Green energy is taking over the world...
Technology has advanced in incredible ways over the last decade. Electric cars went from a novelty to something you see on the roads every day. Solar power is now cheaper than coal. Batteries have gotten drastically cheaper and more efficient.
This trend is here now, and it's not going to slow down. And if that's true, the next logical assumption is that fossil fuels are dead...
That's the perception, anyway. But the reality is much different.
Today, I'll explain what folks are getting wrong about this shift – and why the belief in green energy will drive the current fossil fuel boom to new heights.
Green energy has taken incredible leaps. But as far as taking over... we're just not there yet.
For instance, electric vehicles are everywhere now... But they still make up just 5% of sales in the U.S.
Said another way, more than 95% of the cars on the road still need gasoline. And a full transition to electric cars is years – maybe even a decade – away.
Similarly, while solar power has gotten cheaper, it's a long way away from powering the grid. We need billions of dollars' worth of infrastructure investment to make that possible. And battery technology, while improving, simply isn't there yet.
The perception is that these trends are a decade further along than they actually are. The reality is that we still need oil and gas – for at least another decade or two.
Don't take my word for it, though. The International Energy Agency predicts oil demand will peak in mid-2030... And it says demand will only slightly decline by 2050.
That alone is a powerful breakdown in perception and reality. It's one we can exploit as investors. And the opportunity is even greater because the investment world is taking steps to ensure that the oil and gas we need will stay at elevated prices for years to come.
The easy way to see it is the story of little-known investment firm Engine No. 1...
In 2020, the company bought up $40 million worth of ExxonMobil (XOM) shares. XOM is the largest player in the energy space. And with a market value of roughly $400 billion, a $40 million investment is nothing.
Still, Engine No. 1 began a campaign to change the trajectory of the company. It said that management "was putting itself at existential risk by spending big on oil and natural gas megaprojects and failing to reckon with the business threat posed by the energy transition."
Engine No. 1 got several major shareholders on its side. And it managed to win multiple board seats in the process. Now it gets a say in the company going forward.
In simple terms, this is the investment world telling Exxon that it doesn't like the company looking for new fossil fuel investments. All the cash it saves in the process is going back to shareholders... The company announced a $30 billion share-buyback program earlier this year.
I'm sure you can see the irony here. Activist investors want big energy companies to stop finding new oil because they yearn for a reality that simply isn't here yet. The results are twofold...
First, oil companies aren't going to invest for the future. Instead, they'll return tons of cash to their shareholders.
Second, because they're not investing... and because they're not looking for more of the oil and gas we need... prices will have to stay high. We simply won't be able to keep up with the demand that will be around for a decade or more to come.
That's not great news for consumers. But as investors, we have a chance to benefit from a hidden reality: The conditions for higher prices aren't going away anytime soon.
In the simplest terms, the green-energy revolution guarantees we'll see a long-term boom for oil and gas.
This is about more than ExxonMobil, though. This story is spreading throughout the industry. Tomorrow, I'll share a simple way to see it...
Good investing,
Brett Eversole
P.S. This shift on Wall Street has two effects. First, energy companies are earning record profits, since they aren't reinvesting... And second, energy prices will stay elevated. Again, that's terrible for consumers. But you don't have to watch your finances suffer – because it's a huge boon for investors in this space.
It'll mean hundreds-of-percent potential gains for folks who take advantage of it. But there's a right and wrong way to do that. So make sure you're positioned now... I've shared everything in a recent presentation, which you can watch right here.
Further Reading
"The concept of market sentiment is a bit like the game of poker," Steve Sjuggerud writes. In this 2019 essay, he explains how the gap between perception and reality works, how he learned about it, and why it can put you one step ahead of the markets... Read more here.
The law of supply and demand is a crucial dynamic to understand. Right now, a similar economic story is playing out in the housing market... And despite what most investors think, it means home prices can stay high – or go higher – from here. Learn more here.
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