Super-Spiked Turns One, A Messy Energy Transition Era Turns Two

“If there’s a new way, I’ll be the first in line, but it better work this time”

I launched Super-Spiked one year ago yesterday with this post (link):

Retro Biden snatching oil price defeat from the jaws of irrelevance

One year later, I believe the key themes have stood the test of time:

1. An urgent need for traditional energy companies to focus on improving structural profitability. So far, so good! The only ideology adhered to at Super-Spiked is that I am pro-capitalism, anti-socialism.

2. We are not on-track for "good" energy policy. Yup, still true, unfortunately.

3. The mainstream conversation around "energy transition" is way off base. I believe there is a growing recognition that the transition path that is being attempted—demonize and divest fossil fuels before we have viable replacement technologies—is “the road to Hell” as a prominent bank CEO recently quipped. I agree and will cite another great statesman: “If there’s a new way, I’ll be the first in line, but it better work this time.”

In 2021, it was clear to me that that we were in the early days of what looked to be a messy energy transition era and that there was a market for fresh perspectives that disavowed ideological extremes. My kids were leaving for college. I was almost certainly approaching the flatter part of the GHIN reduction curve. The behind the scenes roles I had held for the prior seven years—as rewarding as they are—were not affording an opportunity to reach a broader audience. Energy literacy is a real problem plaguing the world. I have studied energy markets, companies, and technologies for 30 years. I am, if nothing else, energy literate.

I reject Malthusian, apocalyptic "climate only" ideology that prioritizes solving negative externalities over the fundamental human right to energy availability, reliability, affordability, and security. Taking away, restricting, divesting, demonizing, or otherwise disincentivizing viable forms of energy in the name of “climate” or any other cause makes human beings worse off. Giving people any form of modern energy makes human beings better off.

That said, there is plenty that can and should be done to deal with the negative externalities including:

1. Reducing energy usage per unit of GDP (at trend growth) through low-hanging fruit such as CAFE reform (e.g., ban any vehicle that gets less than 30 mpg in real world driving) and a host of energy efficiency measures applicable to buildings, homes, and transport;

2. Moving a much greater portion of power generation to zero-carbon nuclear power;

3. Optimizing the use of renewables in the niches where it can make sense while acknowledging the painfully obvious fact that renewables are nowhere near capable of being a 100% or 50% and probably not even a 25% solution to world power generation needs (maybe 10% or 15%?);

4. Eliminating a substantial majority of methane flaring/venting/leaks to ensure natural gas is in fact a meaningfully lower carbon replacement for coal;

5. Incentivizing research and development for newer, lower carbon energy technologies such as geothermal, hydrogen, electric and hybrid vehicles, batteries, etc.

Energy transition progress report one year in

Energy sector profitability, relevance and financial health is dramatically improved versus October 2020 structural trough

US energy policy: “Challenged” would be the polite descriptor

Energy transition narrative: The good, the bad, and the ugly

The Good: 2022 bank proxy results

The Bad: Woke vs anti-woke ESG (wrong choices: we need ESG 2.0)

The Ugly: Munich Re and the fossil fuel divestment effort (link)

Munich Re and Newton’s 3rd Law

Super-Spiked reflections one year in

Proudest moment

Having both a seemingly right-of-center oil company CEO and a likely left-of-center person from the environmental community forward the same post to their respective followers. Each highlighted different elements, with the former focusing on my rejection of so-called Scope 3 emissions as anything other than a really bad climate accounting policy. The latter appreciated my calling out oil companies to more quickly and forcefully address methane flaring/venting/leaks.

Favorite report series

My ROCE Deep Dive work is my pride and joy (you can find the full series on the right side of my website here). It is the analytical framework I use in thinking about investments, corporate strategy, and life in general. Without capitalism the world would be stuck in some mixture of "Deadwood" and "Game of Thrones". While I am not a fan of tired luxury hotels (e.g., many of the downtown Four Seasons around the country, older Ritz Carltons, etc.), I am very thankful that I didn't have to raise my kids on the side of the highway between New Delhi airport and the stunning luxury hotels in the city centre. Those people do not deserve the messy energy transition quagmire being hoisted upon the world by various global elites and "climate only" ideologues. No one does. Super-Spiked is dedicated to the energy poor of the world and pushing back on false choices and narratives.

