Email of the day 2
Comment of the Day

September 30 2015

Commentary by David Fuller

Email of the day 2

BoE Governor Carney’s comments on Climate Risks:

David, Whatever one thinks of the evidence for climate change, warnings like this from Carney cannot help the case for holding oil and gas assets. And even if the climate change data proves illusory, the rapid advance in renewables (which grew in the UK to 25% of energy production in the 2nd quarter) will inevitably hit oil and gas companies. What are your thoughts and suggested actions for investors?

David Fuller's view

Thanks for the article on Carney’s views and also for your email.

No pun intended but this is quite a hot potato that you have lobbed in my direction.  What are my thoughts?  Regarding Carney, I am surprised by his comments which are certainly off piste for a central banker.  I could say the same for Pope Francis who frequently warns about climate change.

Do these gentlemen know more about climate change than the rest of us?  One might suspect or hope so, whether based on science or divine intervention, but they certainly have a bigger platform.  A sceptic might assume that they seek a larger topic beyond heaven and earth or monetary policy.  Meanwhile, investors will have noted that turbulent markets encourage apocalyptic forecasts.     

Regarding oil and gas, having grown up hearing that our finite supplies were rapidly being depleted, I even believed it for a while.  Luckily, this service was quick to see when technology was rapidly rewriting the script in favour of sustained oil and gas production for many more decades.  Do we still need it?  Yes we do.  Will we be prevented from using it by climate change legislation?  Not anytime soon but looking further ahead, anyone’s guess is as good as mine. 

As for oil and gas shares, they have been quick to discount the reality of lower prices and future uncertainties.  I remain a somewhat nervous holder of Royal Dutch Shell B, because I was wedded to its dividend which has risen from 5% to almost 8% today as the share fell.  I also held on because it could become the largest producer of natural gas in a couple of year’s time.  Needless to say, oil and gas shares need good management and somewhat stronger energy prices over the next few months to maintain their dividends.  High yields usually carry high risks.

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