Clean Energy Vs. Oil & Gas: The Biggest Lie Of 2020

Robert and Sam Kovacs

Clean Energy is in. Dirty Energy is out... Or so they say. Can you picture that day where children will go outdoors, take a deep breath of fresh clean air, and play in the fields with wind turbines on the horizon, before going home to drink a hot chocolate which was powered by the photovoltaic roof? If you listen to the media, and to the markets, this day is just around the corner. Exxon Mobil (XOM) got the boot from the Dow Jones Industrial Average (DIA), Saudi Arabia saw revenues decline 49% this year, and bankruptcies are on the rise in the sector. In the meantime, renewables have been having their minute in the limelight. Solar and wind producer Nextera Energy (NEE) became the largest energy company, eclipsing both Exxon and Chevron (CVX). In some parts of the world, with generous policies to push a shift towards renewables, solar is now the cheapest source of energy available . Of course if you remove the subsidies, and the financing incentives, that no longer applies. Clean is in. Dirty is out. Right? The market sure thinks so. The SPDR Select Energy ETF (XLE) is down 50.7% in the past 12 months, while the iShares S&P Global Clean Energy ETF (ICLN) is up 82.8%. When something good or bad happens to the market, to a sector, an industry or even an individual stock; the most important question an investor can ask is: will this last or is it temporary? Or to use fancy terms, is it secular or is it cyclical? The rise of renewables is clearly a secular trend. More and more governments will continue pushing for solar and wind. The decline of oil and gas however, isn’t secular. At least not yet, and not for the foreseeable future. The events which are transpiring in the sector are purely cyclical. Unless you believe that the current world order of lockdowns and limited travel will last for the next two decades, demand for oil will recover and grow within the next few years. In fact, global demand for oil is still growing, and will continue to grow for at least 10 years, my estimate is more likely 20 years, because the path to renewables isn’t as obvious as media and politicians want you to believe...MORE