Natural Gas & LNG
Liquefied Natural Gas (LNG) as a critical energy source has maintained a upward trajectory. Demand for LNG increased year-over-year in 2020 even amidst the pandemic. Market prices for LNG have risen from just $2/MMBtu in early 2020 to currently over $26/MMBtu—a remarkable jump given that the high-demand winter season has not yet even begun.
Our key investment in this area is Golar LNG (GLNG), a company in which we recently published our thesis and have high expectations of future returns given the early-mover and competitive advantage we believe they hold in the Floating LNG market. Our closed position in carrier Teekay LP (TGP) gained more than 60% after we first published our thesis.
Carbon Allowances
Although there have been many aggressive targets laid out for greenhouse gas emission reduction from governmental and corporate entities alike, the reality remains that the global economy is fundamentally tied to fossil fuels. Last year, global GDP reduced elastically along with primary energy consumption, implying a GDP-to-carbon value of $1,400/ton CO2. Compare this with today’s most expensive carbon credit futures price of a mere $80/ton and it’s easy to see why we are interested in carbon credits and are currented invested in this area via the ticker “KRBN”.
Essential Metals
Other areas look promising as well. Demand for lithium, an essential metal for EV batteries, is expected to increase by an almost unfathomable 40-times today’s demand before 2040. We are evaluating several lithium technology providers, an area which is developing rapidly.
Similarly, demand for copper, an established metal used throughout modern electrical networks, is expected to have demand growth as the pace of offshore wind generation, EV mobility, and grid electrification--all huge consumers of copper--outgrow the pace of mineral supply. New discoveries of copper are not adequately supplying future demand needs and, as a result, we expect market prices for copper to remain elevated. The Strategy holds a diversified minerals producer Sierra Metals (SMTS).
Maritime Shipping
We have holdings in maritime shipping, an area which is in high demand as the world rushes to keep their store shelves replenished, at a time of port and labor supply shortages. This area too is undergoing an energy transformation, with some companies building new vessels compatible with LNG as a fuel, which would reduce emissions by up to 25%. Our primary holding is ZIM Integrated (ZIM), a shipping liner, which trades for only 2.5x expected 2021 earnings and is actively locking in term charters at historically high rates. Decarbonizing of shipping is likely to be a longer-term innovation, which we think will have to do more with carbon capture than an entirely carbon-free supply chain, such as hydrogen or battery storage.
Carbon Capture
Bringing us to our last focus area, which is carbon capture sequestration and utilization (CCSU). There have been technological breakthroughs in the subsurface sequestration, which will allow energy producers to reinject the CO2 for permanent geological storage in underground formations. From a technical perspective, the missing link is currently separating the CO2 from the main gas emission stream, either in a pre- or post-combustion process. There are many ongoing test programs involving CO2 separation from post-combustion exhaust gas, most notably, the use of chemical solvents.
It is something we keep a close eye on for future investment.
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