Former Vice President Al Gore is warning long-term investors to steer clear of energy stocks. According to his estimates, investors stand to lose $7 trillion as the carbon assets on the books of global oil companies will turn out to be worthless.
This is because investors are under the assumption that these oil and natural gas assets will eventually be produced, sold, and burned. However, according to Gore, "they are not going to be burned. They cannot be burned and will not be burned. No more than one-third can ever possibly be burned without destroying the future."
The problem with that statement is that it doesn't line up with current trends. Global energy demand is growing and is expected to grow by 35% by 2040. Fossil fuels will supply much of that demand. In fact, by most estimates fossil fuels will still be fueling most of our energy needs for the foreseeable future. Even the sunniest estimates show that renewables will only account for about a fifth of total U.S. power generating capacity by 2040. Clearly, we will be burning a lot of oil and natural gas in the years ahead.
For example, by 2040 natural gas consumption in the U.S. is expected to grow to 29.5 trillion cubic feet annually. That's about 21% more than we use now. That suggests to me that Chesapeake Energy's (NYSE: CHK ) 15.7 trillion cubic feet equivalent of proved reserves will indeed be produced, sold, and burned. Because future demand will increase, Chesapeake Energy will be incentivized to continue exploring for more oil and gas to meet that demand. As these new reserves are found, produced and sold, Chesapeake Energy's investors will profit.
On the other hand, oil consumption in the U.S. is actually expected to peak in 2019 at 19.8 million barrels per day and then drop to 18.9 million barrels of oil per day in 2040. However, global demand is projected to grow from 87 million barrels per day in 2010 to 115 barrels per day in 2040. Those projections make it a near certainty that all of Apache's (NYSE: APA ) 2.9 billion barrels of oil equivalent reserves will eventually be produced and sold. Not only that, but growing global demand will incentivize Apache to pursue the development of the 8.8 billion barrels of oil equivalent reserves that it believes it can develop in the Permian Basin and Mid Continent region of the U.S. Clearly, Apache's reserves are of value to investors.
This isn't to say Apache's sole focus is producing these reserves at all costs and with no regard for the environment. To even suggest that would be disingenuous. Apache is very focused on reducing greenhouse gas emissions. For example, since 2005 the company has awarded 3.2 million trees to communities across the U.S. in an effort to remove carbon dioxide. With estimates that the average tree will remove 110 pounds of carbon dioxide over its 50-year life span, Apache is doing something to offset its carbon emissions.
Planting trees is just the start. Another example of how Apache is lowering emissions is found at its Midale field in Saskatchewan, Canada. Apache is using carbon dioxide captured from a local coal-fired power plant and utilizing it to produce oil. The carbon dioxide is then sequestered in the field. It's a process that's increasingly being applied by fellow oil company Denbury Resources (NYSE: DNR ) .
Using carbon dioxide for enhanced oil recovery has been around for a while. However, companies like Denbury Resources are beginning to source more of it from man-made sources. The company is currently involved with a half dozen carbon capture and storage projects where it will take and utilize the captured carbon to produce more oil. Denbury sees the potential to use carbon dioxide from both man-made and natural sources to extract up to 10 billion barrels of oil in its two core areas in the decades ahead.
We cannot overlook the fact that energy companies want to be part of the solution and not part of the problem. Energy companies will continue to work hard to meet the world's growing demand for oil and gas. Clearly, that means the oil and gas reserves that companies like Chesapeake Energy and others own will indeed be produced. However, we can't gloss over the fact that these energy companies are also invested in protecting our environment. Many are seeking to reduce carbon emissions despite the fact that it's more profitable to ignore the issue.
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