The “energy transition” narrative has been dominating our headlines for some time now. It seems like every day, there’s a new report about our shift from fossil fuels towards greener energy sources – which is important. But as we recently discussed on our live masterclass with oil and gas industry veteran and CEO of Mohajir Energy Partners, Jeff Mohajir, the truth of this transition is not as cut and dry as it appears.
“Oil & Gas Masterclass: How to Evaluate Energy Investment” Resources:
- Part 1 – Invest Like a Billionaire Podcast Episode 89
- Part 2 – Invest Like a Billionaire Podcast Episode 90
The common narrative is that electric vehicles – that a replacement for our gas-guzzling cars, trucks and SUVs are the savior of our fossil fuel based economy. But Jeff offered a crucial counterpoint: “The more electric cars there are – the more batteries there are – it’s gonna take more natural gas to generate that power,” Jeff explained. Natural gas and coal generate 60% of US electricity. Renewables generate 21%. It’s a point that offers an important counter-narrative to the mainstream view, highlighting the complex reality of our evolving energy landscape.
As the global economy makes strides towards decarbonization, it’s crucial to remember that carbon-based fuels are still the predominant energy source. They currently account for 83% of all energy sources, while non-carbon sources, despite growing steadily, still constitute just 17%. As I often point out, we don’t switch energy sources like we change clothes. The process is gradual, and carbon-based fuels will continue to be a key part of our energy matrix for the foreseeable future.
“The more electric cars there are – the more batteries there are – it’s gonna take more natural gas to generate that power.” – Jeff Mohajir, CEO of Mohajir Energy Partners
While electric vehicles (“EVs”) are undoubtedly less carbon-intensive than their fossil-fuel-dependent counterparts, it’s important to remember what powers them: electricity. And presently, the lion’s share of electricity is generated from fossil fuels, particularly coal and natural gas. Consequently, an increase in EV usage equates to an increase in demand for power, which, in turn, requires more fossil fuels for generation.
Furthermore, the push towards greener technologies brings its own set of challenges. As we ramp up production of EVs, the demand for critical minerals like lithium, cobalt, and nickel is skyrocketing. We need about 40 times the lithium production between now and 2040. Such a massive increase in production will require considerable energy, and currently, fossil fuels are the only source of energy to extract and refine these materials.
Moreover, oil and gas play an essential role in our global economy’s logistics. As Jeff pointed out in our masterclass, “the only way to efficiently move mass [from one place to another] is through liquified petroleum.” Be it shipping, aviation, rail transport or trucking, liquid petroleum is the only means. Until we develop an alternative that can efficiently replace them in their vital transportation role, our reliance on these resources will persist.
“Carbon-based fuels are still the predominant energy source. They currently account for 83% of all energy sources.” Bob Fraser
Undeniably, the ESG (Environmental, Social, Governance) narrative has had a significant impact on the oil and gas industry, particularly during the ‘08 recession. Reduced energy demand coupled with the growing focus on ESG principles led many to view oil and gas as a dying industry. However, this perception fails to take into account the enduring demand and necessity for these resources. As Jeff astutely noted in our oil & gas presentation, “We are a carbon-based economy and we will be for the foreseeable future.”
So, why invest in a sector that many perceive as being on its way out? The answer is simple: it’s not. The narrative of oil and gas as outdated relics of the past is a gross oversimplification that ignores the complex realities of our global energy system. As we navigate through this transitional phase, oil and gas are poised to play an integral role, offering significant investment opportunities for those who recognize their enduring value.
A nuanced understanding of the energy sector is vital for investors looking to make informed decisions. A black-and-white view of the energy transition risks overlooking the shades of gray that reflect the complexity of our global energy system.
The future of energy will not be a simple shift from carbon to non-carbon sources. Instead, it will be a gradual transition, with oil and gas continuing to play a significant role. By acknowledging these truths, investors can make the most of the opportunities that lie ahead, in what is a vibrant and vital industry. It’s not about turning our backs on the future; it’s about understanding it in its entirety. As the energy landscape evolves, so too must our investment strategies. And in the complex mosaic of the energy transition, oil and gas remain critical pieces of the puzzle.
Key Takeaways
- Fossil fuels, including oil and gas, remain crucial in our energy matrix, powering 83% of all energy sources and the charging infrastructure for electric vehicles.
- The extraction of critical minerals for green technologies, such as lithium, cobalt, and nickel, heavily relies on energy from fossil fuels, reinforcing the sector’s relevance.
- Oil is indispensable in global logistics, powering the efficient movement of mass via shipping, aviation, rail transport and trucking.
- The ESG narrative often underestimates the enduring demand for oil and gas, overlooking the sector’s potential for significant investment opportunities.
- The energy transition is a complex process, not a simple shift from carbon to non-carbon sources, and oil and gas will continue to play a significant role, indicating the sector’s investment potential.
Aspen Funds is pleased to introduce our latest Oil & Gas Fund, 116 Upstream Energy Fund VI, a 506c offering. This $50MM fund has been created to acquire diversified holdings of Non-Operating Working Interests & Overriding Royalty Interests of middle-market opportunities (focusing on PDP & PUD) partnering with larger operators in proven basins.
Mr. Fraser has 20+ years’ experience as a finance and technology executive and is a former E&Y Entrepreneur of the Year Award winner. In 2012 Fraser co-founded Aspen Funds, a fund management company focused on mortgage investments. Fraser is responsible for financial management, portfolio modeling, as well as systems and processes, designing and deploying Aspen’s scalable state-of-the-art back-end platform.
