“The MSCI Global Energy Composite will outperform both renewable energy stocks and the broad equity market (SPY) again over the next year”

05/04 article by Nathan Allen, Seeking Alpha News Editor (can't link here):

JPM Chair of Market and Investment Strategy Michael Cembalest says “ignore all the hype” in the energy transition (to renewable energy), “with energy demand still in excess of supply, I believe the MSCI Global Energy Composite will outperform both renewable energy stocks and the broad equity market (SPY) again over the next year.”

He asks: “The IEA projects that the world may still be 66% reliant on fossil fuels in 2050. What gives?”

The points of his explantion:

• Energy technology can't be disrupted in the same way that other new tech can disrupt old tech. After two decades of solar and wind investment, renewables have only captured ~5% of the global primary energy market. Electric cars are still only ~2% of the global vehicle fleet. We're experiencing energy shocks and shortages due to the attempt to force an end to investing in hydrocarbons, rather than a fast track to renewable energy.

• “Much of the reduction in carbon intensity throughout the US and Europe has come as a result of exporting carbon-intensive work to the developing world.”

• ““Levelized cost” of energy calculations mislead investors and the public about technology's impact on the full cycle cost for intermittent sources of energy.”

• “Commercialized low-carbon energy solutions focus on a very narrow piece of the primary energy pie.”

In response to fact that energy stocks have lagged in the past couple of decades, Cembalist explains that it's not because old energy has been successfully constrained and is becoming redundant due to renewable energy. Energy stocks have lagged because of their leaderships' misguided focus on high/increasing production (implying that doing so burdened them with high capital equipment costs and low commodity prices/low profit margins).

“Energy stocks have performed poorly because fossil fuel producers have focused on growth rather than returns. It's unclear whether ESG policies, perceived irrelevance, or the near-death experience of the pandemic changed attitudes in fossil fuel producer board rooms. However, attitudes have changed, fossil fuel producers are no longer growing at all costs, and as a result, the outlook for oil, gas, and coal equities globally has never looked brighter.”