Page 24 - ISQ January 2021

INVESTMENT STRATEGY QUARTERLY

countries with coal power phase-out policies countries with both
countries with natural gas flaring restrictions countries with neither
Source: Raymond James Equity Research

energy over the next 20 to 30 years. To clarify, these companies are
doing it not because they are forced to by governments, but rather KEY TAKEAWAYS:
because they see it as good business and advantageous for Envi- • For oil demand to get back to the pre-pandemic run-
ronmental, Social and Governance (ESG) ratings, thus increasing rate of 100 million barrels per day – which implies a
interest from a growing portion of investors.
5% rebound from year-end 2020 levels – there must
The role of governments in the energy transition varies a great deal be overall economic normalisation, and that depends
from country to country, and even within countries. For example, on widespread vaccine availability for the general
this past December the European Union approved the European population: billions of people around the world.
Climate Law, thereby becoming the world’s largest carbon emitter • Because demand and supply are heading in opposite
to impose a legally binding mandate for net zero CO emissions directions, we forecast hefty global inventory draw-
2
by 2050. To clarify, net zero does not mean literally zero, but all downs in both 2021 and 2022 – which, by definition,
emissions will need to be captured and sequestered, or offset via is bullish for prices.
projects such as forestry. President-elect Joe Biden has proposed
the same policy for the US, but the ultra-divided, 50/50 Senate • Specifically, we forecast WTI ending 2021 upwards of
makes it highly unlikely that such transformative legislation would $60, which implies an average of more than $50 for
be able to pass. The Biden administration will need to use executive the year.
action to incrementally boost decarbonization. In the meantime, • From a very long-term perspective, in fact, the most
politically progressive states such as California and New York will important structural underlying trend in the energy
continue their own climate reforms, which are more ambitious than sector is a shift away from petroleum and other
what Congress is willing to do. Other examples of relevant policies fossil fuels.
include coal power phase-outs (in 34 countries, including Germany
and the UK) and natural gas flaring restrictions (in 31 countries,
including the US, Russia, and Saudi Arabia).

Investing in the energy sector involves risks and is not suitable for all investors. Past performance may not be indicative of future
results. Companies engaged in businesses related to a specific sector are subject to fierce competition and their products and
services may be subject to rapid obsolescence.

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