Climate change
Why climate change is now a bona fide market risk
In 2008, it was fairly common practice to blame any of the following (evil passive index investors — hedge funds—oil traders—Opec) for driving oil prices up to $145 per barrel. The standard narrative was either that irresponsible and greedy institutions were synthetically pumping the price higher — and in so doing imposing a needless energy tax on the global economy — or, alternatively, that the smart-money was taking advantage of oil scarcity for their own future profitability. But with prices back at $60-65 per barrel levels, and the world facing something of a fossil fuel oil glut, is it time to frame the reality of 2008 in a different perspective? Perhaps, by providing the world with the incentive it desperately needed to get its collective butt into action on alternative fuel investment and development, speculators/passive investors/Opec cartels/banks actually did everyone a massive favour, albeit costly favour, in 2008.
Stranded assets and climate stimulus
It was Climate Finance Day in Paris last week, a conference convened under the auspices of UNEP and the UNPRI to address the specific challenges and issues of redirecting capital towards a resilient low-carbon global economy ahead of the United Nations Climate Change Conference also to be held in Paris, in December. The big takeaway was consensus is shifting, especially among asset managers and real money investors who no longer view environmental sustainability as a fringe theme. Climate is a bona fide risk for beneficiaries which professional investors must guard against to fulfil their fiduciary duties. To do nothing, essentially, is to encourage a disorderly capital transition and, potentially, a financial panic. As example, Axa’s chief executive pledged the insurer would divest €500m of coal assets between now and the end of the year.
Pouring money into the Weald
Solo Oil plc today announces that it has raised £2,000,000 gross proceeds through the issue of 363,636,364 new ordinary shares of 0.01 pence each in the Company (“Placing Shares”) at a price of 0.55 pence per share (the “Placing”). The Placing Shares which were issued at a discount of approximately 8% to yesterday’s closing bid market price represent approximately 6.59% of the Company’s enlarged issued share capital. Solo Oil will be using the money to fund working capital as it works with partners on such projects as Horse Hill in the Weald Basin. One partner is David Lenigas, director at Solo as well as UK Oil & Gas Investments PLC, the company which prompted some rather fevered press coverage about Gatwick’s potential as the new Saudi Arabia. Do note the clarification which followed a week later:
FirstFT (the new 6am cut)
You can sign up to receive the email here. The EU will launch one of the defining antitrust cases of the internet era today, formally charging Google with abusing its dominance of the internet search market in Europe. (FT) The European competition commissioner will accuse the US group of breaching antitrust rules by diverting traffic from rivals to favour its own services. Brussels will also launch a formal investigation into Google’s Android platform, focused on its distribution terms and compatibility tests for apps.
FirstFT (the new 6am Cut)
You can sign up to receive the email here. Bond investors are betting that the Fed is making like Michael Jackson and doing a moonwalk – it looks like you’re going forward but you’re actually moving back. Thus undeterred by the Fed’s ditched pledge to be patient about lifting rates, plenty of the smart money is on US rates staying near historic lows.
Saudi oil: Peak conspiracy
The oil world’s been full of speculation about the shift of strategy last year by Saudi Arabia which saw it keep the pumps running even as the price fell, turning an initial drop into a plunge. There may be a simpler explanation for Saudi’s willingness to see prices slide than an attack on US shale or a “political plot” against regional rival Iran, though: a change in the Saudi view on peak oil. The Saudis have two choices with their oil: sell it now, or sell it later.
Should central banks adopt a green agenda?
We know central banks have the power to support asset classes and to move markets, and do so frequently in the name of financial stability. But are there other social threats that could be stabilised or mitigated by central banks in a similar way? For example, should central bank monetary policy be charged with a green agenda? Should central banks take it upon themselves to encourage and support the formation of liquid environmentally-focused markets?
US shale revolution must force Davos energy rethink
This guest post is from the co-authors of UBS’s white paper for the WEF meeting 2015 in Davos, which started on Wednesday. Note that one of the co-authors, UBS Investment Bank’s chief economist Larry Hatheway, will be fielding questions on the energy chapter on Friday at 11:30am during Markets Live.
Not everyone “deserves” oil market share according to Naimi
For seasoned oil watchers the latest spew of “informed commentary” hitting the media waves is probably becoming nauseating. That’s because everyone from Robert Peston and Peter Hitchens to Vitol’s Ian Taylor seem to have a view on the oil price decline, some making claims that “the market may have hit bottom”, others hinting that the fall was too “mysterious” to be market led and the latter even admitting that even oil traders can’t predict what’s going to happen next. But it’s the words of Saudi Oil Minister Ali Naimi that matters most. And as he explained to Mees Energy on December 21 — echoing what FT Alphaville has been saying for a long time now — in a price war, everything turns into a market-share-based game of chicken, meaning there’s no incentive for the world’s most efficient and financially buffered producer to cut at all. (H/T Neil Hume for the Mees report.)
