Kingsmill’s Investment Miscellanea: Friday, February 7, 2020

Feb 07, 2020 | Joshua Kingsmill


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Key Takeaways:

  • A big ruling highlights the challenges in balancing the economies real need for Oil and the environment
  • This new pipeline ruling is good for Canada, in the context of these environmental concerns
  • Alternative energy investments will grow, but won’t likely come from within existing hydro-carbon Energy companies

 

Recall a few weeks ago, I wrote about Blackrock and the emergence of ESG investing (click here to read it). As investment dollars gradually shift away from traditional energy and into renewables, this will present problems for the carbon energy producers. But balancing the global need for energy and the environmental issues will continue.

In North America, this is cascading down to investments in infrastructure projects. This week, the Federal Court of Appeal cleared a major hurdle in the drawn-out battle to build a second line to carry Alberta’s Oil sands bitumen to the BC Coast. For the government, it’s an interesting juxtaposition: The economic benefit to Canadians is significant. Taxpayers also “invested” $4.7 billion to buy this Trans Mountain Pipeline from the Americans (Kinder Morgan).

The risk without this second pipeline would be to strand many billions of dollars of Oil or continue to sell it at extremely low prices. The argument many put forward is that we will be able to plow some of the profits from this expansion into greener investments while easing the pressure on the landlocked Alberta’s resource economy. Therefore, a balance between environmental and economic concerns. For what it’s worth, I agree with this approach: not maximizing the Oil we already, for which global demand isn’t going to suddenly vanish, is certainly suboptimal.

What does this mean when looking at some of these traditional energy producers and thinking that they are well-positioned to move more investment in renewable energy initiatives?

To date, their total CAPEX into solar and wind does not currently add up to more than 1%. As an investor, the take-away is that we need to look to other companies who are more focused on these renewables (and determine if their business models make sense): Readers have pointed out that my “predictions” haven’t been strong to date (hey I’m hired for my investment and wealth management acumen, not prognostications!).

Nonetheless, Ford v Ferrari, the excellent movie about two old-school combustion engine automotive icons, which our children might wonder: “why did we have these?” will be the surprise winner for Best Picture.