International Energy Agency warns against investing in oil & gas production

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In a curious statement at the World Economic Forum in Davos, the head of the International Energy Agency said, “my worry is that some people may use Russia’s invasion of Ukraine as an excuse for a large scale, new wave of fossil fuel investments.” Noting that, “one of the reasons that we have such high prices is the heatwave which is a result of climate change.” An interesting statement, given NASA’s Global Land-Ocean Temperature Index just measured it’s lowest annual reading since 2014. Even before Russia invaded Ukraine, energy prices (USO) (UNG) were higher than at any period between 2015 and 2021, suggesting skyrocketing fuel costs in 2022 may be attributable to other factors than climate change. Namely the lack of large scale investments the IEA is advising against (XLE):

Noting that JPMorgan’s recent annual energy paper highlighted 85% of the world’s primary energy demand is met by fossil fuel consumption, noting further that JPMorgan anticipates the world will remain 66% reliant on fossil fuels in 2050, and considering the IEA’s self-stated mission “to shape a secure and sustainable energy future”, Monday’s comments may come as a surprise. Particularly as the White House says, “the President’s plan is to immediately increase supply (of oil) by doing everything we can to encourage domestic production.”

While reduced fossil fuel investment is frequently cited as the cause for historic fuel, fertilizer, food and chemical prices, threats of litigation, price caps, windfall taxes and calls to halt new oil and gas projects threaten to further reduce investment. The IEA and White House are both calling for increased spending on renewable energy, as are all G7 leaders and most of the investment community. However, striking the right balance between fossil fuel and renewable energy investment remains a topic of much debate.

The executive director of the IEA went on to say that, “the world must choose between a clean energy transition and short-term energy costs.” Suggesting that JPMorgan’s call for $6.00 prices at the pump, consumption of the US strategic heating oil reserves in summer, outright shortages of oil products in poor countries, and record fertilizer / food costs are unfortunate side effects of the long-term strategy to reduce carbon emissions.

Most Americans remain concerned about global warming. But perhaps less aware that rising primary energy demand is required to sustain modern life in the developed world, while allowing those in the developing world to improve their quality of life. An “all of the above” approach to meet rising energy demand, while mitigating the impacts of climate change, has been broadly supported since it was introduced as US policy in 2014. However, calls to further reduce fossil fuel investments, in the face of record food and fuel prices, could be a bridge to far for consumers and investors (SPY) alike.