Invisible resources

The discovery of natural resources can change a country’s fortune forever.

Before oil was first found in Saudi Arabia in 1938 it was not much more than a desert.

There were no cars, no roads, no electricity, no hospitals, no infrastructure at all.

Most Saudis were illiterate. They spent their time practicing falconry and hunting. Life expectancy was low.

The discovery of oil in Saudi Arabia changed everything.

The discovery of oil changed everything for many Middle Eastern regions.

Today, four of the five richest countries in the world by gross national income (GNI) are located in the Middle East. All thanks to a black goo that until the mid-1800s was essentially worthless.

It’s strange to think that many of the world’s richest countries derived their wealth directly from a resource that only became worth something in the last 150 years or so.

It makes you wonder what resources might soon become valuable that were also once worthless.

It also makes you wonder what will happen if oil falls out of favour.

This is clearly something that’s concerning Saudi Arabia.

Saudi Arabia struggles to change its brutal image

Last week Saudi Arabia announced it was investing $425 billion as part of its “economic diversification programme”.

This is all part of its “Vision 2030” project. The goal of the project is to make Saudi Arabia less reliant on oil.

But as Bloomberg reported in December, its Vision 2030 programme is in trouble.

From Bloomberg:

Saudi Arabia seems already to have forgotten Vision 2030, the ambitious reform plan it announced amid great fanfare just two years ago. The kingdom’s expansionary new budget suggests that the government lacks the resolve and the discipline to wean the country from its dependence on oil, shrink state handouts, and develop a viable private sector.

There are steps the government could take to reassure investors that its vision for a diversified and well-managed economy is not ruined. A good start would be to abandon the grandiose plans to spend $500 billion building a new city on the Saudi Arabia’s northwestern coast. Foreign investors have cooled on the idea, and scrapping it would help compensate for the budget’s spending. The government should also speed up the privatization of 14 state-owned companies it announced in April. And it would help firmly end handouts after 2019.

Until recently the world – the US and UK in particular – turned a blind eye to Saudi Arabia’s human rights abuses.

But when the news surfaced that it had murdered journalist Jamal Khashoggi inside its own consulate in Istanbul, even the US had to condemn its actions.

This then opened up the debate on Saudi Arabia’s proxy war with Iran in Yemen, in which tens of thousands of innocent civilians have been killed.

And even its continued beheadings for non-violet crime. In 2018 it beheaded 48 people in just four months.

All of a sudden, companies decided it wasn’t so good for their own images to be seen colluding with Saudi Arabia.

A huge list of influential companies and people, including Richard Branson, and representatives from Goldman Sachs, Google, JP Morgan Chase, World Bank, Uber, CNN, CNBC, the Financial Times, Bloomberg, HSBC, Softbank and Siemens all pulled out of its “Future Investment Initiative” in 2018.

But at least it still has its oil.

The problem is, as I’m sure you’re aware, oil is falling out of favour too.

Arnie joins the fight against big oil

Back in 2015, Arnold Schwarzenegger made the best argument I have ever seen in favour of dumping oil and going green.

Instead of trying to argue whether man-made climate change is or isn’t real, he took a different tack.

Here is how his post began:

I see your questions.

Each and every time I post on my Facebook page or tweet about my crusade for a clean energy future, I see them.

There are always a few of you, asking why we should care about the temperature rising, or questioning the science of climate change.

I want you to know that I hear you. Even those of you who say renewable energy is a conspiracy. Even those who say climate change is a hoax. Even those of you who use four letter words.

I’ve heard all of your questions, and now I have three questions for you.

Let’s put climate change aside for a minute. In fact, let’s assume you’re right.

First – do you believe it is acceptable that 7 million people die every year from pollution? That’s more than murders, suicides, and car accidents – combined.

Every day, 19,000 people die from pollution from fossil fuels. Do you accept those deaths? Do you accept that children all over the world have to grow up breathing with inhalers?

Now, my second question: do you believe coal and oil will be the fuels of the future?

