The Great Disruption of 2021 and How to Play It

[3 min read]

A NOTE TO RUM REBELLION READERS:

Is it really the end of the line for fossil fuels? Opinion is divided (to say the least!) here at The Rum Rebellion. But the truth is it doesn’t really matter if, like Greg and Vern, you have deep misgivings about the global climate change ‘movement’. It doesn’t really matter if the terms ‘sustainable investing’ or ‘Green New Deal’ raise your hackles.

Money is moving. And for better or worse, in the investment world a great system change to a lower-emissions future is on. If you’re ideologically opposed, you can choose to sit back and watch.

Below we republish an essay from Selva that was ahead of the curve here back in June…

***

It’s crazy to think of the amount of economic havoc the pandemic has caused in a very short time.

In the last few months COVID-19 has stopped the world. We’ve seen country-wide lockdowns and massive economic and job losses.

At the same time, it’s expediting trends that already existed.

A globalisation reversal was already underway with events like Brexit, or the US–China trade war, but the pandemic has made countries suddenly realise the importance of guaranteeing supply chains.

Another industry where the virus is creating lots of disruptions is in energy.

I mean, it was only a couple months ago that prices went negative for the first time ever over concerns on storage as demand collapsed.

The lockdowns meant no driving, planes grounded, and a decline in global trade.

Fossil fuels were already in decline though, before the pandemic hit.

You’ve probably heard a lot about electric cars and renewable energy in the last few years, yet…

…fossil fuels still make up a large amount of our energy consumption, as you can see in the graph below:


Port Phillip Publishing

Source: Our World in Data

[Click to open in a new window]

And it’s in this area that we could have a once in a lifetime opportunity, at least according to the International Energy Agency (IEA).

What’s this once in a lifetime opportunity?

According to the IEA, this pandemic is giving us a unique chance at a cleaner energy future.

And for this the IEA together with the International Monetary Fund has released a road map, named Special Report on Sustainable Recovery, that boosts a sustainable energy recovery from the pandemic.

As IEA Executive Director Fatih Birol said:

Governments have a once-in-a-lifetime opportunity to reboot their economies and bring a wave of new employment opportunities while accelerating the shift to a more resilient and cleaner energy future.

[…]

The Sustainable Recovery Plan would make 2019 the definitive peak in global emissions, putting them on a path towards achieving long-term climate goals.

The IEA is keen on avoiding a repeat of what happened after the 2008 crisis when there was an increase in carbon emissions.

According to their 2021–23 roadmap, they could increase global growth by an average of 1.1% per year and create about nine million jobs during that period, with many of those coming from improving energy efficiency and the electric and renewable sectors.

The plan is set to cost US$1 trillion per year, or 0.7% of the global GDP, and would expand across six sectors: electricity, transport, industry, buildings, fuel, and emerging low carbon technologies.

What could happen next?

Fossil fuels were an unloved industry before the pandemic, but as I said, the virus is expediting trends.

We may be reaching the end of the line for fossil fuels.

With oil prices at record lows, some of our energy producers on the ASX are already feeling it.

Shares for Woodside Petroleum Ltd [ASX:WPL] have dropped by 35% since February. Similarly, Oil Search Ltd [ASX:OSH] has seen a close to 45% drop in the same period.

Best,

Selva Freigedo Signature

Selva Freigedo,
For The Rum Rebellion

PS: Discover five ASX-listed firms that have been beaten down during the crisis…with the potential to rally strongly as the market recovers. Click here to learn more.


Selva Freigedo is a research analyst for The Rum Rebellion.

Born in Argentina, her passion for economic analysis started at a young age. Her father was an economist for the Argentinean governments and the family used to discuss politics and economics at the dinner table.

Argentina is a country with an unusual economic history. Growing up there gave Selva first-hand experience on different economic phenomena such as hyperinflation, devaluation and debt default.

Selva has also lived in Brazil, Spain and the USA.

Back in 2000 she was living in the US as the dot com bubble popped…
And in 2008 she was in Spain as the property market exploded and then collapsed…

She has seen first-hand what happens when bubbles burst.

Selva joined Port Phillip Publishing’s team in 2016, as an analyst. She now writes from her vantage point in Australia, where she settled in 2015.


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