Powering HigherSubmitted by Atlas Indicators Investment Advisors on February 12th, 2021
Energy is an abstract yet familiar concept. We all have some idea as to what it is when we hear the word. I know to reach for a cup of coffee if I feel like I’m lacking it. It stands alone on one side of probably the most widely known, albeit less-than-intuitive, equations ever. Thank you, Professor Einstein. Adding to its mystique for us mere mortals, physics even concludes that it can be converted in form but not created nor destroyed. I bet Joey C. feels like some of his energy has been destroyed when he’s done with his morning bike rides up and down the contours of the streets which line the foothills.
While physics require energy to be conserved, a variety of forces (e.g., prices, technologies, and social shifts) required society to change the sources used to power modern life. In the 19th century, whale oil was a primary source of energy for oil lamps which provided light for extended periods of time. Later that same century, petroleum began to replace the animal fat (which gave off a strong odor) in the form of kerosene, a cleaner, longer-lasting, and eventually cheaper source of fuel.
Energy sources will likely evolve over the rest of this century. For the automotive industry, it is has been happening for years. One doesn’t need to look further than the Super Bowl. Will Ferrell starred in one the most talked about commercials of the game (it was an electric vehicle spot), and, as you can see by clicking here, firms and countries are clambering to get in on the conversation.
Prices for crude oil as well as metals used in electric vehicles are doing something neither abstract nor funny. They have been moving higher since the end of last year’s recession. Supply constraints seem to be the issue in both cases. Saudi Arabia has committed to cutting production of petroleum by 1 million barrels a day. Simultaneously, covid-19 disrupted ports in both South Africa and China, two large sources of rare-earth metals.
We know, thanks to the 18th century natural philosopher Émilie du Châtelet, energy cannot be created nor destroyed; it simply goes through phase transitions. In an analogous way, our global economy is slowly transitioning our primary source of energy, moving from petroleum to newer technologies. As this change takes place, however, geopolitics may be used to conserve the power via hording and stronger unilateral trade alliances.