Besides the fact that fossil fuels destroy our lungs, everyone agrees that eventually they will run out. What’s your plan then?

I, personally, want a plan. I don’t want to be like the last horse and buggy salesman who was holding out as cars took over the roads. I don’t want to be the last investor in Blockbuster as Netflix emerged. That’s exactly what is going to happen to fossil fuels.

A clean energy future is a wise investment, and anyone who tells you otherwise is either wrong, or lying. Either way, I wouldn’t take their investment advice.

But it was his final question that really sticks in my memory:

I have a final question, and it will take some imagination.

There are two doors. Behind Door Number One is a completely sealed room, with a regular, gasoline-fueled car. Behind Door Number Two is an identical, completely sealed room, with an electric car. Both engines are running full blast.

I want you to pick a door to open, and enter the room and shut the door behind you. You have to stay in the room you choose for one hour. You cannot turn off the engine. You do not get a gas mask.

I’m guessing you chose the Door Number Two, with the electric car, right? Door number one is a fatal choice – who would ever want to breathe those fumes?

This is the choice the world is making right now.

And he is right, the world is making that choice.

Companies and countries are embracing renewable energy at an alarming rate

Every month more and more companies, states and countries are switching to 100% renewable energy and ditching oil.

The most well-known of these is probably Google, which in 2010 stated it would work towards using 100% renewable energy to power its operations.

In 2017, it achieved that goal.

From Google’s blog:

I’m thrilled to announce that in 2017 Google will reach 100% renewable energy for our global operations — including both our data centers and offices.

How did it manage this? Well, it’s not quite as amazing as Google would want you to believe. It doesn’t actually run on 100% renewable energy, but it buys more renewable energy than it uses in total.

Google:

To reach this goal we’ll be directly buying enough wind and solar electricity annually to account for every unit of electricity our operations consume, globally. And we’re focusing on creating new energy from renewable sources, so we only buy from projects that are funded by our purchases.

But to be fair to Google, this isn’t its long-term vision. Long term it wants to run on 100% renewable. And it makes the same logical arguments as Arnie did as to why.

Google:

Over the last six years, the cost of wind and solar came down 60 percent and 80 percent, respectively, proving that renewables are increasingly becoming the lowest cost option. Electricity costs are one of the largest components of our operating expenses at our data centers, and having a long-term stable cost of renewable power provides protection against price swings in energy.

Remember, oil nations control the supply and price of oil.

When they want to make a statement, they mess with that price.

When they want more money, they mess with that price.

When other countries take them to task on their genocidal wars and human rights abuses, they mess with that price.

When they want… well, anything… they mess with that price.

For a company like Google that has absolutely colossal energy needs, it really makes sense to protect itself from the whims of these countries.

And, like I said, it’s not just Google that’s going renewable.

Amazon and Facebook have both set the goal of being powered by 100% renewable energy, too.

But even bigger than that, whole US states are now committing to using 100% renewable energy.

Arnie’s own state of California led the charge.

The world’s fight largest economy is now committed to going 100% renewable

In September 2018, California committed to going 100% clean electricity by 2045.

California may not be a country, but it might as well be. It is the world’s fifth largest economy by GDP.

That makes it a bigger economy than the UK, India, France, Brazil, Canada, South Korea and Russia.

Only the US itself, China, Japan and Germany are bigger by GDP.

So this bill has worldwide significance.

And it has also led a number of other US states to follow suit.

From the LA Times in January:

It’s been less than four months since California committed to getting all of its electricity from climate-friendly sources by 2045. But the idea is already catching on in other states.

At least nine governors taking their oaths of office this month, from Nevada to Michigan to New York, campaigned on 100% clean energy, or have endorsed the target since it was enshrined in California law. The District of Columbia also set a 100% clean energy goal last month. So did Xcel Energy, a Minneapolis-based utility that serves 3.6 million electricity customers across eight Western and Midwestern states.

Closer to home, Scotland is committed to generating 100% of its electricity from renewable sources by 2020. So before this year is out.

