BlackRock's Fink shows the realpolitik of the energy transition
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BlackRock CEO Larry Fink's stemwinder on "energy pragmatism" contained a kernel of truth about the global shift away from fossil fuels.
Driving the news: In his yearly dispatch to shareholders on Tuesday, the Wall Street chieftain waxed eloquently about the retirement crisis, and the world's efforts to decarbonize — with nary a mention of the politically charged "ESG" moniker that's drawn scorn from right-leaning politicians and investors.
Why it matters: The unfolding energy transition isn't happening as quickly as some would like. The subtext of Fink's letter contained a stark reality that can be summed up succinctly:
- Decarbonization is an unstoppable force;
- Renewables are great but don't always get the job done. That's why fossil fuels (and lots of them) — or something that can satisfy the world's implacable demand for energy — are still very much needed.
Context: Fink's pragmatic view helps explain the tone at CERAWeek in Houston last week, where oil and gas executives sought to temper expectations that a timetable to a carbon-free future would unfold rapidly.
- Even as wind and solar displace coal, voracious energy needs will continue to drive up demand, the Rhodium Group wrote in February, as economies continue to expand.
- But "in the absence of additional policy or technology innovation, fossil fuels will continue to supply a substantial share of global energy demand by mid-century— 33 to 44% in our likely range — relative to 67% today," the firm added.
What he's saying: Fink cited both Germany and Texas — both heavy users of wind and solar — as prime examples of the limits confronting the energy transition.
- "[S]ometimes the wind doesn't blow in Berlin, and the sun doesn't shine in Munich. And during those windless, sunless periods, the country still needs to rely on natural gas for 'dispatchable power,'" the CEO wrote.
- Meanwhile, "without an additional 10 gigawatts of dispatchable power, which might need to come partially from natural gas, [Texas] could continue to suffer devastating brownouts," he adds.
The bottom line: "Nobody will support decarbonization if it means giving up heating their home in the winter or cooling it in the summer. Or if the cost of doing so is prohibitive," Fink wrote.
- Current needs and future demand — especially in light of the gathering storm of artificial intelligence computing — will need to be satisfied.
- But barring a dramatic technological leap in renewables or alternative fuel sources in the near term, the only thing that can get it done at scale is oil and gas.
