Why Greenpeace and its ilk are bullish for oil & gas stocks

Why energy investors encourage Greenpeace to keep promoting climate nonsense

Not long ago, a Greenpeace climate nutter published an article “The decline of oil has already begun” almost cheerfully predicting a time when oil and gas won’t supply 80% of the world’s energy. The article noted that world oil production has a natural decline rate of 5 to 7% per year, citing a study done by the Geographical Survey of Finland. The author, Rex Weyler, seemed to think that was a good thing.

It is a good thing - for energy investors.

World oil demand is about 100 million barrels a day today and known reserves are about 1.7 trillion barrels.

As an aside, I will point out that complete combustion of a barrel of oil on average will produce 433 Kg of CO2 and combustion of all oil reserves known to exist would creat about 140 ppm by mass of an atmosphere of 5.146e18 Kg. I suppose Weyler didn’t ask himself how oil use was going to cause the catatrophic warming he fears when burning it all would produce a tiny increase in atmospheric CO2 levels from an already low base by historical standards. He may have forgotten (or never took time to learn) that of the 35 gigatons of fossil fuel emission going into the atmosphere annually, less than half remains there based on Mauna Loa meaurements since 35 Gigatons is about 7 ppm by mass (a bit more by volume) yet Mauna Loa measurements show CO2 concentrations growing by only 2-3 ppm by volume per year.

Since CO2 is harmless, I won’t belabor the lack of effort by alarmists to do basic math on their own theory. AGW is nonsense and does not warrant more ink.

But a 7% natural decline means capital must be spent to maintain output at 100 million barrels a day and at an average capital efficiency of $30,000 per BOE/day replacing that 7% comes at a cost of $210 billion. Global upstream expenditures have been around $300 billion annually for the last few years and production has barely nudged ahead, suggesting my $30,000 capital efficiency estimate is low. Importantly, demand for fossil fuels shows no signs of abating.

Greenpeace and its ilk have made careers out of trying to curtail investment in oil & gas and with some success. Oil companies have finally figured out that “drill baby drill” is less fun and less profitable than drilling just enough to keep output close to world demand. That strategy implies oil prices remain north of US$100 a barrel, returns on capital over 30% and plenty of free cash flow for dividends and share buybacks. That is a model that is now de rigeur and works for me. It also means the global energy shortage will deepen and oil & gas prices will keep ticking higher while the climate nutters try to find other sources of energy to replace the oil they need but don’t want.

The Energy Information Administration (EIA) published reliable data on the amount of fossil fuels needed to generate one Kilowatt Hour of electricity.

Natural gas and coal are the fossil fuels most often used for power generation. At 7.4 cubic feet of gas per kWh and gas at US$10 per million cubic feet, the cost per kWh from gas is 7.4/1,000,000 x $10.00 = .074 cents per kWh. I ignore the capital costs for gas powered electricity since those costs are “sunk”. The cost to produce a kWh of electricity from wind is 5.2 cents per kWh, about 70 times that of gas. The cost of that kWh from solar is about the same at 3 to 6 cents per kWh (IEA claims that is the lowest cost electricity in history, conflating cost with price, since natural gas powered electricity is sold at market prices and priced to be competitive with wind and solar, not sold at cost).

As Greenpeace and other climate nutcases suppress fossil fuel use, consumers can count on higher energy prices and oil & gas investors can count on higher commodity prices. Higher oil & gas prices imply higher cash flows to energy investors.

I am indebted not only to Greenpeace but also to the whole cult of climate nutters for making my retirement so profitable. Keep up the good work. You will need handouts from energy investors when you are forced to move into mud huts and grow your food in the back yard, the ultimate outcome of the policies you promote. You will be able to identify the fossil fuel investors by their gated communities, luxury cars and beautiful homes powered by - you guessed it - fossil fuels.

The stocks I think will benefit the most this year are Birchcliff (BIR.TO) Cardinal (CJ.TO) Meg (MEG.TO) Tourmaline (TOU.TO) and Spartan Delta (SDE.TO). Longer term I think Headwater (HWX.TO) Rubellite (RBY.TO) Peyto (PEY.TO) and ARC (ARX.TO) will deliver superior returns and Cenovus (CVE.TO) Canadian Natural Resources (CNQ.TO) and Suncor (SU.TO) will remain anchors for many energy portfolios for decades to come.