Displaying items by tag: carbon

Alternative energy is forecast to grow rapidly in the coming years due to government subsidies and continued innovations which continue to drive power-generation costs lower. However, the bottleneck for the growth of the industry is proper infrastructure to store and transmit this power.

It’s also necessary as some types of alternative energy production such as wind, solar, and hydropower are adversely affected by weather. Until this goal is sufficiently solved, the world will continue to remain dependent on fossil fuels. 

Investors have several options when it comes to investing in the growth of the energy storage industry. One is to own stocks of companies in the supply chain whether it means producers of metals like Albemarle, EV and battery producers like Tesla or BYD, or a provider of energy storage software, solutions, and services like Fluence Energy. 

Another option is to invest in ETFs like the Global X Lithium & Battery Tech ETF (LIT), the First Trust Nasdaq Clean Edge Smart GRID Infrastructure ETF (GRID), or the First Trust Nasdaq Clean Edge Green Energy Index Fund (QCLN). These are diversified, lower-cost ETFs that offer exposure to the energy storage theme and offer exposure to the largest companies in the space. 

Finsum: Alternative energy is booming, but it also requires sufficient investments in energy storage to support its growth. 

The IEA issued its outlook for the energy sector. Overall, global demand remains strong with daily demand at 101.9 million barrels, a 2.3 million barrel per day increase from 2022. In recent months, there has been some signs of North American gasoline demand declining but this has been offset by strong demand from Asia. For next year, it forecasts a smaller increase of 900,000 barrels per day.

Global oil production is expected at 101.6 million barrels per day. This is a 1,500,000 barrel per day increase from last year despite less production from OPEC+. So far, there is no impact on oil production from the conflict between Israel and Hamas. Yet, there is still a daily shortfall which exacerbates the impact of an escalation in geopolitical risk with the gap being made up by inventories.

The attacks did result in a $3 to $4 spike in oil prices, although prices quickly stabilized and remain off recent highs. Currently, there is a push and pull between upwards pressure on the supply side as Russia and Saudi Arabia pull back on production while higher interest rates threaten the demand outlook. So far, demand has proven to be resilient contrary to expectations at the beginning of the year. 

Finsum: The IEA issued its report on the oil market. It sees a small shortfall between global supply and demand which is being filled by inventories. 

During Q3, there was a net outflow of $1.4 billion from renewable energy funds. Overall, there has been a 23% drop to $65.4 billion in total assets in renewable energy funds from the end of Q2. 

Renewable energy companies have underperformed due to high rates and rising costs which are compressing margins. Given that many of these companies have high multiples, they are more sensitive to rising long-term rates which makes future projected cash flows less valuable.

While there was a burst of enthusiasm around the sector following the passage of the Inflation Reduction Act (IRA), many stocks in the sector are down between 30 and 50% since then. For instance, the iShares Clean Energy ETF (ICLN) is down 39% since the IRA’s passage in August of last year.

Some of the issues they’ve faced include project delays, long timelines for permits in addition to the headwind of higher material costs and interest rates. As a result, many high-profile projects in Europe have been delayed or canceled due to these constraints. Another contributing factor for outflows out of the sector is that artificial intelligence has become the new ‘hot’ growth theme in 2023 with the theme attracting significant flows.

Finsum: Renewable energy funds experienced major outflows in Q3 due to a variety of factors. 

Most analysts attribute the current strength in oil to production cuts and discipline exercised by OPEC countries in preparation for a global recession. However, demand has been resilient, contrary to expectations, even with a weak Chinese economy and rising recession risk in many parts of the world. 

According to Haitham Al Ghais, the secretary general of OPEC+, demand is expected to grow by 2.4 million barrels per day over the next couple of years. While many are encouraging the group to increase production in order to provide relief to consumers and temper inflationary pressures, Al Ghais is more concerned about the decline in CAPEX in the oil & gas sector. 

He believes this will lead to an unsustainably tight equilibrium that will be prone to supply shocks and potential shortages. He believes that many in the West are being naive about alternative energy given the world’s reliance on fossil fuels. 

In essence, Al Ghais sees a bigger crisis looming given that he sees oil demand continuing to grow steadily while investments in future production have declined due to poor returns in the past and concerns that alternative energy will displace oil & gas. This is laying the seeds for a future energy crisis in his opinion.

Finsum: OPEC’s secretary general Haitham Al Ghais shared his thoughts on energy, and why he’s especially concerned about the lack of investment in new production.

JPMorgan upgraded the global energy complex to an ‘overweight’ rating as it sees the possibilities of an energy ‘supercycle’ due to low levels of CAPEX over the past few years and near-term supply shocks. The bank believes that Brent crude oil prices could reach $150 by 2026. It sees upside for major energy producers and operators like Shell, Baker Hughes, and Exxon Mobil.

Oil prices have risen in the second-half of the year with WTI crude oil exceeding $90. This places strain on consumers, adds to inflationary pressures, and complicates chances of a Fed pivot. Oil prices have maintained their gains despite increasing concerns that a recession may be materializing given soft labor and consumption data.

The biggest driver of prices has been stronger than expected demand coupled with OPEC production cuts. It sees a tight supply/demand dynamic lingering over the intermediate-term which means increased susceptibility to geopolitical shocks. Based on current trends, the bank anticipates a 1.1 million barrel per day deficit in 2025 which could widen to 7.1 million barrels per day in 2030. 

Finsum: JPMorgan sees the possibility of an energy supercycle due to demand remaining resilient and supply concerns.