Chief Investment Strategist, The Freeport Society
I really don’t understand our elected leaders.
U.S. crude oil production recently hit new all-time highs at 13.2 million barrels per day, nudging past its old pre-pandemic highs. With President Biden running for reelection next year, you’d think he’d hold nightly press conferences telling anyone who cared to listen how quickly American oil production has recovered under his presidency.
It was American Big Oil that stepped up and provided Western Europe with affordable energy when Russia invaded Ukraine.
It was American Big Oil that saved the free world from what would have likely been a nasty recession.
And it is American Big Oil today that is thwarting Saudi Arabia and Russia’s efforts to jack up prices.
Yet Biden keeps his mouth shut for fear of inflaming the ESG mafia. And he’s keeping his lips zipped especially tightly this week.
Like a meeting of New York’s Five Families (à la The Godfather), the ESG mob is currently holding the 28th session of the Conference of the Parties to the UN Framework Convention on Climate Change… better known as COP28.
But never mind all the pearl-clutching going on at those meetings.
They’re not going to stop the inevitable force that is the world’s need for fossil fuel-based energy.
Let’s talk about why…
Nothing Worse Than a Sore Winner
The problem with the environmental lobby isn’t that they’re wrong.
All else equal, who wouldn’t want a greener future? And it’s not crazy or anticapitalist to expect oil and gas companies to clean up after themselves.
The problem is that they are partially right but make unrealistic demands and seem incapable of taking an obvious win (among other things, as I wrote here recently).
As a case in point, during this weekend’s meetings, ExxonMobil Corp. (XOM) and Saudi Aramco – the world’s largest private and largest state-owned energy companies, respectively – pledged to cut emissions from their own production. Forty-eight other major energy companies have agreed to follow suit.
The promise is to reduce their methane emissions to near zero by 2030 and stop flaring natural gas. (Flaring is burning off the natural gas that seeps from the ground during oil drilling.)
According to the U.S. Energy Information Administration, around 140 billion cubic meters of natural gas is flared yearly, which is criminally wasteful. That’s an amount equal to about 15% of the annual natural gas usage of the entire United States. By flaring it, we get all of the potential environmental damage without any of the economic benefit. It’s a deadweight loss.
So, one might reasonably think that Exxon and Aramco’s pact is good news. Great news, in fact.
And yet, it spurred an open letter, signed by 320 climate lobbying groups, crying that the moves were “insufficient” and “a distraction from the task at hand.”
What exactly is that task at hand, you ask?
“An unambiguous agreement to end all new oil and gas expansion” and “a clear call to equitably and rapidly phase out all fossil fuels” (my emphasis).
Really?!
That’s like someone giving me a billion dollars and me saying: “Thanks, but that’s not good enough. I want a trillion dollars in $10 notes… and I want you to personally iron each one.”
In Search of Sober and Mature Conversation
Sultan Ahmed Al Jaber, the COP28 president and the head of the Abu Dhabi National Oil Co. (ADNOC), faced a similar barrage during a live event last month in which activists pushed him to explain why he hadn’t committed to phasing out oil and gas. His response was perfect:
I accepted to come to this meeting to have a sober and mature conversation. I’m not in any way signing up to any discussion that is alarmist…
Please help me, show me the roadmap for a phase-out of fossil fuel that will allow for sustainable socioeconomic development, unless you want to take the world back into caves…
Show me the solutions. Stop the pointing of fingers.
(Again, my emphasis.)
At The Freeport Society, we applaud you, Sultan Al Jaber.
We saw how nasty things could get when the curtailing of Russian oil threw the world into chaos in 2022. That should be proof positive that we won’t be phasing out oil and gas any time soon. Nor should we.
To be clear: I support renewable energy… when it’s economically viable. It’s only logical to diversify our power grid. So, by all means, invest in renewable projects. But invest in them alongside traditional hydrocarbons. And now is actually a great time to invest in American oil.
Power to the U.S., From the U.S.
High energy prices have been a major driver of inflation over the past two years. Every extra dollar Walmart Inc. (WMT) or Amazon.com Inc. (AMZN) pays in higher fuel costs is passed through to you and me as higher prices. Now, free-flowing crude oil, drawn from U.S. soil, has led to a steep decline in gasoline prices as well. The national average is still far too high at $3.23 per gallon, but compared to the $5 per gallon we were paying back in 2022, it looks downright cheap. This chart showing U.S. gas prices over the past two years puts these numbers into perspective.
At 13.2 million barrels per day, U.S. oil is now ahead of both Saudi Arabia and Russia. And for that matter, American production alone is equivalent to nearly a third of OPEC+ production (which includes Russia).
Big Oil is back!
The climate lobby isn’t going anywhere. At this point, it has evolved into a permanent industry. As the writer known as Doomberg wrote earlier this week,
Every non-profit is composed of people who rely on its continued existence. Salaries, bonuses, and benefits all flow from donor to employee, setting up a classic principal-agent conflict. The donor wants a specific problem addressed, while employees are incentivized, at least financially and professionally, to not only maintain a sense of perpetuity around their founding crisis but to also expand its borders. Perversely, solutions morph from an honorable objective to an existential threat, and tangible progress is attacked.
I’m more interested in the companies actually proposing solutions and doing so profitably because they’re the ones we want to invest in. I already have my eye on several, which you can read about in my free special report 5 Unapologetically Profitable Stocks for 2024. Grab your copy now.
To life, liberty, and the pursuit of wealth.