The Energy Boom – with Trive South Africa

The team at Trive South Africa gets us closer to the energy companies that are moving markets – of both the fossil and renewable variety!

Local has not been that lekker when it comes to sources of energy, but whether you are on the fossil front or part of the go-green brigade, there is no denying that energy demand has been booming across the globe.

Big on Oil

After the resurgence of Crude Oil in 2022, it is no wonder that most investors have placed renewables on the back burner for now, despite central authorities’ best efforts to drive renewables. Even the world’s most famous investor, Warren Buffett, has been placing big bets on oil, with energy making up around 14% of his portfolio. The Oracle of Omaha stated that the world would depend on fossil fuels for years, which is quite interesting, as oil prices have fallen substantially from their 2022 highs.

Despite lower oil prices in 2023, the transition away from fossil fuels is anticipated to take longer than expected, as most companies needed to be more ambitious when setting goals to reduce their carbon emissions. Adverse weather conditions will also force more countries to rely more on fossil fuels in 2023, delaying the energy transition, per an EIU whitepaper.

Sasol Limited (JSE: SOL)

Locally, the diversified energy and chemicals company Sasol Limited has not only felt the brunt of the volatility in the oil market, but its greenhouse emissions are under scrutiny as well. The use of fossil fuels still seems high in the pecking order, despite Sasol’s plans to “Be Green” by 2050.

Recent lower oil prices could be a short-term positive for Sasol, as it determines the value of the energy company’s products. However, curbing emissions will need some heavy lifting from the company. Some have already called its net zero plans unrealistic, and the financial services group Old Mutual, a 3% stakeholder in Sasol, has also raised concerns.

The latest products and sales metrics for the nine months ended 31 March 2023 indicated higher production volumes at Secunda for Q3 FY23 than the previous quarter. Operational challenges at the Natref refinery negatively impacted run rates in Q3 FY23, while the Chemicals business showed overall demand and supply still below historical levels. The energy group expects that there will be more volatility across pricing and demand for the rest of 2023.

The chart below shows a double bottom formation, but the price action needs to close above R240.00 (black dotted) and then R255.81, a resistance level (solid redline). The price action could potentially see lower levels if the Crude Oil market sees oil prices move lower in the future. 

Chevron Corporation (NYSE: CVX)

Chevron, the US multinational energy corporation, has been a favourite amongst billionaire investors over the last year as fossil fuel needs have been going strong for a while. Chevron’s dominance in one of the world’s most prolific oil fields, the Permian Basin, could see interest in Chevron for years to come.

Looking at the energy and chemicals corporation’s latest Q1 report card, sales and other operating revenues were 7% lower than the prior year’s first quarter, which recorded revenues of $52.3bn. The revenue decline was primarily driven by lower commodity prices, with crude oil prices down 12.37% year-to-date and a drop in total output, down 3% from a year ago to 2.98 million barrels of oil and gas per day.

Despite Chevron’s top line slide, its bottom line gave an upbeat performance as adjusted earnings were reportedly up 5% from a year ago. Driving the optimistic bottom line was the standout performance in Chevron’s refinery business. Margins were higher for Chevron’s refined petroleum products, leading to a five-fold increase in the unit’s income to $1.8bn.

The world’s number one investor, Warren Buffett, is rarely wrong when picking winning stocks. Is his recent 20% offload of Chevron stock a concern or precursor of things to come?

Diving into the chart below, we can see the share price jumped higher from the incline trendline (lower black dotted), which could potentially see a 12% increase if market believes that the fundamental value could be as high as $180.80 a share (green line).

The Renewable Chapter

The decarbonisation drive has been taking a back seat globally after the massive run in commodities of late. Still, with soaring demand and long-term incentives, renewables are not to be ignored.

Governments and industry role players are exploiting cleantech trends to achieve a net zero effect for the future. With the influx of renewable energy demand, the growth projections were dampened by rising costs, supply chain constraints, inflation, rising interest rates, and cross-border trade, which are some of the headwinds facing the industry globally.

The rush to find alternative sources of energy locally has seen renewable energy and alternative sources of energy pushed to the forefront as the fear of a grid collapse intensifies.

Renergen Limited (JSE: REN)

The local renewable energy front-runner, Renergen Limited, has also been making headway despite the current dismay of its shareholders. The local natural gas and helium producer boasts one of the world’s largest and richest helium reserves at the Virginia Gas Project (VGP); let that sink in.

The Global Helium Market was worth $7.9 billion in 2022. According to estimates, this market is projected to grow at a compounded annual growth rate (CAGR) of 7.2% and reach $12.8 billion by 2029. Renergen recently stated that they expect to secure additional equity capital to finalise the construction of the Virginia Gas Project, hinting to current shareholders that their present stake may experience dilution in the short term. The financials showed a 1.2% year-over-year decrease in revenue for the six-month period that ended on 31 August 2022. Cash outflows used in operating activities decreased by 13.6% year-over-year, marking a slight decrease in cash used in operations. Moreover, property, plant and equipment investment increased by 114.6% year-over-year to R226 million.

Despite the reinvestment and spending outlook on Phase 2, which could deliver substantial energy to the South African economy, the company is also developing hydrogen fuel cells. This bodes well for the decarbonisation drive and increasing revenue prospects for delivery trucks and the mining sector. Looking at Renergen’s chart, we can see the share price finding support at the R17.39 level (red line), which will be watched closely for another leg lower.

Brookfield Renewable Partners LP (NYSE: BEP)

Brookfield Renewable Partners has been steadily building its renewable energy portfolio, which includes wind, solar, energy transition and hydro, for some time now. While solar power and wind farms rake in all the attention, its hydro business might be one to watch.

As the world approaches decarbonisation, Brookfield Renewable Partners’ hydro segment provides the grid with steady emissions-free energy to roughly 6 million homes. Brookfield has 222 hydroelectric facilities, which produce around 8 gigawatts of power, and these assets contribute around 49% of the company’s cash flow.

The renewable energy conglomerate’s recent first-quarter earnings beat Wall Street’s expectations which saw the share price rise. Revenues were up 17% year-over-year, beating consensus by some margin, while losses per share improved to $0.09 in Q1 from $0.16 a year before. Funds from operations per unit (FFO) became a focal point as it beat consensus and indicated robust hydro generation across the portfolio, increased realised power pricing and contributions from growth. The Hydroelectric segment, which investors should watch, increased by 26%, while the wind segment decreased by 14%.

The share price could possibly see more upside if the $31.76 share resistance is crossed, which could potentially lead to a significant overhead resistance at $32.82. For the bear case, if the $31.76 resistance is not breached, the $29.48 support becomes a focal point.

Where to next?

Global macroeconomic factors will weigh heavily on the previously surging energy market during 2023, with global energy consumption only estimated to grow by 1.3%. Despite the best efforts of OPEC+ to cut production to try and stabilise falling oil prices, global recession fears continue to weigh on oil prices. According to the EIU, renewable energy consumption will surge by about 11%, with Asia leading the way, but investment will weaken due to various macroeconomic factors.

Sources: Bloomberg, Deloitte, S&P Global Commodity Insights, WallStreet Journal, Engineering News, Economist Intelligence, International Energy Agency (IEA), Energy Information Administration (EIA), Sasol Limited, Chevron Corporation, Renergen Limited, Brookfield Renewable Partners, Matthew DiLallo, Reuters, Koyfin, TradingView.

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