Exxon Mobil (XOM) just announced a major milestone for a new energy venture… except it wasn’t for oil.
The oil giant bought 120,000 acres of lithium-rich land in Arkansas earlier this year.
And earlier this month, Exxon announced that it drilled the first wells to extract lithium deposits trapped deep underground.
Exxon wants to start producing commercial-grade lithium for electric vehicles (EVs) in just four years. The goal is to supply enough lithium for 1 million EVs every year by 2030.
It’s just the latest example of how government mandates for clean energy and other climate initiatives are boosting renewable energy investments.
It’s a megatrend that Inside Wall Street editor Nomi Prins has been tracking in these pages for two years.
And even fossil fuel companies like Exxon are positioning for the shift.
That’s unleashing a flood of money on clean energy technologies and the materials needed to make the green energy transition happen… like lithium for batteries.
But at the same time, funding for traditional energy sources is pulling back.
That’s why, as I’ll show you today, the push for green energy could be creating the conditions for an energy crunch.
A Looming Supply Shortage
For the first time ever, spending on renewable energy is set to overtake fossil fuels.
In 2022, clean energy saw record-breaking investments of $1.1 trillion. That matched the amount of money flowing into fossil fuels.
This year, the International Energy Agency (IEA) projects that $1.7 trillion will make its way to clean energy. That’s 70% more than what’s going to fossil fuels.
In fact, solar power is expected to see more investment than oil for the first time ever this year.
And mandates are making it so.
Whether you’re talking about treaties like the Paris Climate Accords… or executive orders coming from Washington D.C.…
The shift to renewable energy is underway whether you agree with it or not.
That’s why companies like Exxon Mobil are now drilling lithium mines. Or why General Motors plowed $650 million into the biggest lithium project in the U.S. Or why a group led by Saudi Arabia bought a $3.4 billion stake in Vale’s energy transition metals segment.
But at the same time, the prospect of lower fossil fuel demand down the road is starting to discourage new investments in areas like oil and gas.
We can see that by looking at capital expenditures, or capex. Capex is what companies spend on new projects. And the expectation of falling demand for fossil fuels is pushing that spending down.
It has likely reduced capex by oil and gas companies by as much as 35% over the past few years. That’s going by a report by the International Monetary Fund.
But despite the eye-watering sums of money going to clean energy, renewables are nowhere near ready to take the reins of global energy demand.
That’s because renewables account for about 30% of the world’s power generation. That number will grow to 35% in the next two years, according to the IEA.
That means we will still rely on fossil fuels for 65% of our energy needs looking ahead.
Renewables will keep growing, but it will take time to displace fossil fuels.
According to projections by the U.S. Energy Information Administration, it will take until 2035 for renewables to account for just over 50% of U.S. electricity capacity.
That’s why these early stages in the transition to clean energy are exposing a big risk.
An Energy Crunch in the Making
It may not seem like an energy crunch is looming, but the relative calm masks a tight energy market.
Just two months ago, the CEO of Europe’s largest natural gas supplier said that even a minimal disruption could cause gas prices to spike.
You’ve seen that play out again and again over the past couple years. Like most recently in August when a worker strike sent prices up 30%.
Plus, the U.S. is helping tame energy prices… for now.
It’s playing a major role in making up for shortfalls in oil and natural gas. Just this year, the U.S. emerged as the global leader in liquified natural gas that can be shipped around the world.
And now, it’s doing the same in oil markets. Just as OPEC cut oil production back in April to prop up oil prices, oil production and exports coming from the U.S. have surged to their highest levels ever.
In fact, there’s a record number of oil tankers heading to U.S. shores to take oil supply to where it’s needed.
Companies and nations alike are scrambling to keep the supply of fossil fuels flowing. So as an investor, you should focus on companies that own and operate critical pieces of energy infrastructure.
That could be an oil tanker, an energy pipeline used to transport oil and natural gas, or a facility that liquifies natural gas to be shipped all over the world.
These companies own and operate the infrastructure critical to moving fossil fuels to where they’re needed. And I suspect demand for their services will keep growing.
That’s because we will still need fossil fuels for years to come, and existing energy infrastructure is poised to benefit.
Many of these companies also pass on profits to shareholders in the form of dividends, with numerous stocks offering high dividend yields.
And those are among the types of companies we currently own in Nomi’s Energy Distortion Monitor letter. Like the oil tanker stock we recommended that returns 11% to shareholders in the form of dividends.
The energy distortion is just getting underway, and companies providing fossil fuel infrastructure are positioned to benefit. So, if you’re not paid-up yet, now is a good time to learn more about a subscription to Energy Distortion Monitor.
Regards,
Clint Brewer
Analyst, Inside Wall Street with Nomi Prins