Ever since I was doing research on Ethanol and Methanol being used to replace oil to run cars I have been thinking about the impact of what it all means.
Right now there is an entire oil infrastructure in place to get the oil out of the ground. They already have integrated suppliers who pump the oil out of the ground. They have suppliers who sell drill bits, slurry pumper dealies, and other stuff that only an oil man can understand the use for. They also have transporters that either move the oil by pipeline or by tanker. Finally, they have refiners that turn the oil into gasoline and other things. So basically this infrastructure takes up nearly 10% of the S&P 500. 3% of it is Exxon Mobil alone.
All of this infrastructure will be at risk by the move from oil to green fuels. That means 100,000s of jobs, billions in capital, and 10% of the market will all be affected by the changeover. So I was thinking what could the oil majors do to counter this.
1. They could lower the price of oil to compete with green fuels. Why would you pay double to fill up your car with green fuels when you can just use the same old amber fuels? They are already making record profits so if oil dropped down to $30 a barrel again green fuels again look like big losers.
2. They could buy out ADM and other big agribusiness concerns with the record cash hordes that many oil majors have. So Exxon will go from pumping oil out of the ground to growing corn in the ground and shipping them to green fuel plants. This move will kill off tankers, oil service, and oil explorers. But the big oil majors might survive.
3. They could do nothing and become the next airline industry. Lots of top-heavy, bankrupt concerns that cannot compete with nimble and newer arrivals. However they will have lots of cash and political clout left so they can still effect the picture some.
Basically it comes down to the oil majors embracing change or fighting like mad to keep the change from happening. Will they buy ADM out simply to gut the company's ethanol production? Or will they resort to buying off major green fuel scientists to stifle innovation?
It will be interesting to see since supposedly we will reducing our dependence by 75% by 2025. Something is going to happen here before too long.
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