I just saw this little nugget from Bloomberg. In short, I agree with the thesis of the article – the news for solar and wind energy was bigger than the news that oil companies can now sell into the worldwide glut. I differ from the article in my reaction to the news just a little, however. You see, Congress just ensured that the news about oil exports will do little to save the long-term prospects for oil and gas companies. (I’ve argued before that the news about exports is a case of too-little-too-late, but never mind now.)
You see, for those people who have been pushing for exports for years, this announcement simply could not have come at a worse time. One of the problems that oil (and other hydrocarbons) face at present is a drastic shift in the demand side of the equation. The market is simply not asking for as much oil as the oil companies need. Unfortunately for production companies (and oil producing countries), part of this demand is structural… especially in developed countries.
What I mean by a structural demand shift is that we simply need to use less oil than we did even a few years ago to accomplish the same tasks. Cars, for example, are more fuel efficient than they have ever been… this problem is only going to increase, as electric vehicles gain ever more traction in the market.
Meanwhile, cheaper prices for natural gas products have led to many power companies switching from coal to that source of fuel. This is an unadulterated good for both the companies producing said gas (who get to reap in the additional cash flow), and for the environment (say what you will about natural gas, but it does burn much cleaner than even the “cleanest” coal facilities). Interestingly enough, about 5% of our electricity is still generated by oil-based products also (think fuel oil).
Unfortunately, however, increased investment in wind and solar are going to eat into this market share… And, unlike in the case where power plants switched back and forth between coal and natural gas based on long-term commodity trends, once these companies switch to solar or wind, they will never switch back to relying on hydrocarbons.
So, despite what Congress said about oil exports, the price of the commodity will continue to face (ahem) headwinds due to the downward trend of structural demand. This is in addition to the fact that Janet Yellen has already signaled that we will see a strengthening dollar over the next year, which is bad for the price of dollar-based commodities, but great for you and me.
Again, shifting to solar or wind generated electricity is an unadulterated good for society in the long run. According to Exxon, less carbon in the atmosphere means less global warming. (Don’t yell at me, yell at Exxon if you don’t like that thesis!) It is just another tag-line in a long series of bad news for the oil and gas industry.