The Anti-Oil Business Is Trying To Fool You Again

Today’s flashback: Biden says “we are going to get rid of fossil fuels.”

A quarter of American adults think the Sun orbits the Earth, so surely we’d all be much better off if “climate journalists” would just stay in their lane.

In the U.S., oil is our leading source of energy at 35-37% of supply, we have ~270 million oil cars that utilize ~370 million gallons of gasoline every day, and total oil consumption just hit a record of 23.2 million b/d in early-December (even before Christmas travel).

Not just “black gold” for precisely 163 years, oil has no competition, and those chanting about the “demise” of it have put us in a horrific position.

Myth 1: “We don’t need Keystone XL and that oil would just be exported anyways”

This controversial up to 900,000 b/d oil pipeline link to our main foreign supplier Canada is not yet built and was revoked by President Biden on, literally, his very first day in office – a serious energy security blunder, as my Forbes colleague David Blackmon just called it.

With China linking to Russia for energy, and India linking to Iran, I recognized Canada’s oil as our great energy security blanket a long time ago.

The U.S. declining refinery system of 124 operating (down from 183 back in 1993) is generally configured to process lower-cost, heavier oil that has historically been imported from Canada, Mexico, and Venezuela.

Booming U.S. shale oil production since 2008 has been yielding a lighter grade of crude that is not an exact fit, so our exports have been rising fast because our demand has been flat (but, buoyantly very high).

Thus, American shale has allowed our imports from the cartel OPEC to plummet, while the importance of Canadian oil in the U.S. refinery system is growing.

This is especially true since oil production in Mexico and Venezuela – two oil industries in decline – has been dropping fast, so our imports from these heavy oil suppliers have been dropping fast too (Figure 1).

In fact, Mexico just announced that it wants to phase-out crude oil exports altogether by 2023, making links to Canada even more integral.

Further, the International Energy Agency has promoted Canada’s oil industry for its unmatched commitment to lower greenhouse gas emissions across the value chain.

This is in direct contrast to, say, Vladimir Putin’s national champions that flare with no regard for the environment.

Hard fact: we imported 672,000 b/d of Russian oil (crude, products) in 2021 – meaning that for President Biden’s first year in office, we had 47% more oil imports from Russia than we averaged for President Trump’s four years in office.

Indeed, dropping our heavy crude from Russia will be another factor that will make Canadian supply even more important for us.

While sheer economics and market dynamics mean that Canada’s supply to the U.S. will be exported as refined product, the need for Keystone XL has actually become greater in terms of national security – not to mention the economic and job benefits that it would bring.

Myth 2: “We can’t drill our way out of this and new oil production won’t help”

Let’s hearken back to the pre-shale days (i.e., before 2008) when this chant was like a Songbird at dawn on a spring morning.

It should’ve died a long time ago.

Unfortunately, it’s gaining steam again because of Putin’s illegal war, and I’m suddenly reminded of 2011 when President Obama said the same thing – and he was proven completely wrong (Figure 2).

Hard fact: “drill baby drill” ensued and our oil and gasoline prices plummeted.

In fact, U.S. shale oil production has been a savior for the world’s oil market.

Our new production has covered the vast majority of new global oil demand over the past decade or more, while other suppliers have had a myriad of problems and mostly been unable to help.

For all liquids, the U.S. accounts for 15-17% of global supply, but the anti-oil rhetoric (“we will destroy this evil industry!”) is sending market signals today that oil prices will be much higher in the future because policies will oppose new production.

This October 2020 headline alone is part of why oil prices have been surging since January 20, 2021: ‘I will transition:’ Biden promises move from oil.’

While the global liquids market is surely immense (~101 million b/d), demand is setting records again (even as international jet fuel use is down because of Omicron).

Saudi Arabia and the UAE are widely seen as the only non-U.S. suppliers that could actually increase production if required.

Some investing experts that I talk to tell me that OPEC’s spare capacity could be gone this year, so blocking U.S. oil output in any way is sowing the seeds of devastation far worse than what we’re seeing today.

The fear of “peak oil demand” is setting up the reality of peak oil supply.

In other words, those just focusing on physical oil markets today are ignoring the positions that investors take in those markets because they know that certain politicians in charge demand policies that will block more U.S. oil production.

None of this is difficult to understand.

While it will be getting a monumental rethink after Putin’s illegal war, western ESG (handing the global oil market to OPEC and Russia) is setting up the dangerous structural increase in the price of oil.

ESG is starving oil (and gas) companies of capital and increasing production costs, thereby raising the price of oil needed for them to make a profit.

Investors backing renewables have cut financing for oil projects, slashing production long before renewables could replace them, pushing oil prices up.

The world has been underinvesting in new oil production since 2014, and that is a massive problem for everyone and everything because oil is a global commodity central to about all aspects of our lives.

We’ve heard it all now, it’s “transitory inflation,”…no… “it’s Covid-19,”…no…“it’s corporate greed,”but the “Putin’s price hike” might be the biggest Red Herring since “My dog ate my homework.”

