Arjun, do you have any thoughts or comments around the recent report by Goehring & Rozencwajg called “THE END OF ABUNDANT ENERGY: SHALE PRODUCTION AND HUBBERT'S PEAK”. Their thesis is that King Hubbert’s theories of peak oil are effectively coming into play if you take out the massive impact of shale oils, which they see as coming to a plateau and then diminishing. They also discuss the limitations and production challenges to exploit shale oil fields in other continents, such as Siberia and South America.
HI Stuart, I am a big fan of G&R. I have not yet read their most recent commentary. They do excellent work and the broader bullish thesis we generally share (with some caveats). There is no question shale is matured relative to years's past. I still think the Permian has a number of years of growth remaining, driven by the dominant players. I do agree the best days of growth are almost certainly in the past.
Arjun, I've been thinking a lot about whether super vol only applies to the oil market, or whether it will also be something that might occur generally in the global economy and markets in the future. I've been reading articles for almost a year about how we might end up in a situation similar to the 70's where central banks have to raise and lower interest rates to deal with inflation that won't go away, such that markets look like a sign wave, which when averaged out and adjusted for inflation looks flat (i.e. stagflation). While no one can predict the future, it seems pretty clear that central banks have painted themselves into a corner by having kept interest rates so low for so long together with "QE infinity" that the entire system has such high levels of public and private debt (unlike the 70s) that it can't deal with high rates necessary to quell inflation for an extended period of time without imploding. The bond market seems to be betting that the Fed will be changing course soon, perhaps before inflation is reduced to manageable levels, which might lead to further bouts of inflation in the future. If we do enter a stagflationary environment. I wonder how that impacts CAPEX decisions not just for oil and gas, but all other industries if investors generally (not just in oil/gas) only reward managements for returning cash to shareholders, rather than making risky CAPEX investments? Of course, if that happens in all industries, does that continue to negatively impact investment in energy CAPEX leading to future price spikes and then demand destruction? (e.g. the WSJ story about XOM in talks with PXD for potential acquisition and giving up on drilling offshore in Brazil). Because of the criticality of energy in the economy, the potential synergistic feedback loops in this scenario are kind of scary. Your thoughts?
James, thanks for your comment. While the 1970s is not a perfect analogy, it seems better than the more recent 40 years. A lot of what you lay out in terms of inflation, central bank reactions, etc. As for other industries, not sure I have a strong view...we did get plenty of energy CAPEX in 70s that eventually lead to the weaker 1980s. Hopefully there will be a recognition by other industries that the ideology around transition needs to go and we need a healthier evolution to emerge. We don't have to be tight energy.
Thank you Arjun. Question: the O&G industry and the public perception of the O&G industry seem to go through periods where a particular theory prevails, example being the 'peak supply' paradigm during the 2005 - 2010 period and now the 'peak demand' paradigm. That's not to say that everyone thinks the same way at the time, but there seem to be these consensus ideas that many people believe for long periods and that have real impacts on valuation, capital allocation and decisions in the industry. The current peak demand paradigm is having a big effect, I'm trying to get a sense of how you see this evolving. Have there been many of these kinds of paradigms in the past? What causes them to change, is it a particular event or do they just seem to fade away and the next big idea moves in a few years later? Do the top quartile executives in the industry ever subscribe to these?
Investor, yes we definitely jump from "paradigm" to "paradigm". It's kind of like wondering how many years of strong ROCE is needed before investors come back...it's not clear how many years of not having peak demand will cause people to change views. The Petroleum museum in Midland had a great exhibit showing magazine covers for the 80 years or so that regularly called for the "End of the Oil Age". I suppose that will be true at some point. Do executives succumb to beileving the new paradigms? Yes, for sure...I think everyone does to a degree.
Thank you for the reply. It would be very interesting to get your analysis of how you think the IEA came to its current peak demand/renewables advocacy position, from what I understand this is a more recent, political, development, and it seems to be the foundation of the peak demand paradigm which is so influential.
