The Overprivileged West’s Delusion Of ‘Transitioning Away From Oil’

Over 15 years in the business, easily the smartest people I’ve met in energy reside in Calgary and Toronto:

• “Don’t get caught up in the supply story. The demand is insatiable. It’s unstoppable. And it’s growing aggressively globally. And the world has become selfish since Covid came along…you’re protecting yourself and to protect yourself you will throw out all of your environmental concerns…and look to protect yourself and that means burning more oil…in the developing world there’s a scramble to get out of poverty…it’s even accelerated because of Covid because of the lack of attention those countries got from the developed world,” Rafi Tahmazian, Senior Portfolio Manager, Canoe Financial, 2022

Just like essentials like air, water, and food, oil is as important as anything in our world.

Oil is the world’s most critical energy resource, the sustaining fuel behind a global economy of $100 trillion and population of over 8 billion.

I will never understand this newfound hatred for oil, especially coming from the West that has benefited unimaginably from the oil age that kicked off with Edwin Drake in 1859.

Oil is the black gold that has no substitute whatsoever.

Oil is the transportation fuel that powers a global auto fleet of over 1.4 billion, as compared to a tiny electric car fleet of less than 20 million.

Oil is literally the basis of globalization, the sine qua non of human physical interaction.

The push for renewables such as wind and solar to displace oil prove an energy ignorance that can only come from a country where one in four adults think the Sun orbits the Earth.

Wind and solar only compete in the power sector (20-25% of the way in which humans consume energy), while oil overwhelms in the transportation sector.

An endless amount of more wind and solar will do about zero to lower the daily U.S. oil requirement of 19-20 million b/d, most importantly a gasoline gorge of over 400 million gallons a day.

The mindless goal to “not invest in oil” inevitably means higher costs for everything and rampant inflation because oil is ingrained in about every single thing that we do or consume.

With demand “set to explode,” petrochemicals are pervasive in our world: over 6,000 everyday products have oil as an integral component.

And, oh by the way, this includes the production and transport of renewables and electric cars themselves (the purported “dual panacea” technologies to fight climate change).

As the immense mining revolution required to construct more wind, solar, and electric cars plays out, and the demand for them continues to mount, their costs will inevitably rise by much more than many want you to think.

In fact, even so early on in the “energy transition,” we’re already seeing some of that, and the “dual panacea” need for unfair high subsidies (a reverse Robin Hood taking tax money from poor people to give to those rich people in the market to buy an electric car) are bound to become politically, or financially, untenable at some point.

Just ask the dangerously unrealistic Europeans how their “dual panacea” has worked out under Putin’s thumb: “Germany goes back to burning coal as its energy crisis deepens.”

Physics (e.g., gasoline has 100 times the energy density of a lithium-ion battery) and higher than rosily modeled costs will eventually force our emerging European-like climate-energy goals to be pulled back here in the U.S. (e.g., only EV sales in California after 2035).

Electric cars, for instance, require six times the minerals that conventional oil-based cars require – nowhere near as “clean” as advertised.

We should all be shocked that environmental groups are so supportive of that amount of extraction and potential land destruction, not to mention the child labor inherent in the EV industry.

Maybe all this explains why the world’s largest automaker is already sounding the alarm: “Toyota Rethinks EV Strategy With New CEO.”

Our Forbes expert Michael Lynch has written all about the EV problems that nobody wants to talk about.

The numbers in favor of oil cars are so overwhelming that to fight climate change an obsession with efficiency and performance improvements for the internal combustion energy would be way more helpful than the obsession with electric cars, which are impractical and too expensive (up 13% last year to $66,000 a unit) for the average consumer.

Indeed, I think that one of our biggest climate-energy problems is the fact that young Western journalists (aided by fossil fuel devouring climate scientists and renewable energy consultants that have taken over academia) have completely usurped the climate-energy conversation – non-market experts controlling the narrative is increasingly leading to higher costs and less reliability.

But their secret hides in plain sight: they demand a de-growth plan of less money and less humans.

This overprivileged lot enjoys a world where they can solely focus on climate change and completely ignore the very real issues of energy affordability, energy reliability, energy security, and the gigantic need for more…in a world that is overwhelmingly poor, worried most about where their next meal will come from.

Shocking I know, but Putin and China love Western energy policy dictated by teenage Swedish girls.

And as the world’s main fuel, that inevitable “more” centers on more oil (along with its sister fuel natural gas, combining for 65% of the world’s energy).

The anti-oilers face a very real price Catch 22 that they could’ve learned in that economics class they never took: “any absolute reduction in oil demand will simply lower oil’s price, which will simply encourage more oil demand.”

Regardless, passenger vehicles account for just 25-30% of the world’s oil consumption – so the EV obsession is limited in reducing our need for black gold.

Not just a growing fleet of internal combustion engine oil cars, petrochemicals, jet fuel, and heavy duty trucking are just a few of the markets to know when it comes to our ability, or lack there of, to “transition away from oil.”

With 85% of the world (over 7 billion humans) struggling in still developing countries, watching the overprivileged West devour huge amounts of oil to install the highest living standards in human history, place your bets on global oil needs being much higher than we Westerners like to tell ourselves.

Even the European oil companies, under tremendous climate pressure to say things about the “end of oil” that they themselves must know are untrue, seem less scared these days to defend themselves: “BP defends transition strategy after curbing retreat from oil and gas.”

I’ve been saying for nearly a year now that the silver lining in Putin’s illegal war is that he has woken up some of the sleepiest in the overprivileged West.

After dropping last year for the first time since 1990, China’s rebound from Covid lockdowns this year should push the world past 102 million b/d of consumption.

Don’t expect a non-stop surge but the clear historical trend is that global oil demand grows with global economic and population growth – because oil is that irreplaceable.

And we will be doubling the global GDP and adding over 2 billion humans by 2050.

The dangers of the anti-oil business, however, are hardly going away.

ESG, for instance, was unimaginably favoring Russian oil companies controlled by Putin over Canadian ones that compete in a free market in one of the world’s freest countries.

Exposed to the world by Putin, ESG has jumped the shark once again over the past year – even ESG pioneer BlackRock has become unafraid of pushing back on the unrealism.

Our investments in oil must remain continuous because it’s an indispensable product whose fields face annual natural decline rates of 6-9%.

In other words, the world needs to invest hundreds of billions of dollars each year in oil simply to stand still.

Larry Fink is right in that environmentalists need to seek an alliance with our oil companies, not a hypocritical hatred of them.

Don’t hold your breath.