EP235: Electoral Super Volatility
WATCH the video on Substack by clicking the play button above or on YouTube ( here ). STREAM audio only on Apple Podcasts ( here ), Spotify ( here ), or your favorite podcast player app. DOWNLOAD a pdf of a moderately edited transcript using the blue Download button below. Super-Spiked is not a political podcast and you all know we despise partisan politics as a subject. But it has been a pretty big stretch of elections over the past few weeks, most notably in the U.S., but also Brazil and British Columbia. As always, we will aim to provide longer-term takeaways, i.e., long takes, as opposed to the short-term hot takes that are more common. Our focus is on how management teams and board directors should think about what all this means for the long-term outlook for the energy sector. (1) Initial election takes are rarely correct. * If you look at US presidential election years, it has made sense to fade the initial hot take of whatever was widely anticipated. * For example, peak “net zero / ESG” was actually at the start of Biden’s term and the correct decision would have been to fade it. * Trump was supposed to be pro oil & gas but the sector struggled mightily until the Trump Administration initiated a new war in the Middle East that no one anticipated. * Post midterm shifts argue for gridlock. Democrats won by such a large margin that the marginal vote is unlikely to be the far left socialists or eco warriors. (2) Geopolitical Super Vol backdrop reinforced. * As we have stated many times previously, we view war as bad and peace as good. We hope the crisis in the Middle East and Russia-Ukraine both end as soon as possible. * With that said, all of the surprise election results we are seeing not just in the U.S. but in other democracies as well, including the unrest in Paris and elsewhere in Europe, speak to a world order undergoing and arguably in need of significant change. * Instead of a four-year everything changes dramatically cycle, perhaps we are now in a 2-year hypercycle. * That can be unsettling for management teams and boards. It is our view that energy’s natural hierarchy of needs will always prevail. Everyone needs abundant, reliable, affordable, and geopolitically secure energy. If you have projects, be it oil & gas upstream, midstream, or downstream, grid power or BTM (behind-the-meter) power, or are involved in a broad range of new energy technologies, your job is to power through election volatility and to provide the stability that is lacking in our politics. * Individual projects for sure can be impacted by specific election results. B.C. natural gas & LNG may well be a new opportunity that some should pursue as an example. * But at the macro level, the world is demanding more oil, natural gas, refined products, power generation, transmission, distribution, grid enhancements, electric vehicles, ICE (internal combustion engine) vehicles, LNG trucks and diesel trucks. None of that changes based on election results. * The path varies, but we already knew that. (3) So are we saying nothing ever matters and there is no change? * No, we didn’t just say that. What we are saying is the idea that companies need to yin and yang every couple or four years is what shouldn’t happen. * As an example, it was a bad idea for traditional oil & gas companies to go “all in” on a low carbon energy transition in 2020. * It similarly didn’t make sense for companies to abandon environmental and climate mitigation promises in 2024, with an example being taking efforts to limit methane leaks and flaring. * Staying on a true north path of fortress balance sheet including cash is king, competitive full cycle returns, and advantaged growth will always win over time. * Do we think the path for data centers and power slows meaningfully? There is a significant need for more data centers and more power. How changes in Texas impact ERCOT we will leave for others better versed on that topic than are we. But make no mistake, power demand, generation, transmission, distribution, and grid enhancing technologies are going to remain a huge focus for our country and this state of Texas (4) What does intrigue us most and what are we watching? * The continued case for Canada. * We hope Texas doesn’t become less business friendly. * We root for peace in the Middle East and Ukraine, but we are skeptical election results meaningfully change the path of those conflicts. Timestamps: 0:00 Introduction 1:05 Initial election takes are rarely correct 4:40 Geopolitical Super Vol backdrop reinforced 7:14 So are we saying nothing ever matters and there is no change? 9:11 What does intrigue us most and what are we watching? 11:14 On A Personal Note 📜 Credits * Intro & Outro music: Wolf Hoffman: Concerto for 2 Cellos in G Minor, Rv 531: I. Allegro Moderato . * This episode of Super-Spiked Videopods was edited and produced by Veriten Productions. ⚖️Disclaimer I certify that these are my personal, strongly held views at the time of this post. My views are my own and not attributable to any affiliation, past or present. This is not an investment newsletter and there is no financial advice explicitly or implicitly provided here. My views can and will change in the future as warranted by updated analyses and developments. Some of my comments are made in jest for entertainment purposes; I sincerely mean no offense to anyone that takes issue. Subscribe to receive all content. Also available at Veriten.com. This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit arjunmurti.substack.com
