The concept of electricity being the sole future mode of propulsion in autos is just not accurate. The geopolitical factors do not benefit the United States, and their production is not as friendly to the environment as some would have you believe. There are some wild developments occurring in biofuels, and long term, it seems to have more potential. While the commercial results of the science are probably decades off, it certainly changes the picture of our future.
Companies like Exxon Mobil (XOM) are not simply going to allow themselves to die off. They will fight to the bloody end. Why do you think all of these producers are running up supply and slamming their margins? Making things easier at the pump keeps consumers from wanting alternatives. Why bother with an electric car when gas is only $2.20? In the long term, I think the best of the energy companies are aware that oil won't hold the top spot. Adaptation will be key, and Exxon seems to be on top of it with its collaborative research into biofuels. On top of that, the downfall of the oil industry would require something to take its place in terms of jobs. Electric vehicles do not seem to offer that, especially in the automated mindset of Elon Musk.
Alternatives to traditional internal combustion engines certainly have a seat at the table. Hybrid and electric car sales continue to do well as people enjoy the benefits of increased mileage. As production rises, automakers will require an ever rising amount of lithium and cobalt to power the lithium-ion batteries. Afghanistan and China hold some of the largest lithium reserves, while South America has the most with just over half of the world's reserves. Australia is currently the number one producer, with over 41% of last year's production. Once again, the United States is faced with consumer demand for a commodity that we don't control. Chile already controls its lithium output, and the contracts it gives out for the process. If you start driving hard demand, the country could become the next Saudi Arabia in terms of driving pricing up to bolster their income from it.
Remember, cars are not the only thing that requires lithium to operate. Your laptop or tablet has lithium in the battery. Your cell phone uses lithium. Some electricity grids require it. The modern world is getting hooked on the stuff. Imagine the supply shock if 17 million cars start requiring vast amounts of lithium-ion batteries.
While an electric engine is still much cleaner than a gasoline engine, there is a still a large carbon footprint from electric cars. You still have to charge the car. So unless your house is being powered by a windmill in the backyard, you're probably still polluting. If your area has a coal power plant, you're probably not helping the environment at all. They are the number one cause of CO2 emissions in the United States. Yep, they're that bad. According to Scientific American as of 2016, an all-electric Nissan (OTCPK:NSANY) Leaf indirectly produced the same amount of emissions as a Toyota (TM) Prius hybrid because of the power grid.
There were over 17 million cars sold last year. Imagine if all of them were electric. How high would the collective American electric bill be for all that charging? Could our infrastructure handle it without upping our consumption of coal? Even if we shift everything to natural gas, we're emitting methane into the atmosphere rather than CO2. Now I'm not in any way against doing things that help the environment, but does driving dependence on battery materials from foreign sources (might as well be oil all over again), and pressuring our electrical grid in a way we have never done before really offer a good long-term solution for the United States?
The incentive of creating our own fuel
Exxon Mobil's collaborative research with Synthetic Genomics on producing biofuels through algae sounds like something out of science fiction. And yet, they're making progress. It was announced last week that the research has made a big step in increasing the amount of bio oil produced from a genetically altered form of algae.
As my non-doctoral degree mind understands, they can make biofuels from the fatty "lipids" that algae produce. In their R&D, scientists have been able to increase the fat content of the algae to increase the amount of fuel derived from them. Synthetic Genomics chairman pointed out that there's still much to do before this is a viable commercial option, but it shows that the science is there for this to happen. Thus far, Exxon has pledged hundreds of millions, and renewed their contract with the research company this year. There is serious potential in this field. It took 8 years for them to figure out how to increase lipid production. Imagine what they can do in another ten. If it works, the United States never answers to anyone in terms of energy consumption ever again. Algae grow in wastewater, saltwater, and generally most things that we can't (or don't want to) drink.
Biofuels were pushed in the past, but things like corn ethanol haven't gained traction. This algae research is an even bigger step, as they've produced 40% lipids off the same growth cycle. This level is useful on an industrial basis. The problem becomes figuring out how to drive that number even higher, while finding a way to cost effectively mass produce it. You can read the science publication here.
What is the biggest draw of biofuels like these algae? They consume CO2. All plants consume CO2, and Algae consume vast amounts of it during their growth. There have been studies in the past about the merits of algae derived energy sources in terms of cutting carbon emissions by 68%. These derived fuels can be refined in the same manner as oil, and don't involve the dirty process of drilling anything out of the ground. In fact, you don't have to dig up the land at all. Grow it in water, sunlight, and CO2, and boom you have fuel. It offers a switch in our economy that keeps jobs, as well as drastically cutting our impact on the environment.
Even in its infant stage, this type of fuel has huge ramifications. Even for those obsessed with electric cars, these biofuels could have application in running power plants to produce the electricity. I however see them making it right into combustion engines. If you can produce engine fuel that cuts out the need for foreign sources, it is drastically more appealing than electric cars in terms of competition. We don't want a form of energy where we need to buy vast amounts of lithium and cobalt from foreign countries. We've been trying to get away from that for decades, and scummy, disgusting algae could offer the solution.
I'm well aware that this sort of science is a long way off from impacting anyone's balance sheets, but it is certainly something to keep in mind. If you think for one second that Exxon Mobil isn't going to fire every piece of ammo it has at surviving government moves against global warming, you're naïve. The more algae research produces in results, the more Exxon will put into it. The fact that Synthetic Genomics doubled fuel production from algae in 8 years has me expecting a lot more funding from Exxon. Their involvement in this type of research suggests to me that they're the energy player most in tune with developing future business ventures away from fossil fuels. It is very encouraging for the stock's potential as a continued dominant player.
Before you go throwing your money into some drastically overpriced Tesla (TLSA) stock, you might want to consider all of the variables. I previously wrote on Exxon's short-term place as one of the most profitable players in this cheap oil environment. These moves in biofuels represent their play for a long-term future; and if the past shows us anything, it's that Exxon Mobil usually wins.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.