Oil Will Be Replaced Not Because It’s Oil, But Because It’s Oil

Oil won’t be what fuels economic progress forever. About what you just read, it’s not a comment on “global warming” or lack thereof.

A much more likely reason for oil’s eventual obsolescence is that extraction of it has long been so lucrative. A drive through River Oaks in Houston, or attendance at college football games in Texas vivifies this truth.

Impressive profits invariably attract competition eager to compete them away. Which is why readers never need to worry about so-called “monopoly” profits, and it’s also why none should have feared the dominance of the most famous oil man of all time, John D. Rockefeller: his creation of such abundant wealth is exactly what rendered the breakup of Standard Oil much worse than a waste of time.

Say it repeatedly that margins represent opportunity for the enterprising, along with investors eager to match the enterprising with capital. That energy is elemental to progress and prosperity means there will never be a lack of enterprising ideas capable of attracting capital with the aim of disrupting the energy status quo.

Which brings us to solar energy. Less than 10 years ago it accounted for something like 2 percent of total energy produced. Yet as you read this, it’s the fastest growing energy source.

Of course, as skeptics of solar and other renewable energy sources have long credibly pointed out, solar energy production is intermittent, and surely weather determined. What’s intermittent, weather determined or both isn’t sufficient for houses or businesses that require 24/7 power. About these critiques, there will be no argument made against them. Instead, it will be pointed out that the present of any industry sector is a lousy predictor of its future.

Considering the fuel sector, it remains true that the margins for fossil fuel can be enormous. Still, their size rewards not just the intrepid players in the business of fossil fuel extraction, but crucially those eager to capture those margins by offering an alternative.

Which is where Cache Energy comes into play. According to the Wall Street Journal’s Christopher Mims, Cache is one of a growing number of businesses out to create ways for vast amounts of naturally produced energy to be stored. Which is quite something.

That’s because no one’s ever denied that solar and other renewable energy forms are real, they’ve just questioned cost combined with reliability given yet again the vagaries of weather. From this, it’s similarly not denied that there are stretches of the day when so much energy is produced by these renewable energy sources that per Mims, supply so substantially exceeds demand that “it costs little to nothing.”

The above signals impressive margins for solar, but for the intermittency problem. Cache Energy and others plan to mitigate the latter with, among other advances, cement-based batteries capable of storing “vast quantities of energy more or less indefinitely.” If so, the future of energy consumption could change profoundly.

All of which suggests the Trump administration’s embrace of fossil fuel is suspect not because Trump doesn’t believe the global warming narrative, but precisely because the genius of oil and other fossil fuels signals their eventual replacement in a marketplace that relentlessly competes away margins. It calls for a try everything approach to energy, not industrial policy based on the views of the White House occupant.

Will renewables reign supreme in the future? We can’t possibly know. All we know is that margins represent opportunity, and they signal oil’s eventual replacement.