Oil’s days numbered: Macquarie sees cleaner energy future
Macquarie Group expects an end to oil trading as the green transition takes hold.
Macquarie Group’s commodities and global markets chief, Nick O’Kane, believes the company will eventually have to exit the trading of oil, as the transition to cleaner forms of energy accelerates markedly.
Mr O’Kane told the authors of a soon-to-be released book about Macquarie that the world was currently in a transition phase that would require drawing on oil and natural gas for some time.
But asked if he could foresee a time when his division – Macquarie’s biggest earnings contributor – wouldn’t be able to trade or handle oil, Mr O’Kane said: “At some point in the future, I think the answer obviously has to be yes.
“In commodities, markets and finance we’re extremely well placed to help our customers to transition because some of them have a pretty material carbon footprint. And if they want to stay in existence, they’ve got to change.”
Macquarie has tilted towards renewable energy investments, and committed to reaching net zero operational emissions for the company by 2025. But that comes as the commodities and global markets division has benefited from the sharp dislocation in energy markets in recent years, making the unit the standout contributor to Macquarie’s bottom line.
In the book, Macquarie chief executive Shemara Wikramanayake told the authors the shift to cleaner forms of energy would happen over time, given limitations in what was available. She noted that 20 per cent of global energy capacity now reflected wind and solar sources, but cautioned of their intermittency.
“We need storage or some sort of low-emission firming,” Ms Wikramanayake said. “There are people on our planet today who are living very difficult lives, whose nations want to lift their living standards through the consumption of energy … we can’t in the developed world sit here and say: we emitted all the carbon that’s in the world now to get to comfortable lifestyles, and you can just stay where you are because we’ve emitted enough now for the whole global community and population.”
She said the process of shifting away from oil and gas across developed economies would be a protracted and phased one.
“We’re shooting ourselves in the foot if we try to say we’re going to get off gas tomorrow … because we do not have baseload renewable energy to replace it,” she said.
However, Macquarie is positioning for an uptake in carbon trading. Mr O’Kane said it had set up a global team of as many as 15 people in London, and the group also had an emissions trading desk in the US based in Houston.
“Pricing carbon is an important factor in terms of ensuring that the transition happens in an orderly fashion,” Mr O’Kane said. “We’re investing in growing that.”
Macquarie is also expanding its carbon business in Europe that not only trades but invests in projects such as cookstoves in Africa to generate carbon credits to on-sell to customers.
The group’s push into renewables is being spearheaded by its Green Investment Group division, which sits within the asset management arm, and its investment banking operations.
In November, GIG announced the establishment of global battery storage platform Eku Energy. Its development pipeline spans markets including Britain, Australia, Japan and Taiwan, and the platform aims to increase renewable energy capacity in the grid.
Last year, GIG and its subsidiaries committed to investments including a hybrid onshore wind and solar project in Brazil, a 2.5-gigawatt wind farm off the coast of Victoria, five Brazilian offshore wind projects and a partnership with Bluestone Energy to develop 2 gigawatts of UK battery storage projects.
In a divisional outlook, provided earlier this month, Ms Wikramanayake indicated the commodities division would deliver annual earnings that would be “substantially up” on 2022. However, the guidance was subject to market conditions.
It represented another ratcheting up in the outlook after Macquarie upgraded expectations for the commodities and global markets unit in October.
Before October, Macquarie expected commodities income to be lower in 2023. The unit undertakes activities including trading, physical execution, logistics and customer risk management. It also still houses a small coal trading business.
If overall December-quarter earnings momentum continues, Macquarie may hit analyst expectations for a record $4.9bn annual profit in the 12 months to March 31. The asset management and investment banking giant announces its annual results in May.
The group’s December quarter commentary reaffirmed challenges in other parts of its business. It said the investment banking arm would see transaction activity “substantially down” in its 2023 year, in line with global trends, following a record prior period.
Investors and analysts are closely monitoring the commodity unit’s earnings prospects, given it has super-charged Macquarie’s profits since at least 2020.
The Millionaires’ Factory by Joyce Moullakis and Chris Wright is out on Tuesday, February 28
More Coverage
CBA accelerates tech investment to record levels
CEO Matt Comyn is ramping up the bank’s technology investment, given his staunch view of the role AI, digital infrastructure and tech execution will play over the next decade.
Banker Ross McEwan will shape BHP for decades to come
The former NAB chief executive has one major job ahead as he takes on Australia’s most powerful board role.