There’s a strange and almost counterintuitive threat to oil and gas producers like Exxon-Mobil (NYSE: XOM) that only a few people are beginning to grasp. The world is starting to produce too much energy, and will soon be churning out far more.

Over the last few years the world has had to cope with a growing glut of petroleum and natural gas thanks to fracking, automation, and other cutting-edge oil and gas recovery techniques. Natural gas has gotten so cheap that it is making both coal and nuclear power plants uncompetitive economically in North America and elsewhere.

Falling oil prices have sent oil company profits on a roller-coaster ride. The leaders of once wealthy countries like Saudi Arabia and Venezuela are panicking and scrambling to find new sources of wealth to replace oil. To add to the panic life-long energy executives like Rex Tillerson are dumping their oil stocks.

Solar Power is about to Make the Energy Glut Far Worse

The great oil and natural gas glut was just the beginning. Just one energy source, solar electric, is poised to make the energy glut far worse.

Electricity from photovoltaic (PV) solar panels might cost a fraction of power from fossil fuels in just a few years, probably by the mid-2020s, Virun Sivarun of the Council on Foreign Relations. Sivarun; a long-time solar advocate who is very familiar with the PV industry is worried that solar electricity might become too cheap.

Sivarun’s fear is that low cost PV panels will turn solar electricity into a disposable commodity. He makes a good argument for it in a recent book called Taming the Sun. The cost of a Watt of electricity generated by a photovoltaic system is projected may fall by more than one fourth in just four years.

A watt of PV electricity cost around $1.08 (€0.92) to produce in 2016 and may cost 78¢ (0.67) to produce in 2020. That would be a drop of 40¢ (€0.34) in just four years. If such price drops continue, solar electricity might cost as little as 5¢ (€0.043) a watt by 2035.

How Solar Electric Threatens Petroleum

Among other things, that would make diesel uncompetitive as a fuel for electric power plants. Diesel might still be in demand as a fuel for backup generators.

It would also make kerosene completely uncompetitive as a fuel for lighting houses. Already door-to-door salesmen are tramping across Africa peddling sola-electric systems to many of the continent’s residents.

Pay as You Go (PAYG) platforms, smartphones, and payment apps like M-Pesa have made solar electricity competitive with kerosene for the first time. Electricity has the edge on kerosene because it can also power the TV set, the video game system, and the washing machine – kerosene cannot.

Such cheap electricity is likely to even cut into propane’s market as a heating fuel. Even the vehicle fuel market is threatened as more and more electric cars hit the road. Why spend money on gas when solar electric is cheap and almost everywhere?

Fleet vehicles ranging from rental cars to heavy trucks are likely to go first. Operators that can reduce costs by a few dollars a vehicle a month by going electric will. Even heavy vehicles like semi-tractors can operate successfully on electricity, as Elon Musk has demonstrated.

Solar’s threat to petroleum is no longer theoretical, its’ real and it is happening now. That threat will be disruptive and it is likely to be unpredictable. It is also catching much of the energy and technology industry’s leadership by surprise. Nobody, a few years ago would have predicted that a fast and massive transition to electric vehicles would be underway, but it is.

Nor would anybody have predicted government leaders in several nations to be talking about completely scrapping internal combustions within two decades but they are. Plans to get rid of diesel and petrol-burning vehicles have been announced in such disparate places as India, Mexico City, Greece, Norway, China, the United Kingdom, France, Germany, and California.

Does Fossil Fuel have the Edge over Electric Vehicles?

Fossil fuels have one huge advantage over electric vehicles – they pack far more bang-for-the buck in the form of energy density.

A pound of gasoline contains 100 times the energy density of a one-pound lithium ion battery, the Argonne National Laboratory reported. That means gasoline contains 100 times the energy of lithium ion.

Energy-density gives fossil fuels an advantage in potential power, but not in useful power. Only around 20% of the energy contained in a gallon of gasoline gets converted into forward motion in a vehicle, Clean Technica reported. Around 90% of the energy in an electric drivetrain gets converted into forward motion.

This is why electric cars can be a lot faster and more powerful than internal combustion engine vehicles. It gives electrics a definite edge in vehicles that need a lot of power such as locomotives, pickup trucks, heavy trucks, semi-tractors, and heavy equipment.

Even gasoline’s energy-density advantage; as questionable as it is will probably disappear, in a new decades. Researchers expect batteries to offer a comparable advantage to fossil fuels by 2045.

Exxon-Mobil Survive and Prosper in the New Consumer Revolution

Fossil fuels appear to be in a losing battle for energy dominance with batteries. That raises the interesting question can companies like Exxon-Mobil survive.

My answer to that is yes for two reasons, those companies have a lot of money and petroleum has many uses besides fuel. Petroleum is the basic building block of a lot of plastics and chemical products. Demand for those is likely to skyrocket in the years ahead, as hundreds of millions of people throughout the developing world join the consumer economy.

Ironically enough, solar power systems and batteries are likely to bring consumer appliances and gadgets such as washing machines, dishwashers, ovens, microwaves, video games, and TV sets to remote villages throughout the developing world. Many if not most of those devices will have cabinets built all or partially of plastic.

That plastic will be made of petroleum which ensures at least one market for Exxon-Mobil. The consumer revolution in the developing world;, might also open up a vast new market for gasoline and diesel-powered generators, as backups to all those solar panels, propane and butane-burning heaters and cook stoves, and all sorts vehicles. The upwardly mobile families in the developing world will want wheels of their own.

Exxon-Mobil is Making a lot of Money

Exxon-Mobil will be well-poised to cash on that consumer revolution because of its resources. The old-line oil giant is still making a lot of money.

Exxon generated a gross profit of $23.776 billion (€20.32 billion) on revenues of $68.311 billion (€58.37 billion) in 1st Quarter 2018, Stockrow data indicates. Those figures gave Exxon-Mobil an operating income of $7.44 billion (€6.36 billion) and a net income of $4.65 billion (€3.97 billion) for the 1st Quarter.

There’s also a lot of cash at Exxon-Mobil it reported an operating cash flow of $8.519 billion (€7.28 billion), and a free cash flow of $5.17 billion (€4.42 billion) on 31 March 2018. The problem with that cash flow is that Exxon-Mobil had very little in the bank. It reported cash and equivalents of $4.125 billion (€3.52 billion) on March 31, 2018.

My prediction is that Exxon-Mobil will survive but it faces a long hard struggle to make money and profit. This is oil giant is a good contrarian investment for electric-vehicles, but it is not guaranteed.

Exxon-Mobil is no longer a widows and orphans stock or a safe stock for a retirement portfolio. Buy XOM only if you want to a risk on a contrarian investment.

This story first appeared at Market Mad House your watchdog for energy insanity and investment lunacy.