From Manhattan Contrarian
“Stranded assets.” You know what those are. Probably you’ve read a hundred or more articles over the past few years confidently proclaiming that oil and gas fields and coal mines owned by large energy companies will soon become worthless, as production of energy shifts to “cleaner” and “cheaper” things like wind and solar. The owners of the fossil fuel properties won’t be able to sell them for even a dollar. The assets will thus be “stranded.”
The “stranded assets” predictions unsurprisingly come from the same crowd who are also ordering up the electric car future. For just a tiny sample of recent pieces making the stranded assets point, check out this from Nature Climate Change, May 26, 2022 (“The transition to a global low-carbon economy entails . . . the fast phase-out of fossil-fuel production, which will necessitate the write-down of major, functioning capital assets and reserves reflected as assets on fossil energy companies’ balance sheets.”); or this from MIT News, August 19, 2022 (“As the world transitions away from greenhouse-gas-emitting activities, . . . fossil fuel companies and their investors face growing financial risks (known as transition risks), including the prospect of ending up with massive stranded assets.”); or from the Guardian, November 4, 2021 (“Half world’s fossil fuel assets could become worthless by 2036 in net zero transition.”).
If you are thinking of buying in to any of that, you might enjoy the frankly hilarious piece by Michael Lynch, titled “A Cautionary Tale For Oil Companies’ Navigating The Transition.” The piece has a date of November 2022, but is linked at RealClearEnergy today.
Lynch’s piece is somewhat long (14 pages), and filled with decades’-old super-confident predictions of our energy future, all of which failed. I’ll give you just a sample:
- Rawleigh Warner, CEO of Mobil, 1977: “The oil business has come to maturity, and with this maturity comes a new set of challenges…oil companies have no other choice. They must diversify or go the way of the buggy-whip makers.”
- Standard & Poors, 1980: “Diversification [by oil majors] into alternative energy fields should offer promising new opportunities for increasing profitability.”
- Standard & Poors, 1984: “Diversification out of the oil business has been disastrous for most of the majors….”
- Ford Chairman William Clay Ford, Jr., 2000: “I believe fuel cells will finally end the 100-year reign of the internal combustion engine . . . Fuel cells could be the predominant automotive power source in 25 years.”
- Jurgen Schrempp, Chairman of the Board of Management of Daimler-Chrysler said the company would be a market leader and later predicted sales of 100,000 hydrogen fuel cell vehicles in 2005.
- Lynch on hydrogen fuel cell vehicles: “[T]oday, a quarter century later, sales are in the four figures.”
- Senator Richard Lugar and R. James Woolsey, 1999: “Cellulosic ethanol is a first-class transportation fuel, able to power the cars of today as well as tomorrow, use the vast infrastructure already built for gasoline, and enter quickly and easily into the transportation system.”
- Lynch on cellulosic ethanol: “[C]urrent production of cellulosic ethanol is so low data is not reported by the government.”
It goes on and on from there. There’s one very safe bet on the energy future, and that is that the utopian dreams of would-be central planners will fail. The $300-400 billion of subsidies said to be in the “Inflation Reduction Act” for “renewable” energies is not nearly enough to enable those things to prevail over fossil fuels in the market for energy. The energy supply will inexorably move to whatever best supplies consumer needs at the lowest cost.
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