Green energy’s time is coming, but there’s going to be some pain to get there
Green energy has become wildly popular with a certain segment of the population that is extremely concerned about the environment. For most people, green energy is pretty cool stuff, and definitely on the wish list, but…well, I’ll take the SUV over the Prius thanks, look how cheap gas is!
The overwhelming tide of the media is of green energy sources, and one would easily gain the impression that green power has become the leader. It has not; in the US in 2015 about 11 percent of power generated was from renewables (which includes hydro power; dammed rivers are considered renewable energy, except by the people who used to live on the doomed river banks). It is easy to think green power has taken over because 90 percent of energy new stories are about it. But in reality it is going to take some big catalysts to move the general population to green energy.
A huge one is on the horizon, one that no one seems to be taking seriously because of, again, faulty media reporting. The pending event is the strong likelihood of the return of very high oil prices. “Hundred dollar oil” is now a joke; no one thinks it will return again. Oil futures markets have crude oil prices very flat for the next five years, with the market expecting oil won’t top $60 by then.
Forecasting specific prices is a game for idiots so I’ll try to refrain. There are simply way too many variables over a multi-year time frame. Futures markets take what we know today and make a best guess based on prevailing sentiments.
But that doesn’t mean that prevailing sentiments are right. Often the futures markets are wildly wrong, which is how traders can make such mind-bending fortunes. In this instance, it appears likely they have gotten future oil prices wrong. Most market participants including the likes of Goldman Sachs believe higher oil prices will flood the market, even at $55/barrel, just a few bucks above where it is now.
This “wall of supply” is based on the resumption of production from Libya and Nigeria (who have lost output in only ways those countries can imagine), the resumption of US shale drilling, and other projects that have been under construction for years. This simplistic summary considers one side of the equation, omitting the hundreds of billions of dollars of capital that have exited the system, impacting production in pretty much every corner of the globe except Russia and Saudi Arabia. Oil production is in free fall in many jurisdictions, and won’t return for at least a few years.
This pending shortage could drive prices up substantially, which will form the final leg of the journey for green energy. Right now, everyone loves the idea of it taking over, but in reality government subsidies are making most of it happen. Buying an electric or hybrid vehicle in many parts of North America will get you a government refund in the magnitude of $10,000. Charging stations, solar installations and other infrastructure have been massively subsidized to help get them off the ground.
Higher oil prices will remove the need for further government subsidies. If energy costs from fossil fuels spike, green energy will be cheap in comparison, and then we might really see a mass migration.
The end game of the environmentalists then may just work. The more they can strangle infrastructure construction, the higher prices will spike. No doubt this is part of their strategy. The part they don’t like to discuss is the hardship much of the world would suffer through massively higher energy prices. This shows up most quickly in transportation and food costs, which hit poor people hardest.
Let’s hope the environmentalists are around to help formulate a plan to feed all those people and keep them warm if commodity prices spike. The consequences of shutting down pipelines are inconceivable to the clowns who clowns who break chains to shut in pipelines; let’s hope they are willing to put in some effort to clean up the mess that they might create.