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Last week saw what is likely the biggest U.S. electric vehicle launch of the year: the Rivian R2, which will go on sale this spring. It’s absurdly well-timed, given surging gasoline prices. But can it carve out enough of a niche to compete?
On this episode of Shift Key, Rob is joined by Jesse Jenkins in his new role as occasional guest cohost. Rob and Jesse discuss the Rivian R2, what the Strait of Hormuz closure could mean for global energy markets, and why the power grid is failing the data center test.
Shift Key is hosted by Robinson Meyer, the founding executive editor of Heatmap News.
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Here is an excerpt from their conversation:
Robinson Meyer: I think it’s worth noting here that this is actually a key part of the decarbonization story that I think is often overlooked, which is that this supply shock to oil and gas globally is going to result in much higher profits for fossil fuel companies. And if we have, say, a global recession or a global decline in growth because of an energy crisis, basically what we’re going to see is that, like, every other sector of the economy is flat or shrinking, and fossil fuels are enormously profitable. And already this year fossil fuel companies are up a lot, and renewable companies — even though we would expect, say, higher energy prices to ultimately be good for demand destruction and ultimately be good for, say, global renewable installation — renewable firms are flat globally, and fossil fuels are way up. And that’s because it’s actually the profitability profile of fossil fuels that makes them so attractive in a portfolio, not whether they are profitable in any one year.
Jesse Jenkins: Yeah, actually, I just saw a recent chart from S&P that showed the sort of cleantech booms and busts in terms of market indexes for S&P’s Global Clean Energy Transition Index versus the Dow Jones U.S. Oil and Gas Index. And actually, it’s up more this year than the Oil and Gas Index. But that’s because it collapsed after Trump was elected, and the low is hit right around the launch of the Liberation Day tariffs. But it has recovered faster and is now back up above oil, which has been relatively flat.
I think that’s the lag effect of all the projects that were started under the Biden administration push and are still coming to market, especially in the power sector as demand grows. But these sort of cycles of boom and bust are really interesting. One of the things that I think is worth pointing out on the oil side is — so you might say, okay, oil prices spikes lead to big windfall profits that then encourages greater production of oil and gas and more investment in new exploration. And that may be possible. I do expect that’ll probably have an impact on LNG export terminal financing, because those are still ... there were many permitted proposals that were still sort of on the bubble. And if they look at this and say, hey, well, this is the kind of payday we might expect if there’s some other crisis in the future, let’s move forward.
But if you look at what happened when Russia invaded Ukraine and kicked off another one of these cycles of global fossil prices, the oil and gas companies largely did not use that windfall to reinvest in new exploration and capital budgets. They dividend'ed and stock buyback'ed their way through all of that money, basically. I think that’s an interesting dynamic to keep track of here. It’s like, maybe this is a big windfall for investors, but will it actually lead to greater fossil fuel lock-in? That’ll only happen if it actually leads to capital investment in more long-lived assets in oil fields and pipelines and export terminals and things like that. And that’s not a guarantee because there isn’t — at least last time this happened, the companies were not feeling all that positive about their long-term growth prospects. And they were kind of happy, or at least their investors were happy to receive short-term cash instead of reinvestment in long-term growth.
And so that’s something I’ll be watching, is to see whether that same dynamic plays out this time around — if this is just leads to a surge in cash payouts, dividends, or stock buybacks, or whether it actually leads to greater investment in fossil infrastructur,e the latter being much more concerning from a climate perspective.
You can find a full transcript of the episode here.
Mentioned:
Rivian’s Make-or-Break EV Now Has a Price, Range, and Release Date
Previously on Shift Key: Why the Iran War Is a Warning for Natural Gas
Jesse’s report with Camus and Encord: Flexible Data Centers: A Faster, More Affordable Path to Power
This episode of Shift Key is sponsored by …
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Music for Shift Key is by Adam Kromelow.
