Don’t Listen to Al Gore, Buy an Energy Stock Instead

Photo credit: Chesapeake Energy

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.

Apache donated 3,000 as part of the restoration of the Gettysburg battlefield. Photo credit: Apache Corp.

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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Read/Post Comments (6) | Recommend This Article (4)

Comments from our Foolish Readers

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  • Report this Comment On October 27, 2013, at 3:31 PM, TSP1973 wrote:

    This coming from Al Gore who has made a fortune off of Oil and still has a substantial amount invested in it as well.

  • Report this Comment On October 27, 2013, at 5:32 PM, speculawyer wrote:

    The carbon bubble theory depends on a massive political change. Sadly, that is not likely. But that doesn't mean energy stocks are good. Gas prices are so cheap that the drillers can't make a profit. Oil prices are high but drilling costs are also extremely high and the public can't really afford higher prices. If oil prices go up much more, then people will switch to plug-ins cars en massed. (Plug-in hybrids and pure EVs.) Why buy expensive gasoline when electricity is so cheap and you can harvest it from your roof with PV panels?

  • Report this Comment On October 27, 2013, at 6:02 PM, Peakspecies wrote:

    The above article is based upon 'current trends,' a strategy that has worked for many investors who primarily are focused on near-term gains.

    Pragmatic thinkers, such as Al Gore, understand that this tried and true strategy can't last much longer on a planet with finite resources that is rapidly showing signs that the grand party is about to end.

    Those that are smart and are not wallowing in denial strategies understand that shifting investment strategies is a wise move. They realize that traditional economists have an enormous personal stake in the past models of plenty of energy derived from fossil fuels. These folks are so focused on this that they fail to see what the future is likely to hold for their offspring.

  • Report this Comment On October 27, 2013, at 6:07 PM, Mathman6577 wrote:

    Wonder if Al and George Soros are short oil and gas now and he is fully invested in solar and wind?

  • Report this Comment On October 27, 2013, at 10:58 PM, tbarbar90 wrote:

    Al Gore has numerous investments that would benefit if the world went away from oil to more renewables or carbon credits. What else do you expect him to say?

    Also, he is a huge hypocrite, frequently uses a private plane which has to be about the most energy inefficient way to travel.

    Do you really believe this guy? This is the same guy that claimed to invent the internet.

  • Report this Comment On October 29, 2013, at 2:33 PM, bunngolf wrote:

    Owl Gore is merely talking his book of business. There isn't a green government energy stimulus or tax scheme he doesn't love, or profit greatly from it. Carbon assets and their private development drive him wild.

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