In this video clip from "The High Energy Show" on Motley Fool Live, recorded on Feb. 1, Fool contributors Travis Hoium and Jason Hall discuss some of the evidence that points to serious threats to the oil industry in the coming decades.
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Travis Hoium: To me, this is what has really changed the dynamic if you are an oil producer. We talked about 2014, 2015 range. Look at the production of plug-in hybrids and fully battery electric vehicles at this point, it's almost nothing. Inconsequential. This is from EV-Volumes. Last year, I believe fully electric vehicle production, top 10% of sales in the U.S.
If you are ExxonMobil (XOM 1.50%) or an independent or any of these oil companies, don't you look at the long-term demand picture a little differently if you're seeing that General Motors (GM -0.24%) has committed to not produce conventional vehicles past 2035. Basically, every company is making their investments are in electric vehicles, they're not in gasoline-powered vehicles. That's why I think it's really interesting here is, you would think in any other world, what you guys are seeing is right, but the backdrop is that I showed that coal chart at the beginning. We're seeing what happened in 2010 in coal where you can see the end coming. Now I think that runway is going to be a lot longer.
Jason Hall: We're talking decades, right?
Hoium: In decades. But you're seeing that I mean, my kids are one and four, are they ever going to drive a gasoline-powered vehicle or are they only going to be driving electric vehicles? But I could see the latter being the case, and if I was making capital allocation decisions for these companies, I would go, the cash is good. I can invest enough to keep that cash coming in without burning good money for bad.
Hall: There's another part of it too, we haven't talked about, I think it's really important. I think because largely we focused on the big players, and not as much on the independent E&Ps that really do the majority of the production in North America anyway.
One thing that has changed substantially, because it wasn't just investors and the independent E&Ps, that got burned when those companies went bankrupt, were acquired below their average share price over an extended period of time, had to issue shares to raise capital at massive amounts of dilution. But there were a lot of banks that also got burned along the way too.
Capital access has become far more challenging for independent oil and gas producers. There's two parts of that. There's the banks, once bitten twice shy, have become far more stringent. But there's also the momentum behind ESG, environmental, social, and governance. I think at this point it's fair to say probably the hundreds of trillions of dollars of high net wealth investor money has committed to never invest in fossil fuels. I don't want to say we will never again because things can change, but by all evidence right now, we'll never invest in that.
The pool of investors has shrunk as well. There's a lot of those factors that are weighing on the industry's ability to necessarily invest more money, and here we are. I think all of those things add up to be the actual answer. Sometimes we want things to be real simple. But this is one of the reasons I want to talk about RNG, that we'll get into that in a minute. Because I think that's one of the ways that we're going to see the transition go away from fossil fuels is because of resources like that.
