Infrastructure – It’s More Than Just Steel

It’s week two of a new administration.

Week one came out of the gates hot, got a lot of ripples flowing, and it does not look like that will slow anytime soon.

This administration ran on climate policy and those goals appear to be ramping up.

The Rhetoric from the White House and the Hill is Hot and Heavy

The new president used his executive power to go after fossil fuels on day one of his administration by rescinding the construction permit for the Keystone XL pipeline, which would have carried oil from Canadian oil sands across the American Midwest.

He followed that up on Thursday when it was announced by the White House that any new lease of drilling rights on public lands must have the personal approval of the highest-ranking officials at the Department of Interior.

Yellen, the incoming Treasury Secretary, urged lawmakers during her confirmation hearing to “act big” when it comes to throwing money at the economy and that tax policy should be used to provide incentives for individuals and businesses to adopt “climate-friendly policies.”

Sanders, who is now the head of the Senate Budget Committee, maintains that “climate change is the single greatest threat facing us today” and stated over the weekend that “given all that we face, now is not the time to think small. It is time to think big, very big.”

Do all of these moves spell the end of fossil fuels?

Noise, Noise and More Noise

Canceling the Keystone pipeline does not mean that Canada is going to stop oil production, it just means that it will need to find a different route for it to get to the gulf.

And there is still plenty of drilling occurring on private lands as well as ongoing drilling on public lands.

Noble Goals

The green agenda has noble goals. It aims to eliminate gas combustion engines and the burning of fossil fuels to reduce carbon emissions and stem the tide of climate change.

The Reality

About 3% of the cars on the road today are Electric Vehicles (EV). At the current rate of adoption, about 20% of the cars will be EV by 2040, which would replace roughly 6% of current petroleum demand.

Even as EV cars gain traction they do, for the most part, still run on electricity produced by burning coal or natural gas (and a little uranium-235).

Just 9% of the U.S.’s electric grid is from wind and solar.

As I’ve been hammering home – building out wind and solar farms will help a lot of traditional building sectors like mining and drilling.

A Wind Turbine Embodies Fossil Fuels

I’ve been pretty positive on steel and why not … after all it takes 900 tons of steel to build just one wind turbine.

It also takes about 2,500 tons of concrete and 45 tons of nonrecyclable plastic.

And what does plastic require – petroleum and other gases.

A standard 5-MegaWatt turbine has three 60-meter-long blades, each weighing 15 metric tons. Much of the material for the blades is made from ethylene derived from liquefied petroleum or natural gas.

It has been estimated that to build enough wind turbines to supply half the world’s electricity would require nearly two billion barrels of oil to make the composite blades.

Petroleum Ripples are Rising

We could see a perfect storm for petroleum companies. A lot of their prices were depressed in 2020, green energy and infrastructure spending will drive demand, and government action will reduce supply. That bodes well for the sector.

While the whole sector can benefit, I like companies that are well diversified, have a focus on green energy development (so they get an ESG moniker that will attract institutional investment), and have mastered exploration.

Stay tuned tomorrow for the one stock in the space I like…and why!

Cutting through the noise for you,

Frank


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