Every once in a very rare while, we see what we call a Missionary statement (an action or a speech by a famous person or organization that is widely distributed on a ubiquitous media platform) that has the potential to change the Common Knowledge (what everyone believes that everyone believes) about an important aspect of our investment lives.
For example, this February we highlighted the Missionary statement by the Tokyo Marathon organizers that they were canceling the 2020 race out of Covid concerns, leading to our view that the common knowledge around the business of sport was about to crack apart. This was in mid-February, well before anyone was considering (publicly, at least) canceling the Olympics or eliminating attendance in professional sports. For most people, the Tokyo announcement didn’t seem like a big deal, but when you spend your professional life immersed in narrative-world, as Rusty and I do, that announcement was like a car alarm going off, precisely because it was so different from the common knowledge of the time and it was presented so publicly.
Here’s another shockingly different and very public Missionary statement that’s striking us like a car alarm, published on October 12 in the FT:
QEP’s Wil VanLoh says country’s oil production capacity is lower than believed
Wil VanLoh, chief executive of Quantum Energy Partners, a private equity firm that through its portfolio companies is the biggest US driller after ExxonMobil, said too much fracking had “sterilised a lot of the reservoir in North America”. “That’s the dirty secret about shale,” Mr VanLoh told the Financial Times, noting wells had often been drilled too closely to one another. “What we’ve done for the last five years is we’ve drilled the heart out of the watermelon.”
“Even if we wanted to, I don’t think we could get much above 13m” barrels a day, Mr VanLoh said. “I don’t think it’s physically possible, because we’ve messed up so much reservoir. I would argue that what the US was touting three or four years ago, in theoretical deliverability, is nowhere close to what we think it is now.”
To be clear, I have no idea if VanLoh is right about this.
What I DO know, however, is that this Missionary statement has the potential to wreck one of the common knowledge pillars of the energy sector narrative specifically and the US economic growth and US foreign policy narratives more broadly, that the United States has achieved energy independence through the fracking “revolution”.
We took a quick look with the Narrative Machine at financial media using the phrase “energy independence” in Q4 2015, Q3 2018 and Q3 2020.
In all three of these narrative maps (each containing about 1,200 independent financial media articles), I’ve put a green oval around the Clean Energy narratives and a gold oval around the Politics/White House narratives. These are the constant narrative super-clusters within any time frame where we look at this question. What you’ll notice, though, is a new super-cluster in 2020 that I’ve marked with a blue oval, containing sub narratives that directly use the phrase “US Oil Independence” and its variants. This new super-cluster has the single largest article cluster with 9.3% of all articles published during the period, and more importantly occupies the center of the overall narrative map. Up/down/left/right doesn’t matter in these maps. Centrality does. Not only is “US energy independence” now explicitly a narrative super-cluster within a universe of articles that contain the words “energy” and “independence” – showing that it has cohered into a standalone narrative in its own right – but it is also the most central and influential narrative super-cluster within that universe.
But wait, there’s more. The overall narrative map in 2020 is much less cohesive than the overall narrative map in 2018. Numerically it’s about 40% less coherent, and visually you can get a feel for this by the greater number of individual clusters in 2020 and their greater dispersion from the map center off to the periphery. Our view is that a less cohesive map is a more complacent map, meaning that any narrative shock – like a Missionary statement that the US is NOT energy independent – is likely to wreak more havoc on the existing narrative system.
To be clear, it’s by no means certain that this Missionary statement will get picked up and amplified by other market missionaries in the near term. Also, until energy demand picks up and there’s an economic need to produce more than the current 11 million bbl/day, we won’t be able to test the proposition that 13 million bbl/day (our high water mark pre-Covid) is now the US production limit.
But Missionary statements like this don’t just go away.
Whenever we come out of this Covid recession and energy demand starts to pick up again, this Missionary statement will get some play. And depending on how other market missionaries pick up on it (or not), it could have a really broad impact, I think, on the entire US growth and economic strength narrative (and the politics around THAT), whether or not it is factually true.
Yes, whether or not it is factually true.
We live in Fiat World, where opinions expressed as news or fact pack just as much punch – if not more! – as actual news and actual facts. Whatever your view may be on the Truth with a capital T in regards to US oil reserves, I think we’ve all learned over the past 12 years that those views and that Truth can be wrong for a loooong time if the narrative is blasting loudly in a different direction. We’ll keep our eye on this for you and alert you to any signs of this Missionary statement getting more traction in narrative-world.