Best skill learned

Writing when I have conviction about a topic has always come easy to me. And I have often received positive feedback for various presentations and speeches I have given. But self-producing YouTube videos is definitely not something that comes natural to a 50+ year old. Kudos to my children for their constructive feedback in the early days. Who knew a thumbnail was something you would want to explicitly create?

Biggest surprise #1

I have really enjoyed engaging with a much broader audience than was my focus for the first 29 years of my career. As a Goldman analyst and with my current affiliations, I am basically only exposed to leading institutional investors, corporate management teams, and corresponding equivalents among public policy, government, and academia. But Super-Spiked, YouTube, and Twitter are all open to anyone, anywhere. While I am very appreciative of having so many former Goldman clients, Wall Street colleagues, and corporate executives as subscribers, making Super-Spiked accessible to a broader group has been surprisingly fine so far.

Biggest surprise #2

The networking benefits of writing Super-Spiked have far exceeded my expectations. Some of it has been reconnecting with old (energy sector) friends, especially those on Wall Street or in the oil patch. New contacts in the public policy and environmental spaces as well as in media (traditional and new) have helped me gain new perspectives, see things from a different vantage point, and changed my mind on some issues.

Unexpected revelation

An unexpected revelation for me has been realizing that climate activists and people like "Greta" are not the reason we are in a messy energy transition. Climate activists are doing what their role on Earth is: advocating hard for the environment. It is totally within their right to do so. We are better off for it (e.g., smog reduction, cleaner water, etc., etc.).

Rather, we are in a messy energy transition because of bad public policy choices, an unwillingness by so many to engage in real discussion and debate about solutions to our energy and environmental challenges, and because business people including both corporate management teams and investors have too often taken the easy way out on engagement. Declaring allegiance to an unobtainable “Paris-aligned, net zero by 2050” objective I think may be the original corporate and investor sin on why we are not moving to a healthier energy evolution era from the messy energy transition quagmire. More on that in 2023. As a reminder, my views are my own and not attributable to any current or past affiliations.

Biggest source of optimism about eventually moving to a healthier energy evolution era

An ROCE super cycle is underway for traditional energy, energy’s S&P market cap weighting is over 5%, its S&P earnings weight is around 10% and all of that will prove irresistible to investors. A new and much needed CAPEX cycle will follow. While the day will come when energy companies inevitably over-invest, we are currently many, many years, in my view, away from that day. To paraphrase my old boss (or technically my boss's, boss's, boss's boss) Lloyd Blankfein: “it won't do you, Goldman's clients, or Goldman Sachs any good to wish away the cycle. You have to go through it and do the best you can” (big time paraphrasing here though I remember his exact words and intention like they were yesterday).

Biggest source of optimism in dealing with negative externalities

Methane is a totally solvable problem, at least as it relates to the major sources of flaring, venting, and leaks the come from the oil and gas industry. This is an issue where oil and gas executives, policy makers, and regulators can and should come together to figure out the best path forward. This is happening. But it can happen faster with good faith co-operation. In my view, cleaning up the methane issue is the BIGGEST contribution oil and gas companies can and should make to helping address negative climate externalities from oil and gas production. Cleaning up so-called orphan wells should be an additional source of optimism and possibility.

Best thing you can say about current US energy policy

What is the line that if you don't have anything nice to say…OK, I’ll dig deeper. The mis-named Inflation Reduction Act is not terrible.

Worst part of US energy policy

As a Wall Street analyst or investor, we all get calls wrong. It is obvious and indisputable when you do. You suffer the consequences (investment loss or underperformance or perhaps public shame if you are on the sell-side), acknowledge the mistake, try to figure out why you got the call wrong in order to hopefully avoid repeating the mistake, and move forward. None of this seems to occur within the political or policy (or academic?) realms. Blaming “the other side” is all you ever see. What happened to personality responsibility?

A look ahead to Year 2 of Super-Spiked and year 3 of the messy energy transition era

Publishing goals

Right now I am publishing once a week, almost always on Saturday morning. I alternate between 2-3 written posts and 1 videopod. I would like to increase the frequency of shorter videos (5-10 minutes in length). Wondering if I can do that without detracting from other responsibilities and goals. The plan is to keep Super-Spiked free of charge; that way I can ensure every subscriber will definitely get what they paid for.

