Friends,
This is the 3rd of 3 parts. This has all been a long explanation of my thinking that oil and gas stocks have been a great opportunity and will be in the future. Those comments are at the end.
Let’s recap. My analysis says that solar and wind can’t work. I have outlined the reasons. Some random crazy things that are happening now in solar and wind:
China has an energy crisis. In part, they have been sidetracked on Green Energy. They have been running “whirlwind campaigns” (their name) to gain share of solar and wind. A telling headline, “China urges an end to ‘whirlwind campaigns’ for carbon reduction” includes this statement, The meeting set out a carbon emission reduction methodology it dubbed “construction before destruction,” meaning China should establish an energy structure based on low carbon solutions before demolishing the current carbon intensive energy scheme. Yes, good one to reread since the Chinese have figured this out before us. (1)
- Joe Biden has opened huge areas of offshore waters to install windmills. What the environmentalists must be missing is how building windmills, especially offshore, is a true environmental nightmare. Sixty, 44,000 pound cement trucks and 220 tons of steel in one offshore windmill! And they only last 15-20 years.
- According to Bloomberg analysis in conjunction with Princeton University they determined that:
“Expanding wind and solar by 10% annually until 2030 would require a chunk of land equal to the state of South Dakota, according to Princeton University estimates and an analysis by Bloomberg News. By 2050, when Biden wants the entire economy to be carbon free, the U.S. would need up to four additional South Dakotas to develop enough clean power to run all the electric vehicles, factories and more.” So, we would give up 5 South Dakotas? What is the land value alone and how will they access it? (2)
- Warren Buffet has commented on Wind Energy: “I will do anything that is basically covered by the law to reduce Berkshire’s tax rate,” Buffet told an audience in Omaha, Nebraska recently. “For example, on wind energy, we get a tax credit if we build a lot of wind farms. That’s the only reason to build them. They don’t make sense without the tax credit.”
- Electric vehicles are not taking off like you would think. US consumers purchase about 17 million cars per year. A projected 256,000 electric vehicles will be sold this year, or about one in 70. Many or most of those will be for corporate and government fleets which inflate sales numbers that we assume to be consumer purchases. And that is for 2021. The projections (by EV enthusiasts) puts us at 115 million EVs in operation. There are 1.42 billion cars in the world. Even by 2030 (when the world ends according to the Green new deal fans) there will only be 1 in 9.5 cars that run on electricity. That is if EV’s survive that long. That is not counting growth in total vehicles. Most of those will be purchased for fleets, not the family camping trip. The federal government wants to replace the entire federal fleet with EV’s. That is 657,000 vehicles alone. Countries, states, counties, cities and corporations all have plans to purchase EV fleets. That number could make fleets the majority, while citizens continue to use oil and gas. China has 4.5 million EV’s, most of them in fleets and NEVs (neighborhood electric vehicles such as mail carriers.) Fleets seem to be the best usage for EVs. Run routes, come back and plug in. China has 6.5 million cars in the government fleet. https://www.weforum.org/agenda/2021/05/chart-that-is-the-state-of-the-global-electric-car-marke
Two Solutions
One is to burn all natural gas for power, heating, and internal combustion engines. We are able to do that now and many big rigs are using high efficiency natural gas engines. That would cut our emissions by half. We could have been doing this for years, but the obnoxious voices of the perpetually offended class have gained the ears of the media and government. To repeat what I have said before, according to the EPA the air is far cleaner today than it was 32 years ago and has improved 31 out of those 34 years. Our supply of natural gas will last for 100 years just with known reserves. With all this relatively clean natural gas what do we do? We are banning natural gas! At the start of July, at least 19 U.S. states and dozens of cities have adopted laws that prohibit the use of natural gas in new construction. https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/gas-ban-monitor-building-electrification-evolves-as-19-states-prohibit-bans-65518738
Two: Nuclear. Nuclear energy is carbon free and plentiful. We are going backwards by de-commissioning plants. California has now decided to shut down the Diablo Canyon Plant which provides 10% of the power California needs. This comes even as they are predicting shortages in the next several years and have brown-outs regularly. We have been conditioned to believe Nuclear is “too dangerous.” It really isn’t. France gets 60% of its energy from Nuclear and has had zero accidents. In the past 50 years we have had only 3 major accidents at Nuclear Reactors. In order the three were Three Mile Island (“TMI” 1976), Chernobyl (1986), and Fukushima (2011). Three Mile Island was by far the least damaging. No one died at the TMI plant and no died outside the plant. The radiation leaked was negligible and studies have found no lasting problems from radiation. (3)
Chernobyl was the worst of the three in terms of injuries. the Chernobyl explosion caused 2 immediate deaths and 29 deaths from acute radiation sickness in the course of the next three months. Altogether, 237 people were airlifted from Chernobyl to Moscow and treated in the special clinic there. Out of these, 134 showed symptoms of acute radiation syndrome. It has been claimed that a total of 50 people died of acute radiation syndrome. Chernobyl was plagued by inadequate safety measures. https://time.com/5255663/chernobyl-disaster-book-anniversary/
Fukushima- Due to the huge earthquake an ensuing Tsunami that swamped the reactors it was a bad disaster. There were no deaths immediately during the nuclear disaster. At least 16 workers were injured in the explosions, while dozens more were exposed to radiation as they worked to cool the reactors and stabilize the plant. Three of those people were reportedly taken to hospital after high-level exposure but no deaths. It is now safe to visit there, as are Chernobyl and Three mile island.
