The Actual Inconvenient Truth

Jeff Rubin spoke at the Business of Climate Change Conference '09. Rubin used to be the Head Economist at CIBC. It's long at 45 mins, but well worth a watch:





Global warming believers, climate change sceptics, and especially investors, will all get something from what he says. If you haven't got time to watch, Rubin's key talking points are: 

• Green socialists won't kick globalisation in the balls - economics will and it's unavoidable;
• Peak Oil is real and it's here;
• Conventional oil is the only oil we can afford to burn;
• The inconvenient truth is that since '05 conventional oil supply has not grown and may not again;
• The trajectory for oil demand is + and will grow hugely if/ when economic fundamentals again take off;
• So you thought ChIndia were fuelling the biggest demand increases in oil demand? Wrong. Micro economics plays much more of a part than you think;
• Never mind the demographic drivers - the future equilibrium price of oil will likely kill house market values in the outer 'burbs of cities/ towns in the developed world;
• Paradigm shift - wage arbitrage from the law of comparative advantage will die from the introduction of carbon tariffs;
• Supply side innovation is too far away to begin saving us - and forget the environment for a moment, he means the economy;
• Peak Oil ≠ peak GDP. The immediate solution lies firmly on the demand side;
• Distance is going to cost more and more. And then a whole lot more; 
• By economic necessity, we will all have to move from a global to a local economy. 

Now this is thought provoking, radical, and logical stuff. Whether his logic proves true is another matter. 

Clearly his arguments have huge implications for countries farthest from centralised global activity (remember: distance costs money). Especially developed nations that rely heavily on exports to drive GDP and imports for some domestic functions. 

I'm familiar with New Zealand which is a good example. NZ's economy is relatively export driven and it is rather import reliant - Rubin says these activities are carbon intensive and suggests both will get hit hard. But does a small nation like NZ have sufficient critical mass to internalise and vertically integrate as Rubin suggests? Maybe it won't have to if it can identify and utilise a sustainable competitive advantage where domestic producers have an offsetting lower carbon output at an earlier stage in the value chain. 

Rubin's views sure do add to the medium term investment case for buying oil stocks.


UPDATE: For those investors of you who wish to read more, Beetle Capital have published a piece called The 2020 Race to Post Oil. HT: MGJ