Energy Investor Monthly – April 2024

INSIGHTS OF THE MONTH

Whale Oil: The First Renewable Energy Resource

Note: The following article should be read in its historical context and is intended to be taken as satire and an April Fools’ joke for this month’s Energy Monthly. DAC does not endorse or promote the hunting of whales, or any animal for that matter. We would like to reiterate that no whales were injured in the writing of this article.

©SCRAN/Aberdeenshire Council
Whale hunt in the Greenland Sea

Source: Wikipedia

Crude oil has become an essential part of our daily lives, and its uses are found throughout our modern economy. However, crude oil has become increasingly more difficult to find and produce despite applying the latest technology. Because it takes hundreds of millions of years to create, there is a finite limit to how much oil and natural gas can be relied upon as an energy source as the global demand for hydrocarbons continues to grow. As our society looks for more sustainable and renewable energy sources, perhaps it is helpful to look at prior energy transitions to see how the development of the crude oil industry has positively impacted both the economy and the environment.

A popular story says that the first commercial oil well in 1859 was drilled to find a cheaper alternative to whale oil, which at the time was the preferred lubricant and source of smokeless candles and lamp oil. While there remains an active debate about how much crude oil actually contributed to the decline of the whaling industry, there are surprising similarities between the products that benefitted from the whaling industry and today’s production of crude oil. This helps explain why many still argue that the crude oil industry, unlike the development and operation of some modern offshore wind farms, helped to save many whale species from extinction.

The Origins of Whaling

Before whaling became a commercialized activity, ancient cultures discovered that beached whales were a valuable source of oil, bone, meat, blubber, and baleen. In antiquity, whales produced many highly valued products, inspiring societies on several continents to hunt whales along their shores. By the 17th century, however, fishermen from the U.S., Canada, northern Europe, Asia, and the Arctic were hunting whales on a commercial basis. Although whaling still exists in Norway, Japan, Iceland, South Korea, and in some aboriginal societies, by 1900, bowhead, gray, and right whales had been hunted to near extinction. As a result of a rapid decline in the whale population and the global expansion of the petroleum industry, most commercial whaling operations had ceased before WWI.

Prior to the widespread production of crude oil, however, whales were an essential source of raw materials – including their use as an inexpensive food source and in manufacturing tools, jewelry, art, and even energy. Although most parts of the whale were typically harvested, depending on market demand, three products in particular were the most highly valued: baleen, whale oil, and ambergris. It is worth noting that each had characteristics that were similar to today’s plastics and refined petroleum products.

National Oceanic and Atmospheric Administration Method of cutting in a bowhead whale

National Oceanic and Atmospheric Administration Humpback whale showing baleen

Baleen – Whalebone

Some whales have plates hanging from the upper jaw that are used to strain food – small fish, crustaceans, and krill – from seawater. These baleen plates, more akin to hair and nails than bone, were lightweight yet flexible and were often used in ways that are similar to modern-day plastics. The whale species hunted for their baleen included humpback, blue, and bowhead. During the 19th century, baleen, also known as “whalebone,” was often used to stiffen corsets and collars and to make the hooped frame for skirts. Other products that utilized the flexible strength of baleen included umbrella ribs, riding crops, buggy whips, and hat brims. Because of its multiple uses, baleen, and the whale species that produced it, was highly sought after and was the primary target of some whaling fleets.

Whale Oil & Spermaceti

Like crude oil, whale oil had a variety of uses in the mid to late 19th century. Before electricity, whale oil provided the best oil and candle wax for home illumination. In addition, whale oil was often used to lubricate fine machinery. Similar to crude oil, there were two different grades of whale oil: a lower-quality oil that was rendered from whale blubber and a higher-grade oil known as spermaceti. Sperm whales were particularly valuable since they had this source of high-grade oil in a cavity in their head. Processing this waxy spermaceti separated it into the highest grade of whale oil, which was often made into superior quality lubricants and smokeless candle wax.

Initially, only whale fat, or blubber, was used to produce whale oil. However, as the use of whale oil expanded, it was found that lower grades could be made from other parts of the whale. This additional supply led to an expansion of the whale oil industry. In fact, many believe that the increased whale oil production helped to drive the Industrial Revolution. The consistent and dependable lighting derived from whale oil lamps and smokeless candles helped factory workers to see better and even allowed some businesses to operate both day and night. Further, many of the lubricants derived from whale oil quite literally “greased the wheels” of industry throughout most of the 19th century. Even though production was on the decline, whale oil became a critical medical supply during World War I, as it was used not only to manufacture explosives but also as one of the most effective ways to prevent trench foot.

