Investors in fossil fuel companies focus on dividends in the medium term
Fossil fuel industry seems to show slow decline overtime
Botswana makes shifting towards a solar-dominated energy industry
BSE fossil fuel companies move towards green energy
Shifting away from fossil fuels is a tough transition for companies and investors
Investors are cautious as green energy faces tech challenges, limited grid access, and uncertain profits.
Renewable projects are costly and offer lower short-term profits than oil and gas.
Companies like Shell and BP are reducing green investments to capitalise on rising oil and gas prices.
For investors watching fossil fuel companies, the focus is moving away from expecting big growth in the long term and more toward steady cash flow and dividends in the medium term.
This shift is happening because the future of the fossil fuel industry seems to show slow decline overtime, unless companies make major changes, like moving towards cleaner energy.
That said, not all companies are the same—some in the Botswana Stock Exchange (BSE) are working on adapting to sustainability, which could impact their future stability and value. Investors might want to think about how these companies are balancing profits with the need to change as the energy world evolves.
1. Engen – petroleum products
Industry dynamics for Engen:
Oil Prices Outlook: RMB expects oil prices to stay low in 2025 due to increased production from OPEC and non-OPEC countries.
China’s Impact: Slow growth in China (which uses 35% of global oil) has kept prices down, but government support may limit further drops.
Effect on Engen: Higher oil prices help Engen’s profits, while lower prices can squeeze margins.
Botswana Market: More local companies importing fuel directly may reduce Engen’s commercial sales. This follows regulation that barred International Oil Marketing companies from directly importing. Instead, Botswana Oil import 90% of the quota and sells to the marketing companies. Only citizen companies are allowed to import the balance of the quota.
Key Takeaway:
Investors will keep a close eye on how Engen responds to the evolving challenges and opportunities in the energy market. The company’s ability to adapt to these changes could impact its future performance and stability.
2. Minergy and Shumba - Coal
Coal Demand: Flat Outlook, Regional Variations
The International Energy Agency (IEA) projects that global coal demand will remain relatively flat through 2025.
Demand in regions like China and India is expected to stay strong, driven by slower adoption of renewable energy technologies in these emerging economies.
Coal Prices: Short-Term Support, Long-Term Decline
While global trends suggest a long-term decline in coal consumption, some analysts, like those at Rand Merchant Bank, believe coal prices could stay supported in the short term.
Factors such as the slower pace of the global renewable energy transition and continued demand in developing countries help maintain coal's price support.
Coal prices (API4) have recently improved, rising from an average of US$100/tonne to US$124/tonne as of August 2024, according to Minergy.
Despite being above historical averages, Minergy remains cautious, noting that the market outlook is bearish due to high inventories and weak economic conditions in South Africa.
Energy Outlook in Botswana
Climate Commitments: Botswana submitted its updated climate strategy in December 2024 under the Paris Agreement, focusing on reducing emissions and adapting to climate change.
Finance Minister Ndaba Gaolathe made clear the new government’s efforts toward modernisation of the power sector, with a strategic shift towards a solar- dominated energy industry.
This approach will enable Botswana to scale up electricity production to at least 8 000 MW within four (4) years, laying the foundation for a more sustainable and competitive energy landscape.
Key project include:
· 200 MW Concentrated Solar Power in Maun;
· 100 MW Solar PV in Jwaneng;
· 100 MW Solar PV and 100 MW of Wind Power in Letlhakane
Despite climate goals, coal remains central to Botswana's energy plans.
New Project: The government and Botswana Power Corporation (BPC) are developing a 600MW coal-fired power station at Mmamabula, in partnership with Jindal.
The Growing Importance of ESG in Investment Decisions
ESG Matters: Investors are focusing more on companies that are responsible and sustainable in their practices.
Pressure on Fossil Fuels: Fossil fuel companies face pressure to balance making money with being environmentally responsible.
ESG is Essential: Tshephang Loeto, Chief Investment Officer (CIO) of Botswana Public Officers Pension Funds (BPOPF), stated that adopting ESG practices is crucial for long-term success and returns.
“The sustainability of your investment case is what will give you returns in the long term.”
As ESG becomes a non-negotiable part of the investment landscape, fossil fuel companies are under pressure to adopt cleaner technologies and reduce their environmental footprints.
What BSE listed fossil fuel companies are doing:
Trend:
Rising Fossil Fuel Divestment: Major funds, like ABP ($10.8B divested), are exiting fossil fuels due to ESG pressures.
Anglo American (2021) spun off coal assets (Thungela Resources) to improve ESG standing.
Selective Investment Approach: Some investors, like BlackRock, still invest in fossil fuel firms making sustainability efforts—only 9% of its ESG funds fully exclude them.
Mixed Strategies: While many funds go fully green, others adopt a "best-in-class" approach, backing companies transitioning to sustainability.
What Investors are considering in the shift to clean energy
Green Energy is the Future, But Not Easy
Moving away from fossil fuels helps the environment, but it’s a tough transition for companies and investors.
Many investors are cautious because green energy still faces technological challenges, limited grid access, and uncertain profits, according to articles by Financial Times and Financial Mail.
Big Oil Still Prefers Fossil Fuels (For Now)
Renewable projects are expensive and offer lower short-term profits compared to oil and gas.
Companies like Shell and BP are cutting back on green investments to take advantage of rising oil and gas prices.
Real-World Example: Equinor’s Budget Cut according to UK’s Guardian
Norway’s state-owned oil company, Equinor, originally planned to invest $10 billion in renewables.
They’ve now reduced that budget to $5 billion, prioritising oil and gas instead.
4. Glencore:
o Kept coal assets, citing demand & controlled phase-out. Reversed spin-off plans in 2023 due to investor shifts & coal profitability.
Investor Takeaway:
Short-Term Gains → Oil and gas remain more profitable in the near future.
Long-Term Potential → Clean energy will grow as technology improves and policies support renewables.
Balanced Approach → Investors will be weighing immediate returns from fossil fuels against the long-term growth of green energy.
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