OXY Purchase is going to end badly for BRK

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There are two sides.

On one side is the hypothesis that Oil demand will increase and supply will be constrained. There have been limited investments in boosting oil supply and that will nudge oil prices up. Renewables will be mostly a talking point among elites.

The other side is what Tesla talked about in its master plan 3 and yes non-transportation is part of it. The $1T Inflation reduction act will accelerate this in the US. More and more states are banning ICE vehicles by next 10 years. There are also large investments by India, China and EU in renewables/EV. Then there is the Ukraine/Russia conflict that will end at some point.

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There have been plenty of predictions about “the end of oil”, and IMNSHO it’s a bunch of crap. All of human progress is centered on energy: from wood fire to coal to coke to steam engines to oil to kerosene to gasoline and all the derivatives, all of them keep increasing in use (*yes, including coal) - and half the world is still living in huts. [exaggeration]

Oil (and derivatives) is still the best; it’s the most energy intense, transportable and widely used fuel on the planet, and even if (somehow) use were to go down, there would still be plenty of demand for decades to come, both in the US and especially in the developing world.

Oh baloney. Wait til we get close to that deadline and watch what happens. The EU just decided that their “ambitious goal” of banning ICE cars in 2035 was maybe too ambitious, and they’ve pulled back. (One might recall that incandescent bulbs were supposed to be banned by 2015 or something. Maybe next year, almost a decade late it will happen. Or not.)

Oil’s gonna be big for your lifetime, and probably your kids lifetime too. You wait and see.

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So most of the energy demand will come from developing nations, and I agree that there will be a large increase in energy demand. A lot of that demand will be electricity (not electricity for battery charging but just for everyday life). To produce that electricity some sort of electrical generation and transmission will be required and the developing countries will borrow money from international lenders. My guess is that international lenders will not provide financing for fossil fuel fired electrical generation.

For energy required to meet increasing transport demand, new refineries will need to be built. Again, I doubt the majors will build new refineries in developing nations and international financing will be very hard to come by to build new refineries. As such, I think the world’s increased energy demands will be substantial met by solar, wind etc. and storage systems. This will be accelerated by the increased price of oil products due to lack of investment in developing production to replace the natural decline of existing wells.

Craig

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Oh baloney. Wait til we get close to that deadline and watch what happens. The EU just decided that their “ambitious goal” of banning ICE cars in 2035 was maybe too ambitious, and they’ve pulled back

Sorry but that is, what is that English word, “baloney”? There is conflict and fighting within the German governing coalition.

FDP, one of the parties, for purely economical reasons (read: German auto industry and it’s employees) is against the ban and pushing a compromise to still allow ICE’s in conjunction with e-fuels (synthetic fuels) after 2035.

The resulting German pressure is the reason why voting about the ban (originally due on 7.March) was postponed, as Germany is threatening to eventually vote against it.

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This is disingenuous argument. No one is saying “end of oil” but the change is happening and there is $1Trillion Inflation Reduction Act money behind it. It’s happening. Fasten your seat belts.

EVs Made Up 10% of All New Cars Sold Last Year - WSJ

By 2030 EVs represent more than 60% of vehicles sold globally, and require an adequate surge in chargers installed in buildings – Analysis - IEA

The best-selling car in California is a Tesla Model Y (sfchronicle.com)

Electric cars reach 18% of new sales in California, just 6% in US (electrek.co)

EVs will account for 35 per cent of car sales in China next year as growing range of electric models lures motorists, says Fitch Ratings | South China Morning Post (scmp.com)

80% of new cars sold in Norway are now electric vehicles - CBS News

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These bans will not be necessary. EV’s driving characteristics are superior to ICE vehicles.
They are better, faster and soon will be cheaper. The public is progressively moving to EV and all car companies are launching new EV models.

WEB is wrong to invest in Oxy and CVX. He is on the wrong side of global warming and wrong on stock as an investment.

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No, most of the energy demand will be in already developed nations, and some increase from developing nations. Cars bought today will still be on the roads 20 years from now consuming gasoline, and it will be a very long time before they are outnumbered by EVs. Factories which consume lots of power (steel, aluminum, other primary) will still be doing so, and they’re not gonna do it with “solar panels on the roof.” Transport will change, albeit glacially slowly; EV trains are way off in the distance, and the maglev ones in China are powered by … wait for it: mostly coal and oil.

Why would someone not invest in new wells if there is demand? And there will be demand, just as there always is. Heck, coal consumption just hit a world-wide high in 2022 thanks to “developing nations” and the price of coal is higher than it’s ever been (except for a brief spike in 2022 when shortages happened because of the pandemic.) Someone will always invest when there’s money to be made.

And yes, that means new refineries will be built (as they still are, just not in the US)

Yes, and there’s an auto industry in Italy and France, and in Spain and Sweden, and the Czech Republic, and… I expect all of them have some political clout, and I will not be surprised to see them use it. Will you? And I would be shocked to find developing auto industries in third world economies jumping on the EV bandwagon given the technical challenges still ahead.

For better or for worse, I expect humans to pump every recoverable drop of oil from the bowels of the earth and burn it before we’re done. OK, for worse. I’m a cynic, but a pragmatic one.

