This Is Not Going to End Well…
A year ago this month, I wrote this in the March issue of our monthly Global Intelligence Letter: “2022 will very likely be the Year of the Driller” and that it was really just “straight-up oilfield economics 101.”
The stock I recommended in that issue—a driller—is up around 50% today while the S&P 500 is down 3%.
I’m not writing this column to pat myself on the back. It was not a challenging call to make.
The play was obvious to those paying attention to the dots that define the energy corner of the global economy. And it spoke to a much larger, self-imposed crisis now stalking the Western world: A shortage of oil and natural gas at reasonable prices.
To be clear, this is not a “peak oil” story, nor is it a story of the world running low on oil or natural gas. New drilling technologies have made available millions upon millions of additional barrels of fossil fuels that energy companies once could not access but now can.
Instead, this is the story of the world moving in the right direction, but at the wrong speed.
Like a sports-car driver zipping along a winding mountain road with the accelerator pinned to 100 miles per hour, the risk is near 100% that this driver faces a catastrophe before reaching his destination.
What’s the catastrophe?
The excessive speed at which Western governments, driven by militant environmentalists, are racing toward a future free of fossil fuels.
Yes, that future is coming. No question. No argument. It’s probably a necessary future, and it’s one I am happy to invest in because it’s going to create a lot of wealth.
Over time.
But time is a concept the greenies do not care about.
They brush it aside in favor of “now, now, now!”
They demand that the world run on wind, solar, algae, snail juice, or whatever by next weekend, lest the Earth cease to exist.
It’s all a bunch of performative sturm-und-drang—German for storm and stress.
Like I said, I understand and applaud the move to a green energy future. But I shake my head at the lunacy of thinking we can rewire the planet so quickly. A couple of Prez. Biden’s initiatives show you just how impossible this ideology really is:
- 100% carbon pollution-free electricity by 2030.
- 100% zero-emission vehicles by 2035.
Seriously? Those targets are not even remotely achievable.
It’s not hard to understand why fossil-fuel focused energy companies are leery to spend any money on finding fossil fuels. When you’re arguing with an idiot (the green energy crowd), you can’t win. You just wait for the idiot to shut up and realize later just how wrong he really was.
Which is where we are right now in the crisis stalking us.
See, green energy is not nearly at the stage where it can supply 100% carbon-free electricity on a continental scale in less than seven years. I mean, right now less than one-fifth of the electricity in the U.S. is generated from non-hydro renewable sources like wind and solar.
Think about the permitting that has to happen to build new renewable power plants to get that figure to 100% in seven years.
Think about the lawsuits that are guaranteed to spring up and delay for years the build out of these plants since they will have impacts on local communities and local wildlife and local watersheds and such.
Think about the fact that there is no practical, cost-effective means of storing electricity in ginormous batteries so that homes and businesses and factories and shopping malls and such have access to “always on” power the moment someone flips a switch at 10 p.m. to turn on a light.
Those technologies will come… in time.
But not by 2030.
And, thus, the problem that led me to recommend that Global Intelligence readers own a particular driller.
Energy companies realize that demand for oil and natural gas is not going away by 2030, despite wishful, militant thinking.
They also realize that they as an industry have not spent enough in the last several years to replenish ever-dwindling reserves.
They see that, like the sports car-driving lunatic on a mountain road, we are racing at an unsustainable rate of speed toward a self-inflicted Thelma & Louise moment.
Before this decade concludes, we’re going to realize that we need to rely on fossil fuels for much longer than the wishful-thinking are planning for. That point is going to arise when demand for oil and gas suddenly outstrips production capacity.
The world will scramble to poke more and more holes in the ground to find the energy resources we need to power the world until green energy is ready to take on the role as the primary provider of “always on” power.
This is going to be a helluva energy crisis.
Oil will spike north of $250 per barrel, which implies gasoline prices in the $15 range when you tack on taxes and profit margins. Natural gas, meanwhile, likely approaches $15 per million btu (a standard measure) as energy import-dependent countries race to find adequate supplies to continue electrifying their economy.
Like the call on drilling stocks a year ago, this is so easy to see.
Green energy proponents, of course, will not see it. Likely, they will vehemently disagree because they’re locked in that wishful-thinking mode and the belief that they can shape the energy economy to their will.
But take this as a warning: The mother of all energy crises is already taking shape.
Energy prices, especially oil, are destined to see sharply higher prices.
Invest accordingly.
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