In the tug-of-war between energy transition and energy access, a self-described supporter of the energy transition is encouraging the Alaska Permanent Fund to invest in traditional energy.
John Skjervem, a member of Alaska PF’s board of advisers, gave an hour-long presentation on investment opportunities created by the energy transition in a board meeting last week.
Skjervem, who is also the chief investment officer of Utah Retirement Systems, acknowledged the need to transition our energy mix to cleaner sources. But “we don’t want to go too fast. That’s going to drive us into a depression”.
The energy transition needs two things, Skjervem argued: electrification of the economy so households, businesses and projects are powered by electricity rather than directly burning fossil fuels, and increased transmission infrastructure to meet this higher demand. “Very little of the economy has been electrified in the past 20 years. Even if we were wildly successful with decarbonising [the energy mix and other high-emitting sectors], it doesn’t matter unless we build out the grid.” The US must produce more energy to support this increased transmission, said Skjervem.
Alaska PF, which has assets worth $77.7 billion, is partly funded by state taxes paid by oil and gas producers operating in the state. As well as providing pensions, it pays every Alaskan resident an annual cash sum. This scheme was established in 1978 to incentivise residents to remain in the state.
The fund is an active investor in energy-focused private funds. In the past year, it has committed $60 million to NGP Energy Capital Management’s Royalty Partners II, an oil and gas private debt fund; $50 million to EnCap Flatrock Midstream Fund V; and $50 million to EnCap Energy Transition Fund II.
Skjervem advocated for a ‘both/and’ position: the economy needs both fossil fuels (including coal) and clean energy. But with so much capital flowing towards clean energy, Skjervem recommended that Alaska PF increase its investments into traditional energy. “The retreat of many of our peers and the retreat of private equity en masse has created huge opportunities. Asset owners can now go direct. That sector was up 50 percent last year.”
“We need to redouble our efforts in direct domestic traditional energy investments, and simultaneously start looking at emerging technologies: fission, fusion, hydrogen… This is the United States; its biggest advantage is we’re long, traditional sources of energy – particularly, natural gas. We have got to be capitalising on that. It’s good for the country.”
Skjervem also suggested that Alaska PF has a responsibility to sustain the state’s fossil fuel industry: “My view is that the permanent fund becomes the means of a lot of the ESG implementation that you see in the state of Alaska… There are various ways the fund has historically supported energy production through various hydro-electric programmes. Those are the direct result of the state having the financial resources to put that money to work in our state and do the right thing locally.”
Excluding fossil fuel-based energy can mean that the US has to import energy from other, less responsible companies and countries, said Skjervem. “The opportunity is to move a lot of this back to the US,” he said. For example, the US has introduced a financial penalty for methane emissions associated with abandoned and leaking oil and gas wells. “I’m pretty confident that Turkmenistan and Iran and Russia and Venezuela have no such penalties on methane emissions,” said Skjervem. “Any time we can displace foreign oil and gas production in regions that don’t have these types of regulations, and move it to the US, that is an economic and environmental win.”
Clean energy solutions are not an attractive investment opportunity, said Skjervem, noting that photovoltaic apparatus have components and minerals sourced from China. “The geopolitical reality is we are increasingly vulnerable to our most formidable geopolitical foe.” This can cause supply chain vulnerabilities for investors. “The dirty little secret is that we’re switching from hydrocarbons to minerals and we do not have enough minerals.”
Skjervem also expressed his view on other climate investment topics:
On divestment: “Complete fool’s errand. It won’t work. It precludes engagement opportunities [with fossil fuel assets]. When executed, it transfers shares to less responsible shareholders.”
On countries’ net-zero commitments: “These initiatives are a waste of time relative to the objective of decarbonising the economy… What if the entire developed world – 1.4 billion people – became net zero? It still doesn’t matter. Because there are 5.2 billion people in the world that admire our lifestyle and aspire to our lifestyle. I’m very suspicious, I’m very sceptical of these pledges.”