“It’s time to invest in Canada’s energy sector,” urged the headline on a recent column by Tim McMillan, CEO of the Canadian Association of Petroleum Producers. Coming out of the pandemic, he says, global oil demand will rebound fast and then stay steady – at around 100 million barrels a day – through the year 2040. As chief shill for the fossil-fuel industry, he concludes, “Our natural gas and oil producers need government action and clear support.”
McMillan may not like the phrase “throwing good money after bad.” But in suggesting that investors and governments rally behind Canadian oil companies, he ignores clear signs the entire industry is shrinking.
Buyer beware. According to a new report by Carbon Tracker, a London-based energy think-tank, the value of new share offerings in fossil-fuel firms and related pipelines, utilities and service companies plummeted by US$123 billion between 2012 and 2020. Global investors, perhaps shrewder than the targets of McMillan’s missive, are shunning the sector, whose total share issuance dipped by US$70 billion over the same time period.
The report, A Tale of Two Share Issues, calculates that the US$640 billion in new equity issued by fossil-fuel firms since 2012 lost US$123 billion in value by 2020. (Over the same period, the S&P/TSX Composite Index grew 46%.) Clearly, investors and governments could have done better stuffing their money in a mattress. Other investments that have outperformed the oil sector in the past decade include comic books, action figures, sports memorabilia and old vinyl records.
Of course, collectibles investors know that the highest returns accrue to items in near-mint condition or better. The Carbon Tracker study shows the fossil-fuel industry is anything but. Collectors of old movie posters would grade as “good” (2 out of 10) a poster that has rips or tears, paper loss, stains and general wear, and is in need of restoration – an apt metaphor for an oil patch on the brink of a renewables revolution.
Carbon Tracker has monitored global energy stocks since 2011, when it first warned investors about “unburnable carbon” due to climate change, and the likelihood that oil, gas and coal-related investments could end up as stranded assets. “Not listening,” said the 450 investment banks who helped fossil-fuel companies raise US$640 billion since 2012 – about 10% of all equity raised over that period. Those firms then watched those fossil investments lose 20% of their value.
Over the same time, the big banks managed to raise just US$56 billion for renewable energy/cleantech companies. But those plucky underdogs put their capital to much better use. By the end of 2020, the value of that cleantech portfolio had grown by 137%, or US$77 billion.
A recent report from London’s Imperial College Business School confirmed Carbon Tracker’s findings. It showed that across global markets over the past decade, renewable power generated a return of 423%, versus just 59% for fossil-fuel companies.
With business and government support for climate action rising, coal plants shutting down and more than 100 new electric-vehicle brands hitting dealerships soon, fossil-fuel investments don’t look any more attractive going forward. Colorado-based veteran oil economist Philip Verleger recently called petroleum a short-term play. “Oil companies will profit in the short run – to 2025 or thereabouts,” thanks to OPEC production restraint, he told Bloomberg News. “Beyond 2025 there is nothing but darkness for oil.”
Shed no tears for the fossils. Another new Carbon Tracker report, The Sky’s the Limit, says that hefty declines in the cost of solar and wind power (solar costs have fallen 18% a year over the past decade) have unlocked an energy reserve that can meet world demand 100 times over. And most of that power is already price-competitive with fossil fuels.
The report says that today’s renewable technologies could capture more than 5,800 petawatt hours (PWh) of energy a year from solar energy alone – nearly 100 times the globe’s annual power consumption of 65 PWh.
Investors are catching on. According to the report, 2020 marked the first year that clean-energy companies raised more money in public offerings than did fossil-fuel companies. A revolution is underway – and, for the most part, the oil patch is missing it.