Why Oil Will Remain Essential | The Acquirer's Multiple®

During their recent episode, Taylor, Carlisle, and Conor Maguire discussed Why Oil Will Remain Essential. Here’s an excerpt from the episode:

Tobias: Glorious future. I’ve got a more general one, like, these are like borderline macro, but we’ve all got some macro influence in our portfolios.

Jake: This is a podcast, sir.

Tobias: Just generally on the oil production ones. What do you think about sort of oil being replaced by solar or wind farms or alternatives?

Conor: Yeah, those types of alternatives, they’re going to become a bigger and bigger part of the energy mix. But I mean, it’s just not realistic to think that they’re going to replace kind of oil or gas completely. I mean, transport is only one use for oil. You look at plastics, petrochemicals, there’s huge other end markets for those products that aren’t going to be– I don’t think that’s going to change massively.

The EV example is a good one in terms of, yes, are more of us going to be driving EVs in the future? Yeah, I think so. All ICE cars going to be off the road by 2035 or whatever the targets are? No, it’s just not realistic. It’s not actually geologically possible to extract all the minerals from the earth to actually achieve that. Even if you can get permitting for mines and all that kind of stuff lined up, it’s just not going to happen.

Jake: We need that asteroid.

Conor: But the thing is that Robert Friedland, the Ivanhoe guy, his statistic– Or I don’t know if it’s his or it’s just one maybe he’s kind of popularized, he said that more copper would need to be mined between now and I think, is it 2040 or 2050 than has ever been mined in the history of mining just to be able to kind of produce the amount of copper needed to kind of facilitate not just EVs, but the electrical grid, the rewiring or restructuring of the entire electrical grid. That’s just so abstract. It’s just not feasible to think that’s possible. So, I think, as with most things in life, it’s all about balance, and you’re going to have different types of energy, I think for different purposes.

You look at marine fuels, maybe that’s going to be– They’re talking about ammonia, maybe hydrogen if that’s economically feasible. It’s a big question mark over that. Methanol, that’s just maybe a marine fuel. Then you’ve got in certain places, yes, wind and solar works. Nuclear is the obvious one. I think pretty much everyone kind of understands that now. But yes, there has been some kind of progress on governments and policymakers may be getting more comfortable with that, but we’re still a long way off kind of any kind of a new nuclear fleet being able to kind of fill the gap.

So, I think in the interim, natural gas is the obvious transition fuel, see more nuclear. And I think oil as well is not really going to go, it’s not going to disappear from widespread use again. I think going back to the earlier conversation and pricing, I think $70 oil over the medium term is not an unreasonable expectation. When you look at– you’ve got a whole these massive trends like population growth, urbanization, infrastructure.

I think there’s a book I read, actually– One of the books, actually, I think I have it here, this one, Vaclav Smil, How the World Really Works. So, if you want to grow a chicken, that’s two cups of diesel that you need to do that. So, when you hear about Stop Oil and all these other kind of movements or lobbying to kind of phase out all these fossil fuels instantly, the reality, I don’t think they fully understand all the consequences of what they’re really talking about.

Tobias: That’s good stuff, JT, you talked about that. You told us that a tomato is a tailspin of diesel.

Jake: Yeah, tomatoes are especially-

Tobias: Profligate.

Jake: -especially difficult because they tend to travel pretty far too. Seafood is also really energy intensive.

Conor: Yep.

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