Lack of investment
The shale drilling gas sector has been suffering for more than ten years. Increase in ESG mandates with governments, which signals their support for greener developments.



Price & history
The 2014 WTI price crash was due to excess production, the drillers slowed down production but they couldn't help but run the machines so the price fell. Since 2012, oil has been in a bear market, the ATH peak was 2008 (inversely correlated with the stock market crash and the bank bailout in 2008)



Demand & consumption
Unless there is a violent shock as we have seen in 2020 or a population that drastically decreases the demand for energy should continue to increase. Emerging markets want to access a higher standard of living. Coal replaced wood, petroleum replaced coal, hydroelectricity and natural gas took up a good portion of the percentage of petroleum. Now we have nuclear, solar and wind, right?


Conflict of interest
The world as a whole has never degraded the power density or the energy return on investment of its dominant energy source. Charcoal is more energy dense than wood. Diesel and gasoline are more energy dense than coal. Uranium is more energy dense than diesel and gasoline. Hydro and geothermal power, in the right places, are also extremely energy dense. Solar and wind power in most places is a step forward in terms of energy density.

Without the aid policies of governments and central banks, solar, wind turbines and the ESG movement are in no way profitable.

Advocates of solar and wind power are putting aside their low generation capacity, high energy storage costs and dismantling costs. Nuclear proponents may underestimate the initial construction costs or the costs of safe, long-term storage of radioactive waste. This is why you will see some arguments that solar energy is now cheaper than anything, while others always say that solar energy is far from economical enough; it all depends on the completeness and objectivity of the analysis.

We need watttttsss
Mankind has spent the last two centuries working on increasingly dense energy sources with better energy returns, and now trying to figure out how to step back and rely on less energy sources. dense with lower energy returns.

For modern living to continue comfortably, a high return on energy investment is essential, regardless of location.

People who envision a predominantly solar and wind future are betting on the idea that for the first time in history humanity as a whole will sharply reduce past energy sources, and will do so with energy sources that offer lower power density and energy. Return on investment. And that we will do so in the next two decades.

The rise in human population and the quality of life over the past two centuries has been strongly linked to the evolution of energy sources. As humanity learned to tap into large natural batteries of concentrated energy (coal, oil, gas and uranium) that offered much higher energy returns than previous energy sources, it gave us a technological boom.


Germany
Phasing out oil and gas would require a huge change in everything, and a change of this magnitude has a high probability of taking longer than people realize.

Germany is currently threatened with power outages due to lack of reliable energy
- Prices increased by 60% in 2021
- Supply margin down from 26% to 3% by 2023
"Merkel admits her government was wrong"

The country still has plans to shut down the last nuclear power plants in 2022
Germany has been at the forefront of the transition to solar and wind power for its electricity grid.

Some facts about Germany
-The highest electricity costs in the world, around 0.30 euro per kWh
-During the last 2 decades they had an increasingly large surplus of energy. During the last 5 years (solar & wind transition) mainly following Fukushima in 2011 the surplus is no longer and, if the trend continues, they will be energy importers very soon


Conclusion
With institutional investors, SWFs and hedge funds particularly disinterested in financing oil and gas companies due to ESG concerns for the foreseeable future, a large part of the investment will have to come from the cash flow and available cash of operating companies which means that the prices must be high enough.

The IEA saying in a latest report that companies must stop looking for new oil developments.

Saudi Arabia's energy minister said a few months ago. Oil will not fall. We had the opportunity to see their dedication during the multiple attacks and "attempted attacks" on their refineries and more.

The sabotage of the Biden administration with their plan to end the leasing of federal lands for oil and gas development. Their cancellation of the Keystone XL pipeline.

Afghanistan's monumental failure signals to other countries that the United States is not managing anything at all. Knowing that the petrodollar is directly linked to the financing of the war and to the control of oil, I think that we are going to have the right to a hell of a restructuring and super cycle of raw materials

This post was edited by TheHitman on Aug 23 2021 09:03am

I largely agree. There's this notion that alternatives will replace fossil fuels by 2035 or whatever other dates they've specified but it's largely pie in the sky at this point.