Arjun, do you have any thoughts or comments around the recent report by Goehring & Rozencwajg called “THE END OF ABUNDANT ENERGY: SHALE PRODUCTION AND HUBBERT'S PEAK”. Their thesis is that King Hubbert’s theories of peak oil are effectively coming into play if you take out the massive impact of shale oils, which they see as coming to a plateau and then diminishing. They also discuss the limitations and production challenges to exploit shale oil fields in other continents, such as Siberia and South America.
https://info.gorozen.com/2022-q4-commentary-peak-oil
There is an excellent podcast interview with Leigh Goehring on the Decouple podcast here - called Peak Shale : https://podcasts.apple.com/us/podcast/decouple/id1516526694?i=1000604003853
HI Stuart, I am a big fan of G&R. I have not yet read their most recent commentary. They do excellent work and the broader bullish thesis we generally share (with some caveats). There is no question shale is matured relative to years's past. I still think the Permian has a number of years of growth remaining, driven by the dominant players. I do agree the best days of growth are almost certainly in the past.
Cornerstone seems very optimistic for oil priced, do you see he’s comment? https://www.bnnbloomberg.ca/video/russian-oil-production-cuts-a-start-of-a-capacity-problem-cornerstone-analytics~2663196
I had lost touch with Mike...thanks for passing along.
Arjun, I've been thinking a lot about whether super vol only applies to the oil market, or whether it will also be something that might occur generally in the global economy and markets in the future. I've been reading articles for almost a year about how we might end up in a situation similar to the 70's where central banks have to raise and lower interest rates to deal with inflation that won't go away, such that markets look like a sign wave, which when averaged out and adjusted for inflation looks flat (i.e. stagflation). While no one can predict the future, it seems pretty clear that central banks have painted themselves into a corner by having kept interest rates so low for so long together with "QE infinity" that the entire system has such high levels of public and private debt (unlike the 70s) that it can't deal with high rates necessary to quell inflation for an extended period of time without imploding. The bond market seems to be betting that the Fed will be changing course soon, perhaps before inflation is reduced to manageable levels, which might lead to further bouts of inflation in the future. If we do enter a stagflationary environment. I wonder how that impacts CAPEX decisions not just for oil and gas, but all other industries if investors generally (not just in oil/gas) only reward managements for returning cash to shareholders, rather than making risky CAPEX investments? Of course, if that happens in all industries, does that continue to negatively impact investment in energy CAPEX leading to future price spikes and then demand destruction? (e.g. the WSJ story about XOM in talks with PXD for potential acquisition and giving up on drilling offshore in Brazil). Because of the criticality of energy in the economy, the potential synergistic feedback loops in this scenario are kind of scary. Your thoughts?
James, thanks for your comment. While the 1970s is not a perfect analogy, it seems better than the more recent 40 years. A lot of what you lay out in terms of inflation, central bank reactions, etc. As for other industries, not sure I have a strong view...we did get plenty of energy CAPEX in 70s that eventually lead to the weaker 1980s. Hopefully there will be a recognition by other industries that the ideology around transition needs to go and we need a healthier evolution to emerge. We don't have to be tight energy.
Really looking forward to listening to your chat with Jason Bordoff.
Thank you Arjun. Question: the O&G industry and the public perception of the O&G industry seem to go through periods where a particular theory prevails, example being the 'peak supply' paradigm during the 2005 - 2010 period and now the 'peak demand' paradigm. That's not to say that everyone thinks the same way at the time, but there seem to be these consensus ideas that many people believe for long periods and that have real impacts on valuation, capital allocation and decisions in the industry. The current peak demand paradigm is having a big effect, I'm trying to get a sense of how you see this evolving. Have there been many of these kinds of paradigms in the past? What causes them to change, is it a particular event or do they just seem to fade away and the next big idea moves in a few years later? Do the top quartile executives in the industry ever subscribe to these?
Thank you again,
J
Investor, yes we definitely jump from "paradigm" to "paradigm". It's kind of like wondering how many years of strong ROCE is needed before investors come back...it's not clear how many years of not having peak demand will cause people to change views. The Petroleum museum in Midland had a great exhibit showing magazine covers for the 80 years or so that regularly called for the "End of the Oil Age". I suppose that will be true at some point. Do executives succumb to beileving the new paradigms? Yes, for sure...I think everyone does to a degree.
Thank you for the reply. It would be very interesting to get your analysis of how you think the IEA came to its current peak demand/renewables advocacy position, from what I understand this is a more recent, political, development, and it seems to be the foundation of the peak demand paradigm which is so influential.
Thank you again. Your insights are of great value to me. NOT an Astro fan.
thank you Martin. and great to hear!