Why Tenaris Just Might Benefit From ‘Grid’ Anxiety

As the leading manufacturer of pipes and related services for the global energy industry and certain applied sciences sectors, Tenaris (NYSE:TS) finds itself in an interesting situation. On one hand, the energy blackout that occurred during the Texas winter storm was a black eye for the entire segment, clean or otherwise. But on the other hand, TS stock is performing very well since late January.

Pipelines in the desert
Source: bht2000 / Shutterstock.com

Much of this I suspect is due to the overriding political narrative of the storm’s devastation. Before you get the pitchforks out, let me just set the framework and how it relates to TS stock. Then, after having absorbed the information, if you feel it necessary, pitchfork away, I suppose.

As you’ve probably heard or seen, political pundits have blasted renewable energy sources like windmills as contributors to the problem. Of course, the idea is to be careful what you wish for: green energy may be green, but it may not be reliable. Cynically, this has positive implications for TS stock.

While Tenaris isn’t a fossil fuel giant per say, its business depends on the continued development of traditional energy infrastructure. With green energy taking it on the chin recently, it’s supposedly a great time to be a stakeholder of TS stock.

But wait! The failure of windmills isn’t the sole reason why the Texas power grid failed, I hear you say. While there are many explanations for the disaster, ultimately it came down to supply and demand. When the weather chilled, Texans demand more energy. Unfortunately, not enough supply of reliable energy infrastructure existed to meet soaring demand, leading to failure.

That’s why I urged you to put away the pitchforks before I had a chance to explain myself. In no way is what happened in Texas a fundamental failure of renewable energy. But the optics are enough to boost TS stock and similar names.

Why TS Stock Is Intriguing

Again, the events surrounding the Texas storm is neither a repudiation of clean energy nor is it a redemption for “dirty” energy. If anything, you can blame mismanagement. Apparently, Texas had opportunities in the past to bolster its aging infrastructure but chose not to.

It’s a debatable topic and I’m not going to go down that rabbit hole. However, what is apparent from this crisis – and this is an area where I believe we’ll find broad consensus – is that Americans have realized we’re a long ways from realizing true independence from fossil fuels. And that’s the key story-driven catalyst for TS stock, one that could see shares moving higher.

Don’t get me wrong – I’m not suggesting that I’m back to being an unabashed petrol head (although I don’t think I’ll ever be an electric motor head, just to be fair). Rather, TS stock and its derivative business has science on its side.

For one thing, gasoline, because it’s comprised of multiple elements, doesn’t really freeze predictably as you would expect water to do. Basically, it must be darn cold for gasoline to freeze outright. At that point, you’d have bigger problems on your hands. Therefore, combustion-based platforms have a resilience that grid-dependent platforms do not.

And this segues into an important argument about TS stock and its broader underlying applications. Fossil fuels are in a sense structurally agnostic. What I mean is that if your EV runs out of charge and cannot be recharged due to grid disruptions, you’re swimming up a creek without a paddle.

Unless there’s a technology to put electrons in a jerry can that I don’t know about, you must wait until power is restored. On the other hand, combustion engines can operate independently of the grid (all other things being equal), so long as access to fuel is available.

Is a Consumer Rethink on the Horizon?

The above is a longwinded way of stating that consumers may be rethinking their electric vehicle purchasing ambitions. And you don’t have to be in Texas to feel this way. Indeed, people in car-crazy California know that anything can happen – I mean, our own grid took a beating last year.

While I understand that consumers who are already thinking about a Tesla (NASDAQ:TSLA) may not be deterred by the winter storm, there are many consumers who are on the fence. As Forbes detailed, range anxiety is a serious concern for consumers. Imagine – an issue that can be mitigated with some basic planning stymies conversion from combustion to electric.

But what about grid anxiety? Perhaps the California blackout could have been justified as a one-off event. However, with Texas suffering the same fate – and bear in mind these are two major economic powerhouses for the U.S. – grid anxiety could become a serious issue.

Therefore, call me cynical but I like TS stock as a contrarian investment. Though green energy is relevant, for now and for at least the few years ahead, fossil fuel is king.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.


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