Once you put the pieces together, you can see why the oil nations like Saudi Arabia are desperately trying to reduce their economies’ reliance on oil revenue.

But won’t oil always be cheaper than renewables?

One of the arguments that oil nations make is that renewable energy is expensive compared to their black gloop.

And it’s true. That used to be the case. But as it does with everything, technology is changing that.

As USA Today writes:

Renewable energy will kill fossil fuels soon

It costs less in some places to create wind or solar farms than to keep running coal or natural gas plants. We are on the cusp of making electric cars the standard, and they are ultimately cheaper to own than internal combustion vehicles. Buying more of this technology will make the technology even cheaper, leading to a death spiral for fossil fuel prices.

Take Tesla’s 100 megawatt Power pack battery it built in South Australia in 2017.

Elon Musk bet he could have it built within 100 days or he would pay for it. It was finished in just 45 days.

In total it cost $66 million. But has already saved $40 million in its first year of operation. It will basically pay for itself within 18 months of being built.

From Electrek:

The energy storage capacity is managed by Neoen, which operates the adjacent wind farm.

They contracted Aurecon to evaluate the impact of the project and they estimate that the “battery allows annual savings in the wholesale market approaching $40 million by increased competition and removal of 35 MW local FCAS constraint.”

It is particularly impressive when you consider that the massive Tesla Powerpack system cost only $66 million, according to another report from Neoen.

And back in the UK, offshore wind is set to become the cheapest source of new energy in the UK within ten years, according to Cornwall Insight.

Renewables also have the other obvious advantage that once they pay for themselves, they are essentially giving you free electricity.

They are powered by renewable energy that won’t run out until the sun explodes and engulfs the Earth.

It seems like an obvious point, but it’s one that’s easy to overlook. Over time, fossil fuels become more and more expensive as the supply dwindles.

Over time, renewables become cheaper and cheaper as they only require maintenance, not fuel, to keep generating power. And that power is worth money.

The upfront costs of renewables can be high, but the long-term costs are almost zero. In fact, over time they can end up bringing in more money than they cost to build.

You can profit from this once-in-a-generation power shift and push towards renewable energy

To come back to our opening, the discovery of oil has forever changed the Middle East.

It has given countries wealth. And because of that it has given them power.

This wealth and power has, for decades, allowed these countries to get away with things poorer countries never could.

From the slave workers in Dubai and the UAE, to the proxy wars and extrajudicial murders carried out by Saudi Arabia.

If these countries didn’t have that oil wealth, the world would condemn them.

Saudi Arabia, in particular, knows its oil wealth won’t last forever. But its attempts to modernise are laughable.

As renewables rise to provide more and more of the world’s energy needs, the oil nations will be left wanting.

They will, as we have already see, attempt to jump on the renewables bandwagon themselves.

But this time around, they won’t be at an advantage to other nations. There is no need to buy Saudi Solar power when you can generate it in your own country.

The tremendous amount of money ploughed into these counties will instead go to companies building and maintaining renewable energy around the world. And to tech companies perfecting renewable energy technology.

Power will shift. Governments will fall. Regimes will change. And in the end, the world will be a better place for it.

This is a theme that my colleague Eoin Treacy has a particular interest in.

For a number of years, he has been researching the companies set to prosper as the oil nations decline.

The tech companies creating more efficient solar panels. The companies ingenious companies harnessing geothermal energy. Even the companies at the cutting edge of fusion power. Eoin has plays in them all.

And you can get all this research on these companies, their names, ticker symbols and Eoin’s stock price targets for them when you take out a trial membership to his Frontier Tech Investor service.

Bot only that, but you’ll also get a free copy of my publisher, Nick O’Connor’s book, The Exponentialist.

Nick’s book goes even deeper into the renewable energy revolution, and explores which companies, countries and investments will come out of it on top.

So to get your free copy of Nick’s book and a trial membership to Eoin’s Frontier Tech Investor service, click here now.

Until next time,

Harry Hamburg
Editor, Exponential Investor

Category: Technology

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