Interaction

Right now, I have limited in person meetings or Zoom/Teams/phone calls to essentially former Goldman clients and colleagues and equivalents in media, public policy, academia, and government. It’s kind of a high bar for high-touch interaction. I might try to institute a regular Twitter Spaces, Substack Chat, or YouTube/Zoom webinar for a broader audience. I will give this further thought.

What topics am I studying up on?

Subject matter areas of interest include continuing to build-out energy and market cycle analytics and thinking through what might constitute "good" energy and environmental policy. Specific subjects that I plan to further ramp up on include:

1. Power markets: I am an oil and gas analyst by background, not a power markets expert;

2. Future technologies: geothermal, heat pumps, nuclear, hydrogen, CCUS and direct air capture to name a few;

3. India: improving energy availability, reliability, affordability, and security but with an especially pressing need to take into account environmental considerations including clean air, clean water, and biodiversity.

Truth in energy: Toward a better energy conservation

What is most mis-understood by investors?

The fact that the traditional energy cycle will again turn down some day does not mean you should avoid a long upcycle that precedes that future down cycle.

Runner Up #1: Technology and innovation (as a market sector) is cyclical as well.

Runner Up #2: We are not choosing between “woke” and “anti-woke” ESG alternatives. Rather, we are in search of ESG 2.0 that places energy availability, affordability, reliability, and security as its core, while recognizing the need to deal with negative externalities related to the environment and climate. More on this in 2023.

What is most mis-understood by climate activists?

It is neither social nor environmental justice to take away viable forms of energy before the new stuff is ready, if ever, for prime time, especially from the least fortunate among us.

What is most mis-understood by policy makers and academics?

The smartest people in the room are often the ones most wrong about an issue. Where is the humility and self reflection?

What is most mis-understood by the publisher of Super-Spiked?

We will probably need more government policy than I would like in dealing with negative externalities that come from energy supply.

Runner Up #1: The sub-optimal solution is sometimes better than doing nothing.

Runner Up #2: Kendall Jenner (Kardashian) modeling a Slayer t-shirt does not mean 1980s heavy metal is now popular.

Dueling Slayer t-shirt models: Who wears it better?

Slayer t-shirt models: Kendall Jenner (left, Glamour UK), Super-Spiked publisher (right, selfie)

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⚡️On a personal note…

I feel like this was one big “On a personal note…” So I will simply end with a giant THANK YOU for reading, listening, watching, engaging, pushing back, and otherwise contributing to open discussion and debate on the most important issue impacting all of us: Energy. I am having a great time producing Super-Spiked. So far, so good…so what!

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⚖️ Disclaimer

I certify that these are my personal, strongly held views at the time of this post. My views are my own and not attributable to any affiliation, past or present. This is not an investment newsletter and there is no financial advice explicitly or implicitly provided here. My views can and will change in the future as warranted by updated analyses and developments. Some of my comments are made in jest for entertainment purposes; I sincerely mean no offense to anyone that takes issue.

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💿 Super-Spiked Energy Transition playlist 📼

Two additions this week to the Super-Spiked Energy Transition playlist (the full playlist can be found here). Peace Sells provides the quote and sub-heading to today’s post. As I noted in $XLE Resurrection, much of Megadeth’s early themes were around the risk of nuclear annihilation and the Cold War. The lyrics translate well to today’s pre-occupation by some about a climate apocalypse.

The second playlist addition comes from one of the most remarkable and least appreciated bands that started in the 1980s: Slayer. The progression from 1970s Led Zeppelin and Black Sabbath to 1980s Iron Maiden, Judas Priest as well as AC/DC and Van Halen is pretty well appreciated. Metallica and Megadeth took metal to a heavier place than Maiden or Priest and certainly AC/DC or Van Halen, the latter two of which I would think are now considered main stream “rock” bands and not even hard rock.

Slayer was on a whole different level than even Metallica or Megadeth. The live recording (below) of the title track from their inaugural album unleashed a new fury and urgency to metal that made Metallica at times seem like a pop band (Enter Sandman…yikes). Slayer’s best effort, in my view, came with its third full length album, Reign in Blood. Easily on my Top 10 all-time list. Slayer’s lyrical choices leave something to be desired, but I wouldn’t take them literally. It’s an attitude, not a cause.