The problem is our grids and for that matter most of the world grids are no where near close to supporting electrical demands of societies going full electrical (electrical cars, smart homes, smart cities, etc)

This is California now, imagine if you had millions more EV's and other electricity dependent infrastructure.



https://www.kpbs.org/news/2021/jul/07/california-grid-managers-worry-summer-power-supply/

I think oil is on it's way to 100/barrel. I got oil exposure but not really looking to go all in and instead remain diversified.

Absolutely, California in my opinion is just another example of virtue signaling and controlled demolition. I am very, very bullish on energy and commodities

Just another note on this. You kind of talked about it. People also need to understand not all oil exposure is the same.

For example if you think, okay I believe this thesis so I'll go out and buy XLE (biggest energy ETF in us) or some large global oil corps like Exxon, Chevron, BP, etc understand that those companies are still largely at threat by ESG initiatives which in turn means they will have to basically conform. This was evident with what happened recently with Exxon's board.

I got some domestic oil exposure but if you really want to try to hedge away some of the ESG risk to bottom lines/production constraints, look for companies that operate and/or are owned internationally, specifically with ops in places like South America, ME, Russia, Africa, etc. There's other risks there but there's relatively little pressure for example on Russian oil companies that western ESG is going to force them to get 'clean'.

Even recent events with Biden calling for more oil output from OPEC. It's pretty obvious that the west will largely sanction and fuck with their companies (the Exxon's, Shells, BP's, etc) meanwhile some of the production competitors (Opec+, Russia) are there to pick up the demand and can increase production output at will.

You're underestimating the potential of wind power - a huge offshore wind farm project could put a big dent in oil. This is a good read: https://www.businessinsider.com/how-many-wind-turbines-would-it-take-to-power-the-world-2016-10?r=US&IR=T

Fossil fuels aren't here to stay because we're going to run out of them, not because of falling demand, so we won't have a choice but to phase it out. That's why the arab nations are scrambling to diversify into sports and tourism while they still have the cash flows

I still think there's a good future for the big oil companies because their cashflows allow them to invest heavily in renewable energy sources to evolve. Shell is putting $6bn into farms, charging ports, solar and hydrogen and that's low compared to some of their rivals

Sky-high fossil fuel prices drive big innovation across the EV and renewable space which leads to them becoming economic and their mass adoption.
Sky-high fossil fuel prices cause high inflation and rising living costs which causes society to lose the will to subsidise and mandate EVs or renewables. The focus then shifts to energy security, grid stability and EROI.

We need to continue climbing the energy density ladder. Wood, coal, oil, gas, hydrogen, nuclear, fusion?
Reverting too low energy density sources will prove unviable to meet growing energy needs (especially in the developing world)

Oil isn't going away, they have been fear mongering saying we will run out of oil for more than 40 years now.

Wind is not consistent enough to serve as base load power, they require a huge amount of steel, about 200 m3 of concrete and they still haven't figured out what to do when the blades when they need to get replaced, they just bury them and dry tomb them. In terms of volume and waste, this is the equivalent of burying thousands of discarded commercial airplanes each year, and it’ll grow each year as long as we keep increasing wind turbine usage. That’s not very green. Wind energy is just not a very concentrated energy source, which makes it useful as a power contributor as part of a diversified grid mix.

If governments and now green/woke central bankers weren't supporting greener investment you would literally see zero energy input large scale. This isn't profitable and there is much more better option like nuclear and there's promising stuff with nuclear fusion. Anyway, this is a thread about a medium long term view on oil, I believe this is one of the most asymmetric trade for the next few months / years.

This post was edited by TheHitman on Aug 25 2021 06:02am

It wasn't fear mongering - the technology to make it economical to drill deeper wasn't developed at that time and new reserves have been found since

That could happen again, but as it stands we'll run out of oil in about 50 years

This post was edited by dro94 on Aug 25 2021 08:21am

Who is the biggest beneficiary of ESG investing?

"The annual output of Tesla's Gigafactory, the world's largest battery factory, could store three minutes' worth of annual U.S. electricity demand. It would require 1,000 years of production to make enough batteries for two days' worth of U.S. electricity demand. Meanwhile, 50–100 pounds of materials are mined, moved, and processed for every pound of battery produced."


https://www.manhattan-institute.org/green-energy-revolution-near-impossible