enhances market resilience, even more so if today’s energy crunch continues.
Now, while this might be true theoretically, there are challenges when we shift to real-world application.
For example, take solar and wind power. Both these green energy sources are very cheap per peak megawatt – from what I can tell, cheaper than fossil fuels.
However, for this cost advantage to be realized, we can’t have cloudy days that diminish the efficiency of solar power generation. Nor can we have days in which Mother Nature decides the wind isn’t going to blow…or will blow less vigorously.
The reality is that weather-related unreliability increases the real-world cost of green energy when rubber meets the road. But it’s more than that.
For a developing nation that requires uninterrupted power, say, for manufacturing, this unreliability is impractical. A nation’s GDP can’t be held hostage by Mother Nature’s fickleness.
This would be less of a concern with better energy storage. Since solar doesn’t generate at night, and wind doesn’t work when breezes aren’t blowing, we would need a way to store up energy for later use when “in the moment” generation wasn’t possible.
While technology is making great strides toward this reality, nothing I read indicates that green energy storage solutions are currently available and cost effective at mass scale.
This is a fascinating topic offering all sorts of rabbit holes we could dive into. But at the end of the day, to understand what’s really happening, we just need to watch the money flow. And for the time being, developing nations are voting in favor fossil fuel energy with their pocketbooks.
Translation, it’s not time to sell your Exxon just yet.
But over a shorter timeframe, with the prices of Brent and West Texas Intermediate Crude having collapsed this fall, what should investors be expecting?
As I write Thursday, oil is enjoying a nice pop, up 4%. But for most of the fall, the price action has been painful.
As you can see below, the prices of Brent Crude (the European benchmark) and West Texas Intermediate Crude (the U.S. benchmark) are down 22% and 26%, respectively, since late-September.
Let’s return to Louis’ Platinum Growth Club podcast for his short-and-sweet bottom line for what’s behind this:
It’s the wintertime now. Demand is down. It will go back up in the spring.
Another huge reason that Louis points toward for weaker prices is China, where demand for crude oil has dropped 9.3% year-over-year.
Now, while these low oil prices can frustrate investors, in Louis’ latest issue of Accelerated Profits, he detailed five wildcards that could send oil prices soaring at any moment:
- The Israel-Hamas conflict
- The Russia-Ukraine war
- The Venezuela-Guyana land dispute
- El Nino weather patterns
- Russian production disruptions
We don’t have the space to detail all of them here in this Digest (Accelerated Profits subscribers, click here to read them in your December issue). But let’s look at the two issues that Louis highlighted in his interview on CNBC last week – the Russian-Ukraine war and the potential for Russian production disruptions.
How problems in Russia could push oil prices higher
Back to Louis:
Ukraine apparently attacked the Trans-Siberian Railway in two locations deep in Eastern Russia recently. These attacks were designed to hinder trade between Russia and China.
Ukraine has not taken responsibility for the attack, which raises the question if the crude oil pipeline from Russia’s wells in the Arctic Circle will also be attacked.
Two of Russia’s natural gas pipelines have already been destroyed, so it may only be a matter of time before the rest of Russia’s energy infrastructure is also attacked.
But the risk to Russia’s oil production doesn’t come exclusively from Ukraine. Mother Nature is proving problematic as well.
Back to Louis:
Severe storms in the Black Sea recently disrupted the transportation of up to two million barrels of crude oil per day from Kazakhstan and Russia, according to the Caspian Pipeline Consortium.
These Black Sea disruptions have persisted for three-straight weeks, and Russia’s crude oil shipments are now at a three-month low.
Russia’s refinery output also recently collapsed at several refineries due to crude oil shipping disruptions.
Furthermore, most of Russia’s crude oil production is above the Arctic Circle. So, any crude oil production disruption could result in Russian pipelines freezing, which would then render these pipelines worthless and permanently disrupt Russia’s crude oil output.
As a result, crude oil prices could rise if these production disruptions persist.
As for energy stocks, Louis isn’t concerned
He says that they’re going to have very favorable year-over-year comparisons, so he expects strong earnings that support higher prices.
Coming full circle, yes, our world is increasingly embracing green energy. But today, the global economy simply cannot operate without abundant oil and gas. And that means there’s plenty of time for trading/investing gains from fossil fuel energy stocks.
On that note, I’ll add that XLE, the SPDR Energy Select Sector ETF, is bouncing off medium-term support, and its Relative Strength Index, which was recently near oversold conditions, is leaping higher.
Not a bad time to give it a look.
We’ll keep you updated with Louis’ latest analysis here in the Digest.
Have a good evening,
Jeff Remsburg
