Blindman: Predicting the future of energy prices is the original widow's maker trade.
Here's my current thinking about about the price of transportation energy over the next decade, and what it might mean for EV adoption. But the only thing for sure about my predictions is that they will certainly be wrong.
Because of the oil price bust that started in 2014, and accelerated in the last 2 years, the underinvestment in oil/gas production during this period will come back to bite us in the next 3 years. I see elevated oil prices (relative to the last 3 years). I think the calls for $100/barrel prices are misguided, as OPEC+ still has quite a bit of spare capacity, and more Iranian oil is likely to hit the market in the near future. But $70-$75 on an ongoing basis is not unreasonable. This will certainly provide support for vehicle electrification. Note that in addition to investing in materials for the next generation of energy, I'm heavily invested in certain types oil producers. While the easy money has been made in this area in the last 6 months, I see lots of doubles in these stocks over the next 3 years. But then it will likely be time to get out.
But my current guess is that in a 4+ couple of years, we are likely to start to see bottlenecks in both the U.S. electrical grid and potentially in key battery materials (like lithium).
Let me take a tangent on the U.S. grid. This part of my prediction I am quite certain about, except for the timing. The U.S. grid is creaky, and in many places, failing. The U.S. needs to invest in, and upgrade its grid, even if EVs are a flop. The continued computerization of U.S. life and industry demands a rock solid grid. Opponents of EVs claim that the U.S. grid will not be able support the future EV charging demand. These skeptics are partly right, but focusing on the wrong problem. Our current creaky grid will start to fray during extreme weather events as vehicle charging goes up.
But, the barriers to the next generation grid that can support EVs and the further electrification of U.S. industry are political, not technical. Here's a simple fact that points toward the future. More than 50% of the energy generated at electrical power plants is lost during transmission over power lines. If we cut that power loss by more than half, we can power all of the future EVs that Americans may want just from recouping transmission losses. That is because the original design of the U.S. grid emphasizes large central power plants that could be reliable 24/7 energy sources. The grid designers were willing to accept big inefficiencies because fossil fuel was cheap, and consumers wanted to be able to turn on their lights any time of day/night with near 100% reliability.
Unfortunately, that original vision is breaking down, even without the advent of EVs. Brownouts/blackouts are more frequent. There are many different causes behind these problems, but they can largely be accounted for by out-of-date infrastructure and poor regulatory design.
The future U.S. grid will consist of "micro-grids." That is, many more sources of electricity will be distributed throughout local communities, instead of being localized in large power plants. This makes the grid more reliable, because failure in the smaller power plants can usually be overcome by power sharing from nearby grids. Also, by cutting down the transmission distance, energy transmission efficiency goes way up, and so it is easier to power new loads, like EVs, without increasing the overall energy consumption. Microgrids also make it easier to incorporate local power opportunities, like hydro in the northwest or solar in the southwest and southeast. Moreover, micro-grids are more flexible when it comes to rapid changes in population growth or density.
Here's the big problem. The micro-grid future is directly in opposition to the interests of almost every large power company in the U.S. Power companies will not want to give up their highly centralized control over the production and distribution of energy. They have powerful lobbyists. So, here is the part of my prediction you can count on. Sometime in the next 10 years, there will start to be big battles between the interests of large power companies and the interests of consumers who want reliable grids, reasonable electricity costs, and the ability to home charge their EVs.
In progressive states (east and west coasts), the battles will be more quickly won by the consumers, and they will move more quickly to micro-grids. The transition will be fraught with some hiccups, and probably with some large surcharges to consumers to pay for reconfiguring the grid. Deep red states and Texas will stick with the traditional model. In a few cases, some exceptionally well run utilities (like NEE) will be smart, and reconfigure themselves into a grid of micro-grids run by a single corporate entity.
During this transition period, electricity rates may go up substantially in some areas, and the owners of gasoline cars will feel like geniuses. But, in my opinion, this will be a temporary situation. Once the upfront cost is absorbed for the micro-grid transition, electricity costs should stabilize and become reasonable. Moreover, the states that stuck with traditional energy grid designs will eventually start to regret their choice. It's just too costly and cumbersome to maintain 100% always-on electricity reliability with large centralized power plants and vast distribution networks. The power plants have amazing reliability. the power distribution system does not. Micro-grids naturally assume that parts of your system are always breaking down, and can compensate.
So, let's get back to your original question. My WAG is that oil prices will be quite firm for the next 3 years, which will benefit EV owners. Then I predict there will be hiccups in the grid that benefit gasoline owners.
But, as electrification advances, the growth in fossil fuel demand will slow. Oil will be with us for a long time as a transportation fuel. But as soon as demand growth stops (and my current estimate is a peak in demand by 2030), oil becomes uninvestable, except for those seeking dividends. Look at coal. we are using about as much coal worldwide as we ever have. But since coal demand is no longer growing, coal companies are going bankrupt left-and-right.
Right now I am invested in both sides of the EV debate. But I currently expect that fossil fuels will only provide exceptional investing opportunities for the next 3 years. But more importantly, my investing strategy is to assume that I will certainly be wrong, and try to adapt as best as I can to what will likely be an interesting transition in the next 15 years.