Ambergris

The third important product obtained from whales was ambergris, a substance produced occasionally in the intestines of sperm whales. Ambergris was most often used in fine perfumes to keep the scent from changing, and it occasionally was added to wine as an aphrodisiac. However, we will refrain from speculating on its efficacy.

From the Past to the Future

Throughout history, whales have had a variety of commercial uses, and it is clear why the whaling industry was so important to many local economies. Like crude oil today, whale oil was once considered an essential part of the global economy, with almost all industries relying on it. While crude oil may be more humane to produce – and is currently found in much larger quantities than whale oil – it, too, is a limited resource. On the other hand, whales were once considered a renewable and environmentally sound resource – until they were hunted to near extinction. So the next time you fill your car with gasoline, think about how much better and ecologically sound it is that crude oil is widely available as a bridge to another renewable and more environmentally sound energy source. We all agree that the future is on a much better path than if we used 100% renewable whale oil. April Fools.

Sources:

  • https://en.wikipedia.org/wiki/History_of_whaling
  • https://www.nps.gov/nebe/learn/historyculture/whaleproducts.htm
  • https://www.scran.ac.uk/packs/exhibitions/learning_materials/webs/40/whale_uses.htm

ENERGY MARKETS BY THE NUMBERS

U.S. Total Crude Oil Production and U.S. Crude Rotary Rig Count (as of March 29, 2024):

  1. West Texas Intermediary (WTI) oil price was $83.17 per barrel (+5.2% m/m)
  2. U.S. oil production was 13.1mm bbl/d (-0.8% m/m)
  3. U.S. oil rig count was 506 (Flat m/m)

Source: Bloomberg, Dividend Assets Capital

The U.S. Commercial Crude Oil Inventories (excluding those in the Strategic Petroleum Reserve) and Inventory Changes (As of March 29, 2024):

  • Inventory increased by 2.9 million barrels month over month to 448.2 million barrels (0.4% below the 5-year average).
  • Total crude stockpiles, including the Strategic Petroleum Reserve (“SPR”), increased by 5.6 million barrels month over month to 815.1 million barrels.

U.S. Imports and Exports (as of March 29, 2024):

  1. U.S. crude oil 4-week average imports were 6.3 mm bbl/d, down 6.1% month over month.
  2. U.S. crude oil 4-week average exports were 4.1 mm bbl/d, down 13.1% month over month.

Source: Bloomberg, Dividend Assets Capital

U.S. Refinery Inputs and Utilization Rates (as of March 29, 2024):

  1. U.S. crude oil refinery inputs averaged 15.9 mm bbl/d for the week March 29, 2024. Four-week inputs averaged 15.8 million bbl/d, 1.7% higher than the same time a year ago.
  2. Refinery Utilization Rate was 88.6%, up from 84.9% for the previous month. This is lower than the same period last year, which was an 89.6% utilization rate.

Source: Bloomberg, Dividend Assets Capital


This information is for illustrative purposes. Material presented has been derived from sources considered to be reliable, but the accuracy and completeness cannot be guaranteed. Nothing contained in this document may be relied upon as a guarantee, promise, assurance, or representation as to the future.

Dividend Assets Capital, LLC (“DAC”) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about DAC investment advisory services can be found in its Form ADV Part 2, which is available upon request.

You should carefully consider the investment objectives, potential risks, management fees, and charges and expenses before investing. The Firm’s Investment Adviser Brochure, Form ADV Part 2, contains this and other information about the Firm, and should be read carefully before investing. You may obtain a current copy of DAC’s Form ADV Part 2 by visiting our website at dacapitalsc.com, emailing info@dacapitalsc.com, or by calling us at (866) 348-4769. Additional information about Dividend Assets Capital, LLC is also available on the United States Securities and Exchange Commission’s website at www.adviserinfo.sec.gov. You may search this site using a unique identifying number known as a CRD. DAC’s CRD is 129973.

DAC-24-007

Dividend Assts Capital, LLC is an independent, employee-owned wealth advisor specializing in high quality companies with a history of consistently increasing dividends. Built on a pioneering legacy, our goal is straightforward; achieve our clients desired outcomes through investments that provide sustainable and rising income with long-term capital appreciation. We partner with successful families, advisors and institutions delivering tailored services that adhere to fiduciary principles to provide…

Clarity: A transparent and understandable approach to portfolio management.

Simplicity: We believe dividends are the best indicator of the future price performance of a stock.

Devotion: We build confidence through a disciplined process and strong devotion to our investment philosophy and clients.