Drill, Baby, Drill

Drill, baby, drill was a 2008 Republican campaign slogan, that may have made sense at the time, but it’s too late now.  Sky rocketing energy prices, due to a combination of causes, including increases in demand, the war in Ukraine and political and environmental pressure on producers, are becoming a significant problem.  Unfortunately, there are no easy or quick solutions. 

Finding, developing and producing new fossil fuel projects is capital intensive, requires years of effort and will face significant regulatory hurdles. 

There have been some, relatively modest, efforts to increase energy availability.  Small, private oil producers have stepped up drilling activity in previously marginal properties, as higher oil prices improve the economics.  Panicky governments have announced releases from petroleum reserves and politicians have begun to talk about some modification in regulations.  All of this is nothing more than a drop in the bucket.  Consumers are clearly over a barrel. 

Investors should be thinking about possible mitigating strategies.  With no near term, material increases in supply on the horizon, reductions in demand may be the only alternative. For example, carpooling could stage a comeback.  Lower thermostats and extra sweaters in the winter, and the opposite in the summers, might help. 

None of this should have been a surprise.  We have posted a series of blogs, over several years, relating to energy issues, most recently on Feb. 2, 2022 “Bullying Big Banks and Big Oil”.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA