Two very interesting stories from the energy transition in the FT today. Oil trader Trafigura is making "a big push into renewable energy", with plans to build or buy 2 gigawatts of solar, wind and power storage projects over the next few years. (1/2) https://www.ft.com/content/6c33aa3c-2f3f-4448-921c-0007b1e44c27
...and Rosneft is warning that moves towards renewable energy by BP, Shell and others are creating an "existential threat" for oil supplies. "We will have a crunch, price volatility, and yes higher prices," said the company's Didier Casimiro. (2/2) https://www.ft.com/content/1394d8a1-6e85-451b-a858-ac6218b79d06
The warning of a possible supply crunch is in line with what Wood Mackenzie's @WMALHittle has been saying for some time. It's not just about the oil majors and their investment strategies: it is also the asymmetric impact of the Covid-19 downturn...
....because the impact on oil supply will last longer than the impact on demand. As demand recovers, however and whenever that happens, it will take time for supply to respond.
For many oil producers, of course, a tighter global market is exactly what they are want to see. It would certainly help with prices and short-term cash flows. But I think Rosneft has a point in characterising it as a "threat".
...because while electric passenger cars and short-haul freight trucks are becoming increasingly competitive, they are still being held back by low prices for gasoline and diesel. An oil price shock could cause a surge in EV sales, locking in lower demand long-term
A final thought on this. This view of the world is broadly in line with @Total's outlook for the next two decades, which I have flippantly described as the "one last big score" theory...
Investment cuts lead to weak supplies that drive oil prices up in the 2020s. But weak demand means they fall again in the 2030s. (Those would be the prevailing tendencies, with volatility around those trends, obviously.) More on Total's view here: https://www.total.com/media/news/short-term-price-revision-and-climate-ambition-total-announces-exceptional-8-b-asset
Short term price revision and Climate Ambition: Total announces exceptional 8 B$ asset impairments...
For the calculation of impairment tests of its assets, Total set in 2019 a price scenario with a 2050 Brent price of 50$/b, in line with the "well below 2 °C" scenario of the IEA. This scenario is...https://www.total.com/media/news/short-term-price-revision-and-climate-ambition-total-announces-exceptional-8-b-asset