The dark side of data centres
Most technology users remain blissfully unaware of the internet’s carbon footprint because most “users” never have to come up close and personal with a data centre. Yet, for all the energy efficiency that technology brings us, data centres remain the technology world’s dark little energy guzzling secret. Data centres, it could be said, represent the unglamorous side of the technology business. They’re the plumbing that holds the whole thing together. They’re the secret sauce that gives one player an advantage over another. As a consequence, there’s zero advantage — either from a security or cosmetic point of view — of bringing attention to where your data centre is located, how it is run or how much energy it consumes.
The avoided energy factor
BoAML follow in the footsteps of UBS with a whopper report on the smartening up of the world’s energy markets. It’s a mighty 256 pager. We’re still going through it in detail, but couldn’t resist flagging up the following factoid about “avoided energy” before revisiting some of the larger themes (among them, the reduction of power consumed by data centres). What the analysts mean by “avoided energy” is how much energy we’ve avoided using thanks to improved efficiency and know-how.
Development banks good in crises, even better all other times
This is a guest post by Luciano Coutinho, CEO, BNDES, Brazilian Development Bank for the FT Alphaville Mission Finance series, in which he argues that development banks act as system stabilisers for the real economy. The 2008-2009 crisis revealed to the world what was known at a national level: qualified public financial institutions are of extreme importance when private credit slows down. Delicate financial situations require immediate and efficient actions and the recent countercyclical success of development banks (DBs) shows to what extent these institutions behave as system stabilisers in times of credit contraction.
The 6am London Cut
Camp Alphaville, a wonk in the park. July 2nd in London. Details here. Markets: Asia-Pacific markets rallied in response to a series of supportive data releases pointing to growth around the region. Japan’s Nikkei 225 led gains, rising 0.8 per cent to reclaim the 15,000 mark for the first time in two months. It is on pace for a third weekly gain, after climbing 2.1 per cent on Monday. Equities were aided by a 0.6 per cent weakening in the yen against the US dollar overnight, to about Y102.37, which supports Tokyo’s export stocks. The stock market was also lifted by domestic media reports speculating on the possibility of Prime Minister Shinzo Abe announcing an early cut to the corporate tax rate, which at nearly 36 per cent is among the highest in the world. (FT’s Global Market Overview)
London Value: The joy of a glass half empty
We’re at the London Value Investor Conference, where stock pickers try to persuade their peers to pick the stocks they have in their pocket. Self described pessimist Charles Heenan of Kennox is pitching a cyclical Hong Kong based manufacturer, Fujikon Industrial Holdings, a family controlled maker of acoustic headphones. His approach is to ask pessimistic questions: is it a flash in a pan, is it overvalued, is this the peak of the cycle? (Should I get that pain looked at? Is global warming real? Will anyone fix the baggage retrieval system at Heathrow?)
Energy is gradually decoupling from economic growth
According to BP’s Energy Outlook, which was released this week, global energy demand will continue to grow until 2013, but that growth is set to slow, driven by emerging economies — mainly China and India. To wit, the following chart from the presentation booklet:
The 6am Cut London
FT markets round-up:“Efforts by global central bankers to reassure markets that there would be no rush away from accommodative policies helped fuel fresh gains for equities and a rally in US government bonds, although gold sank to its lowest level in nearly three years. Indeed, the gold price tumbled $53, or 4.3 per cent, to $1,224 an ounce, while silver fell 5.5 per cent to $18.56 amid further fretting over Fed chairman Ben Bernanke’s comments last week about “tapering” the central bank’s quantitative easing programme. The dollar, meanwhile, maintained its firmer tone, rising 0.4 per cent against a basket of currencies, with the euro below the $1.30 mark for most of the day after Mario Draghi, ECB president, said the eurozone economic outlook still warranted accommodative settings. His remarks echoed similar comments from David Miles and Sir Mervyn King of the Bank of England.” (Financial Times) Sluggish growth data give Fed cause for caution on tapering: “The US economy grew at an annualised pace of 1.8 per cent in the first quarter, significantly slower than previously thought, which could give the Federal Reserve some reason for pause as it weighs slowing its support for the recovery. The surprisingly sharp downward revision – from an earlier projection of 2.4 per cent first-quarter gross domestic product growth – offers evidence that US growth remained quite sluggish even as the Federal Reserve began contemplating tapering the tempo of $85bn in monthly bond buys.” (Financial Times)
‘Collectively, humanity has yawned and decided to let the dangers mount’
So writes the FT’s Martin Wolf in his column today, which starts out noting that atmospheric carbon dioxide concentrations exceeded 400 parts per million last week, the highest level in 4.5m years. As he says, if we take a prudential view of public finances, then surely a similar approach to something irreversible and much costlier” is warranted.<
Where are all those natural gas fleet conversions?
Since 2009 the stark contrast between oil prices (high) and natural gas prices (low) in the US has prompted questions, and visions of a new future of transport fuels. There was some excitement that this might be gathering steam when Warren Buffett’s freight train network BNSF revealed it would trial LNG powered trains. This is the sort of thing that T. Boone Pickens has been pushing for years: use domestic natural gas as transport fuel to reduce costs, reduce emissions and diminish US dependence on oil imports, while providing a ‘bridge’ to renewables-based infrastructure.