July 29, 2021
DADDY, WHAT WAS OIL?:
The US Energy Sector is in Chronic Atrophy, And That Could be a Good Thing for Energy Investors (Bryce Coward, Jul. 23rd, 2021, Knowledge Leaders Capital)
Public attitudes toward energy companies are changing, and with it capital investment in energy companies is shrinking. Perhaps nothing speaks louder than actions. In the first quarter of 2021 investment in environmental, social and governance (ESG) focused funds hit a record high by a wide margin. Meanwhile, capital expenditures by US energy companies hit the lowest levels since 2004. Put another way, the energy sector is being starved of capital.This concept of capital starvation is crystal clear when we compare capital expenditures to depreciation expenses. A ratio above one indicates an expansion of assets net of depreciation and a ratio below one indicates a shrinking asset base. Currently, energy assets are shrinking at the fastest rate on record. In the latest quarter, only 44% of depreciated assets were being replaced by new assets.This raises an obvious question as to how oil production can possibly be maintained at current levels if only 44% of assets are being replaced by new capex. The obvious answer is that, over time, it cannot.
One of the most obvious problems with the Right's petrophilia, as with its Nationalism, is the laws of economics. (Not that the Right cares much about laws these days...)
Posted by Orrin Judd at July 29, 2021 7:22 AM