In

The Climate conference in Glasgow, COP26, continues to provide quite interesting commentary – while trying not to – on the state of global attitudes towards climate change.

Remember, this was supposed to be a breakthrough event, where the global leadership on climate was expected to revert to the United States, having ousted their anti-Paris leadership in Trump, and replaced it with a left-leaning Democratic President with great progressive expectations – Joe Biden.

Instead, both Putin and Xi from the other two major superpowers didn’t even bother to show up, and Biden spent a limited amount of time at the conference, mostly talking – without wanting to – about the high prices of gasoline at home and what likely ‘action’ his administration might take to get the OPEC+ cartel to loosen their grip on more supply. This was not the conversation he either thought or wanted to be having.

No matter for the Greenies in Glasgow – they forged ahead with some simple goals on methane, which the United States adopted as well. These measures, while ridiculed by the right and other oil advocates, is actually one of the few measures that helps BOTH climate advocates and the oil companies it is imposed on: The ridiculous venting and flaring of methane from wells has been a scourge on the industry, a flagrantly rapacious behavior of oil companies to access the more profitable oil in wells and ignore the gas that simultaneously comes up with the black stuff.

Controlling these wasteful emissions that do great harm to the environment has benefits – and sizable ones — for the oil companies as well, however: It imposes a discipline in well drilling that poorly capitalized and indebted producers have not been able to impose on themselves, and gets them out of the cycle of pumping at any price – both destroying their bottom lines and the prices of the underlying gas and oil. Ultimately, methane restrictions drives the prices of both natural gas and oil higher – which frankly benefits the profits of E+P’s. As individual entities, these companies cannot reap the benefits of disciplined drilling and production; but regulated as a group, they all benefit from the more constructive and robust prices that result.

Win, win.

But just because the environmentalists have scored a smart victory in methane does not detract from some of the doozies of the conference that need to be called out – and laughed at. One proposal that continues to make the rounds at these conferences, and is lauded grandly by virtually all European leaders is the idea of a centralized, global electricity market – the Green Grids Initiative (GGI). Leaders proudly claim that a large enough solar farm in the Sahara, for example, could yield enough power to light all of Europe. What a great plan!

True enough, but the physics unfortunately make this idea nothing more than posturing buffoonery. Oil is a global commodity, with basically one reference price. Natural gas, on the other hand, is only a local market, with widely divergent prices across the globe. Why is that? Well, it’s all about storage and transport – easy enough for liquid, steady state oil, but not so much for natural gas.

And electricity? Well, that’s the least storable and transportable energy source. Leaders may bleat that the technology will come that will ‘fix’ this natural law of power at some point and we need to get started on that global market for electricity before the solutions present themselves. We have no time to waste, they say.

Fantasy. Why not work on the practical goals that are currently possible, instead of fantasizing about technological solutions that currently – and my never – exist? Because the world of sustainable energy is driven very much by big dreams, and less by common sense practicalities, that’s why. “Big thinking” like this doesn’t help the cause of progressives and environmental advocates – it is holding that progress back.

But back to our investments. It is this nature of fantastical thinking and ESG over-investing that has made oil and gas the undervalued asset it was at the start of the year – and – in spite of its terrific gains in 2021, still is. We can learn a lot about the global views of oil and gas from these snapshots at COP26, and this can inform our investing – our very profitable investing – very well.