Why Oil Is the Key to the Green Energy Future

The World’s $275 Trillion Problem.

We launch into today’s dispatch with a gargantuan number: $275 trillion.

I assume that, like me, you really have no clue how to comprehend a number that big. This is the problem with modern economics. The numbers are so vast that it’s impossible to wrap your head around them.

So, in an attempt to provide a little clarity, here’s how much $275 trillion is…

If dollars were seconds and we counted backwards from today to 275 trillion seconds in the past, you and I would be knuckle-dragging great apes who lived 8.7 million years ago, a couple of million years before fully upright, bipedal hominids emerged.

That’s a lot of seconds.

And a lot of money.

Why share this fact?

Because I was reading through some documents I printed out last year, and I came across a report titled: The net-zero transition: What it would cost, what it could bring.

The report was released by global consulting firm McKinsey & Co. and looks at the cost to transition to a world of net-zero energy emissions by 2050.

Which is where we come to our gargantuan number…

McKinsey calculates that “Capital spending on physical assets for energy and land-use systems in the net-zero transition between 2021 and 2050 would amount to about $275 trillion, or $9.2 trillion per year on average.”

Let’s think about what that implies…

If you’ve ever seen the 1988 Eddie Murphy comedy, Coming to America, you might remember this bit of dialogue from Murphy’s character, Akeem: “He who would learn to fly one day, must first learn to stand and walk. One does not fly into flying.” (OK, the character was actually quoting Nietzsche, but I prefer Coming to America.)

Odd reference, but it’s appropriate relative to that $275 trillion.

See, one does not build renewable energy infrastructure by using renewable energy.

One must first rely on fossil fuels.

Let’s consider wind power. And let’s assume wind will generate, say, 25% of global electricity demand by 2030. Research indicates that the steel alone that’s necessary to build the support towers for the turbines and blades will consume the fossil-fuel equivalent of 600 million metric tons of coal, or about 27 billion barrels of oil.

In a full year, the world consumes about 36 billion barrels of oil for all its needs—power, transportation, mining, chemical production, consumer goods, etc.

Now, we need another 27 billion barrels just for the steel to make the turbines.

And that doesn’t include the petroleum consumed in the production of solar panels, or all the other forms of green energy.

Where, one wonders, might the world find enough oil to essentially double today’s daily production in order to build out all the green-energy tech needed to transition away from fossil fuels? Hint: It does not exist.

One does not fly into flying.

One drills oneself toward a green energy future by pumping more oil and natural gas over the foreseeable future.

To not do that is to accept societal collapse, starvation, war, famine, etc.

Basically, the many horsemen of the apocalypse.

Nevertheless, there’s a group of people—I’ll politely call them nitwits—who want to stop all drilling right now. Like, yesterday.

Fine.

Let’s do it!

First, though, a question: Have you ever seen the movie Mad Max?

Debuted in 1979, the movie centered around a dystopian society that collapsed primarily due to… widespread oil shortages.

Life would imitate art as we’d have no way to run the world and produce all the gear we need to transition to a green energy future.

Based on population growth, economic growth, and the amount of economically viable proven oil reserves we currently know about, demand would begin to outstrip oil production capacity in about 20-ish years, if we simply stopped exploring for new reserves today.

And that assumes existing reserves don’t collapse sooner, and that all drilling rigs in existence today are capable of draining all those reserves (and that’s not the case).

By the middle to later years of next decade, we’d be approaching a Mad Max moment as society breaks down.

Here’s the bright side: None of that is going to happen.

The great irony is that fossil fuels are the key to the green future. That means the world is going to continue looking for and producing fossil fuels for a very long time because ultimately it’s in the global economic interest to do so.

Sure, we’re going to keep on progressing toward a green future, but that push is going to moderate because the world cannot meet the crazy timelines for fossil fuel eradication that so many Western governments have established.

Instead, we’re going to see more and more oil and gas drilling through the end of this decade as the world economy continues to expand, and as green tech consumes more and more oil (and minerals like copper) as it grows into a bigger provider of power.

All of this to say: Own exposure to oil.

Today’s oil price in the range of $70 to $80 per barrel is the new $25 to $30 per barrel… by which I mean, it’s the new base level.

Unquenchable demand (and this rush toward the greener side of the street) is going to see prices soar to well in excess of $150 per barrel, and shorter-term spikes to unimagined levels of $250 or more.

That’s why I’ve selected several of my favorite energy plays, from drillers to natural gas producers to oil transportation and storage companies, for our Global Intelligence Portfolio.

Big money awaits today’s patient energy investor.