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It is possible that they will skip ICE altogether. Similar to the way they skipped universal wired telephone networks and jumped straight to wireless in some cases. Just like there were some advantages to skipping wired telephony, there are some advantages to skipping ICE. Of course there ware/are disadvantages as well, so it’s not a sure thing, just a possibility.

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Goofyhoofy

We must be using different forecasts regarding energy demand increase. Some graphs from ExxonMobil which are similar to EIA forecasts.

Image Global energy demand by sector
Image Global energy demand by sector2880Ă—1306 179 KB

Developing countries lead energy demand

Primary energy–quadrillion Btu

Image Developing countries lead energy demand
Image Developing countries lead energy demand2879Ă—1250 100 KB

So lots of increased energy demand, the question is, how will it be produced. Construct new refineries and LNG plants and receiving terminals in non OECD countries using financing from G7 countries??

I think the oil majors will reduce capital expenditures to the extent that they can keep full production at existing facilities. The increased demand will mainly be met by non-fossil fuel supply.

Craig

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Here is Tesla’s plan. Think big !

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image1920Ă—957 54 KB

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If you say so. Exxon and Chevron are planning otherwise.

Believe what you want, but there is no way to bring enough of that online in so short a time frame.

PS: Your chart shows the US, Europe, and other OCED using less energy between now and 2050. I wonder what magic will cause that (absent world wide depression, of course.) It hasn’t happened in 100 years, even with better insulated houses, more efficient factories, cars with better mileage, etc. My view is that it’s not going to happen that way at all, and renewables will be only part of the increase.

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The article refers to capital spending in the Permian basin by EM and Chevron. Do you have anything showing the majors (there are more than EM and Chevron) are planning on increasing production over the next 10 years?

The Permian investments are only offsetting declines in other regions.

In response to your note about declining energy use for OECD, what would cause an increase in energy use?? Declining energy use could be caused by increased price (think how much less energy was used in Europe when energy prices spiked), lower population (not just lower growth but lower population: think Japan, South Korea, Italy etc.), greater efficiency (think work from home etc.).

So back on topic. OXY is in a sweet spot. Has reserves, price of oil probably increasing due to lack of investment by oil companies and shareholders are not pushing OXY to spend money to increase production.

Regards

Craig

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The headline says Permian basin. The article is more comprehensive:

More than 70% of capital investments are expected to be deployed in strategic developments in the US Permian Basin, Guyana, Brazil, and liquefied natural gas projects around the world. By 2027, upstream production is expected to grow by 500,000 BOE/D to 4.2 million BOE/D, with more than 50% of the total to come from these key growth areas.

Thbe same thing that has caused it for a century. New and spiffy doo dads. Cell phones that need charging. Wall warts. Larger houses. Bigger cars and trucks. More airplane flights. More travel. More human beings. And, of course, rapidly developing nations with an insatiable thirst for energy: China, India, Mexico, etc.

Well, and the pandemic interrupting supplies, Ukraine war interrupting supplies, pipeline shutdown interrupting supplies, and so on. If you believe the market works, then price signals will produce more production. Yes, also solar and wind, but nuclear takes forever (if ever) to build, hydro is pretty much maxed, and that leaves petro. Solar/wind will grow faster, that doesn’t mean oil growth will be negative.

PS: I used Exxon and Chevron because oil is fungible, and they are a reasonable approximation of the industry at #1 and #2, with as much share as the next 5 or 6 companies combined. They are easier to track than Saudi or Indian or Chinese companies, that’s all.

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I think XOM and CVT are much lower than 1 and 2. Aramco is 1, Rosneft use to be 2 but may not be anymore. XOM and CVT are in the 6 to 10 range.

From Chevron latest annual report:
https://chevroncorp.gcs-web.com/static-files/712ddc4a-feff-4c7d-8214-624677b45d4e

Worldwide net oil-equivalent production was 3.01 million barrels per day in fourth quarter 2022
and 3.00 million barrels per day for the full-year 2022. Both quarterly and annual production
were down 3 percent compared to their respective 2021 periods. International production
decreased 7 percent in 2022 primarily due to the end of concessions in Thailand and Indonesia,

This does not look like a company increasing production.

XOM often say they will increase production. History shows that is not often the case. XOM may increase liquid production in the next couple of years with Guyana, but then I expect it to be the same story in a couple of years, no production increase,

For XOM, annual liquid production figures. Note, 2022 is about the same as 2015, 2016, 2019 and 2020.

Net liquids production of ExxonMobil from 2014 to 2022
Production in thousand barrels per day
2014 2,111
2015 2,345
2016 2,365
2017 2,283
2018 2,266
2019 2,386
2020 2,349
2021 2,289
2022 2,354

I agree with your statement about developing nations needing more energy (And, of course, rapidly developing nations with an insatiable thirst for energy: China, India, Mexico, etc.), but the point was about declining developed nations demand. Developing nations will require more energy, my thoughts are that it will come from refined products no longer required in developed nations and wind, solar etc. etc., not from fossil fuels that require additional refineries and fossil fueled power plants.

Craig

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The TSLA energy story is pretty compelling. It is growing rapidly.

TSLA has won several energy contracts

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