Here’s the dangerous playbook: artificially increase the cost of energy…to discourage usage… to force an energy transition.. to lower greenhouse gas emissions.

Hard fact: from January 20, 2021 to February 1, 2022, President Biden’s first 375 days in office and long before Putin started his illegal war, the price of U.S. crude oil skyrocketed 55% to nearly $90.

While we surely have bottlenecks and issues in the oil industry (e.g., fracking sand, labor, equipment, fuel input prices, steel, etc.), the claim “they have 9,000 leases and refuse to drill” is a smokescreen as well.

Among other complex considerations, not all leases are commercially viable, many of them lack sufficient oil and/or gas resources to monetize and others are caught up in litigation.

Dear President Biden, no leases have been issued for federal land since 2020.

Accounting for 11% of global oil supply, I estimate that 65-75% of Russia’s oil now has no buyers.

Russia is likely to remain under sanctions for a very long time, so production shut-ins should be expected.

Now at nearly 8% because of soaring energy prices, spiraling inflation is now at a 40-year high that didn’t even factor in Putin’s illegal war.

Myth 3: “Oh, just buy an electric car.”

I know the $75 million Stephen Colbert wants you to buy a Tesla because he has one, but the reality is that electric cars are too expensive and inconvenient for the vast majority of Americans.

This explains the demographic for the average Tesla buyer: white, male, no kids, $150,000+ annual income.

Ultimately, I’m convinced that the enormous subsidies being thrown at us to buy electric cars are unsustainable (the opportunity costs are ignored), not to mention a number of humanitarian abuses in the industry that will be continually exposed as we march down the electric car path.

The Wall Street Journal calls electric cars “the lowest climate priority,” with fossil fuels (coal and natural gas) supplying over 60% of the fuel that would power them.

Hard fact: electric cars are just 1% of the U.S. vehicle fleet, and the timeframe to turn a significant portion of our growing 270 million strong oil-car fleet over to electricity is measured in decades, not years.

Not to mention that surging prices for nickel, lithium, cobalt, and a long list of other things – importantly, that we mostly import from supply chains controlled by China – ingrained in electric cars are making them even more out of reach for everyday Americans.

This could easily mean a much more difficult road for electric cars than you’re being told because demand for them has just started.

The boom in nickel prices only could add $2,000 to the price of “every electric car.”

No wonder why even Elon Musk is promoting the need for more oil.

While San Francisco has been facing $6-7 gasoline, mega-investors in nearby Silicon Valley just threw a wet blanket on the electric car industry.

Petrochemicals, manufacturing, heavy-transport, airplanes, concrete, Amazon deliveries and boxes, agriculture, the very production and transport of renewables and electric cars themselves, etc. will keep oil in the game for far longer than you’re being told today.

Oil is the very basis of globalization…without it, there is none.

Wherever you are, look around you, pretty much everything you can touch has oil at its core.

Demand destruction for oil is therefore far more difficult than you’re being told.

Remember back in 2008, when oil prices were above $140, oil demand didn’t fall because of high prices, it fell because of the collapse in the credit markets amid the Great Recession.

Locked inside for over two years because of Covid-19, we all want to get out and “do things” and travel – all the time using more oil.

Policies forcing higher oil and gasoline prices don’t mean less demand or more electric cars; they mean more oil imports.

The ice cream flavor this week is a “windfall-profits tax,” a ploy to force people to buy an electric car while trying to avoid voter backlash.

When asked last week about helping Americans struggling with soaring gasoline prices, which I’d argue have largely resulted from the very policies that she promotes, Alexandria Ocasio-Cortez responded with: “What we really need to be doing is rapidly investing in solar and wind.”

Her sane supporters must help her out: huge amounts of more wind and solar (electricity sector) will do about zero to lower the price of oil and gasoline (transportation sector).

Moreover, the U.S. Department of Energy’s Annual Energy Outlook 2022 just modeled the most important energy fact that you will hear this year:

• From 2022 until 2050, U.S. oil demand will actually increase 11% to over 22.3 million b/d.

And to be clear, Europe has set the example that “let’s double down” on renewables is just more wishful thinking that has fueled Putin.

In reality, the European Union has quintupled down on renewables since the Kyoto Protocol went into force in 2005 – to the tune of hundreds of billions of dollars and endless mandates and subsidies – and oil and gas still supply nearly 60% of its energy.

And pipeline links that ultimately funded Putin’s illegal war have still been required to be built.

Literally doing all that it can to “get off oil and gas” for a generation to little avail, Europe has directly shown that our lessons from Putin’s illegal war are not about “massive investments.”

Our greatest lesson here is about physics: “gasoline thus has about 100 times the energy density of a lithium-ion battery.”

For energy, what you’ve been told is “alternative,” is being shown more as “supplemental.”

I’m sure that most Americans don’t realize that electric cars already lost the transportation race to far more powerful oil-based ones: in 1900, nearly 40% of the U.S. fleet was electric.

Decarbonization involves an ever-expanding suite of options, most of which the environmental business usually just opposes without thought.

We’re now seeing on television just how catastrophic such energy unrealism plays out.