Biden and Putin have made it possible for energy investors to have a field day
AGW nonsense makes a contribution
I have been a history buff since the fall of 1966 in my third year at Royal Military College of Canada when I left my Engineering Physics discipline and transferred to Arts with History as my specialty. In the Spring of 1968 I was accepted into the prestigious Master of Arts program at King’s College, University of London, England, to read for the M.A. in War Studies.
A few months later I completed my Bachelor of Arts in History With Distinction and was awarded the medal in History enjoying the highest grades in the Faculty of Arts.
The military would not permit me to enrol in the M.A. program insisting I proceed to train as a pilot and I spent the next several years flying high performance fighter aircraft as part of Air Defence Command. Notwithstanding, I asked Wolf Mendl, head of the King’s College M.A. program, to send me the reading list for the program and purchased all of the books listed. While I never completed post-graduate studies in history, I did read the entire reading list for the War Studies program.
My understanding of geopolitics was improved by that effort. Today it enhances my ability to understand the impact of geopolitical events on markets for securities in general and energy stocks in particular. Two geopolitical factors today converge to create a field day for energy investors.
The first is the widely popular but entirely specious theory of Anthropogenic Global Warming (AGW) which promotes the pretense that CO2 emissions control global temperatures, an absurd concept that has captured the minds of leaders of Western democracies while getting no more than lip service in Russia or China. Russian and Chinese communist leaders can hardly contain their glee as their Western democratic rivals self-immolate with inane policies that promote costly and unreliable “renewable” sources of energy and suppress development of prolific and low cost fossil fuels.
The second is the desire of Russian and Communist leaders to expand their geographic footprint through expansion to include the Ukraine in the case of Russia and both Hong Kong and Taiwan in the case of China. Those ambitions are first steps in long term programs of territorial expansion to achieve authoritarian socialist regimes in territories they control and to encourage the same outcome in what today are Western democracies. They are aided by what Kruschev used to call “useful idiots” who obtain leadership positions in democracies and enact policies that are destructive to their own countries based on AGW and a desire to see the emergence of a post-national global government built around socialist principles. Biden, Trudeau and Macron are among those “useful idiots”.
For energy investors these policies could not be more constructive. Under the umbrella of “fighting climate change” (a physically impossible dream) capital flows into fossil fuels have been constrained and capital squandered on investments in “renewables” based on the pipe dream that wind and solar can power the world. Oddly, nuclear energy has a chance of displacing fossil fuels but is eschewed by these “useful idiots” for ideological reasons devoid of common sense.
Inadequate capital investment in fossil fuel production has created a global energy shortage that is crimping the economies of the United Kingdom, Germany, France and beginning to effect Canada and the United States where prices of oil and natural gas are at decade long highs. Former Russian President Dmitri Medvedev almost chortled as he declared “welcome to the new world and much dearer natural gas” predicting Europeans would soon pay $2,200 per thousand cubic meters of gas, equivalent to about $80 Canadian dollars per thousand cubic feet (mcf). Compare that to current AECO gas prices of about $4.50 Canadian per mcf. $80 per mcf is about the BTU equivalent of just under $500 per barrel of oil.
Sound impossible? The price of natural gas in the United Kingdom today is already 275 pence per therm having touched 450 pence per therm a short time ago. 275 pence per therm is the equivalent of $27.50 U.S. per mcf, about six times the price Canadians currently pay. In parallel, the Brent reference price for crude oil is now north of $100 U.S.
Biden’s response to Russia’s invasion of the Ukraine is sanctions that include trying to prevent operation of Nordstream 2, a pipeline shipping Russian natural gas to Europe. Biden is joined by the action of Germany to pause certification of that pipeline. The result of these “sanctions” will be to exacerbate the shortage of natural gas in Europe and drive prices even higher. Rather than cause damage to Russia, the “sanctions” will ensure Russia receives a higher price for its natural gas with its related revenues rising even without shipping more natural gas. Russia’s “dont’ throw me in the Briar patch” strategy in the face of Biden’s sanctions makes Biden look not only weak but also silly.
As this situation unfolds, investors in Canadian natural gas and oil producers will continue the bull market rally they have enjoyed for over two years. Rapid expansion of North American Liquified Natural Gas production is in the cards as Europe turns to its allies to mitigate the natural gas shortage, and demand for natural gas from the prolific Deep Basin and Montney regions of Alberta and B.C. is sure to rise. Returns since January 2019 have been exhilarating and are going to get better. Here are some of them, with gains in just over two years ranging from 96% to 203%.
The domestic and geopolitical forces driving the bull market for energy stocks are not abating but are becoming stronger as leaders “double down” on their “climate change” rhetoric and impose sanctions on Russia and threaten sanctions on China should that dictatorship advance towards an invasion of Taiwan. Biden is the “Neville Chamberlain” of our era, too weak to take actions to prevent the Ukraine invasion and too stupid to grasp the insanity of the AGW charade. Trudeau is hardly a factor since global leaders have lost any respect they had for him as he fumbles foreign policy and continues to promote his globalist agenda and to impose nonsensical policies on Canada that weaken our economy and fuel inflation.
Ordinary Canadians should not wring their hands in despair in the face of geopolitical tensions they are impotent to change, but should batten own the hatches financially to protect against the rising inflation Trudeau has created with ill-conceived financial policies, profligate government spending, and his appointment of a financially illiterate ideologue as Deputy Prime Minister and Minister of Finance. They should own a modest portfolio of energy stocks that will offset some of the inflation they will experience as well as putting them on the right side of market forces almost certain to prevail in my opinion.