Less than 100 deaths in the last 50 years from Nuclear power. 156 deaths and 3,033 injuries have happened from wind power since 2000. https://www.forbes.com/sites/jamesconca/2013/09/29/forget-eagle-deaths-wind-turbines-kill-humans/?sh=52d121445467
This is a TED talk by Michael Shellenberger that explains why nuclear is the only clean solution: https://www.ted.com/talks/michael_shellenberger_why_renewables_can_t_save_the_planet?language=en
So, those are two good options. But like many long shot aspirations, sometimes it is something entirely different that will be presented to us for energy. That is my guess.
Oil and Gas Stocks
I have held oil and gas stocks for myself and clients since before the great crash of oil prices in 2014-15. It was severe but created huge opportunities for investors. Oil and gas stocks pay out high dividends generally and are ownership in an indispensable industry. They have provided the comforts and way of life we have today. Even the most pie in the sky estimates put us using a lot of oil and gas indefinitely. Oil and natural gas usage is still predicted to rise over the next 10 years.
Many of the things we use come from oil. From plastics to asphalt, chemicals, and lubricants. Natural gas is a key component of fertilizer and accounts for 60% of all fertilizer in the United States and globally. Millions would starve to death without fertilizer from natural gas. Jet fuel can’t be replaced by electric. We won’t see all electric battleships, tanks, large bulldozers, or even 18 wheelers in the near future, or may never. Most of all, we will need oil and gas far into the future for conventional transportation and power. Plastic containers can’t be replaced with handcrafted bowls at Farmers markets!
From my view, analysts are reluctant to add oil and gas stocks to recommended lists due to the backlash they face from the media and “activists.” Some have dropped coverage of oil and gas companies, or they have been reluctant to be positive. Brokerage firms don’t want their “buy list” to be full of oil and gas stocks due to fear people will be angry. The reality is this; in the last 10 years I have not encountered a client who refused to own oil stocks. The fear of anger is way overblown.
Currently we are in a great place to be with oil and gas investments if chosen carefully. While our own government is banning fracking on public land and cancelling pipeline deals, prices for oil and gas have more than doubled and are still climbing. Oil and gas companies could reach great earnings with these price increases that have nothing to do with them. Unfortunately as always they will be blamed for price increases. Astounding that our government attacks the most crucial industry we have. These companies should be heroes not villains.
North America hit record bankruptcy debt across oil and gas sectors in 2020 https://www.nsenergybusiness.com/features/oil-gas-bankruptcy-2020-north-america/ Over 100 companies have gone under due partially to decreased demand from Covid. Regulators and environmentalist want them all gone and work hard every day to make their lives are miserable while they provide for our way of life. It’s what we have. It works. And it is what we will have for many more decades. With the small players faltering I think it is wise to stay with larger companies that produce products for all phases of energy. Yes, this would be the dreaded “Big Oil” companies. They have the cash, contracts, sales, and political influence to stay at the head of our energy production. Many of them are fine companies who are concerned about their shareholders and keeping our lights on. They should be heroes not villains. As the smaller companies exits it will create more profits from the well run large companies.
We are finally starting to export huge quantities of Liquified Natural Gas (LNG). Europe and China are the biggest buyers, but many countries rely on our LNG which is turned back into gas after being shipped as a liquid produced by extreme cold. Projections have a large percentage of gains in the coming year. “Structural global LNG demand could rise 14% by 2025 from 2020, resulting in a 26 to 34 million tons a year call on balancing markets over 2022-25, of which Europe would be the biggest driver.” These are conservative projections. https://www.bloomberg.com/professional/blog/global-lng-outlook-2021-25-overview.
There is vast over-confidence in the fantasy of wind and solar as China has discovered. Will we figure it out before we do irreparable damage to our economy? In an odd twist, Joe Biden has come crawling back and asking oil companies to help with energy prices! Joe Biden suddenly likes frackers Wall Street Journal https://www.wsj.com/articles/joe-biden-suddenly-loves-frackers-oil-industry-11634336080
We will find solutions to environmental problems as we always have. We won’t all die in 9 years like the crazies are screaming. Climate talking point: Real estate prices have not dropped on ocean front property. Insurance companies are still insuring waterfront homes. Believe what you see, not what you hear.
Call me if you would like to discuss the opportunities.
See you soon,
Craig Verdi, President Trail Creek Advisors
Craigverdi.com [email protected]
208-559-6250
Footnotes
(1) https://www.upstreamonline.com/energy-transition/china-urges-an-end-to-whirlwind-campaigns-for-carbon-reduction/2-1-1046838 China urges an end to ‘whirlwind campaigns’ for carbon reduction
(2) Merrill, Dave (June 2021) The U.S. Will Need a Lot of Land for a Zero-Carbon Economy https://www.bloomberg.com/graphics/2021-energy-land-use-economy
(3)- https://www.nei.org/resources/fact-sheets/lessons-from-1979-accident-at-three-mile-island Lessons From the 1979 Accident at Three Mile Island