In today’s Money Morning…how some of the legacy energy plumbing might be fixed…energy and new money are on a collision course…BP slashes exploration and Shell goes after hydrogen and energy trading…and more…
After a sharp sell-off last week, a few bulls I know contacted me asking pretty much the same question:
‘Hey mate, sea of red this morning, is this the end?’
‘GameStop mini-panic is being used as an excuse to bank profits, relax.’
And yes, the mob is going after silver now.
But this is just another sideshow.
So, I was completely unsurprised to wake up, check Bloomberg, and see a headline saying, ‘Biggest rally in 12 weeks’.
The challenge as an investor though, is to look beyond the never-ending greed/fear cycle and fixation on big indices.
Yesterday, Ryan Dinse tackled the potential solutions available to fix legacy financial plumbing through DeFi.
Today, I’ll run you through how some of the legacy energy market plumbing might be fixed.
Energy and new money are on a collision course
When Nixon took the US off the gold standard, fiat was suddenly based on the ethereal concept of ‘trust’.
But trust in what?
Have a think for a moment.
I’d suggest it could be as simple as energy security.
In a world of machines and internal combustion engines, of huge global flows of goods, you needed oil to power the system.
There’s an argument out there (which I think Ryan Dinse subscribes to), that this essentially means for the better part of the last half century all fiat currencies were really petrodollars.
But the currency + energy landscape is being terraformed at a rapid rate.
Low oil prices diminish OPEC’s power and as a result, these countries are throwing the kitchen sink at remodelling their economies.
Finance hubs, a ‘knowledge economy’, and tech incubators.
Renewables will only accelerate this shift.
So, how does cryptocurrency fit into the energy market and money equation?
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The Symbiosis of the Energy Market and Cryptocurrency
Well, for one it could help with the battery storage problem — Australian mega-batteries are popping up everywhere.
You may have heard that bitcoin mining uses up around the same amount of power as Switzerland.
This is a near-constant flow of energy expenditure.
Renewables like wind and solar are patchy though.
Meaning that hypothetically, by combining renewables and crypto mining, you could alleviate this patchiness.
Switching mining on and off to match up with peak and off-peak power generation.
For more on this check out this post on ‘The Duck Curve’ from this particular analyst.
It’s not absurd to think that this could be the newest form of energy and currency symbiosis to replace the fiat petrodollar system.
Which is exactly why you should pay attention to what Big Oil is up to right now.
BP slashes exploration and Shell goes after hydrogen and energy trading
BP is copping flak from some investors for a hard pivot to renewables.
Which makes sense, their shares are getting smashed in a 12-month window.
Here’s what they’ve just done (via Reuters):
‘Hundreds have left the oil exploration team in recent months, either transferred to help develop new low-carbon activities or laid off, current and former employees said.
‘The exodus is the starkest sign yet from inside the company of its rapid shift away from oil and gas, which will nevertheless be its main source of cash to finance a switch to renewables for at least the next decade.’
‘BP is cutting some 10,000 jobs, around 15% of its workforce, under [BP CEO] Looney’s restructuring, the most aggressive among Europe’s oil giants including Royal Dutch Shell and Total.
‘The 50-year-old, a veteran oil engineer who previously headed the oil and gas exploration and production division, aims to cut output by 1 million barrels per day, or 40%, over the next decade while growing renewable energy output 20 fold.
‘Despite the changes, oil and gas will remain BP’s main source of revenue until at least 2030.’
For more confirmation that Big Oil can see the writing on the wall, check out Shell’s latest move:
‘Shell is already the world’s leading energy trader, an activity it calls “marketing”. It trades about 13 million barrels of oil a day, or 13% of global demand before the pandemic, using one of the biggest fleets of tankers.
‘It is the top trader of liquefied natural gas (LNG), buys and sells power, biofuels, chemicals and carbon credits, and now aims to use its pole position to snare a large chunk of the fast-growing low-carbon power market.’
This to go with a Europe-focused hydrogen hub.
Big Oil knows the government subsidies faucet will be turned off if they don’t change their business models.
But I’d also argue that they will need to buy up the necessary IP and technical know-how from smaller, more nimble companies.
Here’s something to ponder too…
How long until Big Oil launches its own digital currency?
I reckon it might happen if they don’t like the economics of digital currencies that governments roll out to maintain their grip on the energy and currency equation.
Currencies and energy will collide once more.
Like Mr Musk said recently, ‘it’s inevitable.’
For Money Morning
Lachlann is also the Editorial Analyst at Exponential Stock Investor, a stock tipping newsletter that hunts for promising small-cap stocks. For information on how to subscribe and see what Lachy’s telling subscribers right now, please click here.