Is the era of oil over?

Thought of the day

Crude oil prices extended losses on 15 November on reports that Russia is concerned that prolonging oil output cuts further into 2018 will allow US shale producers to capture market share.

Russia’s concerns appear warranted, but the International Energy Agency’s annual World Energy Outlook released this week suggests that the longer-term outlook will prove even more disruptive to current patterns of energy supply:

  • The era of oil is not yet over, but the balance of power is shifting. US oil output growth through 2025 will be the strongest in modern history, accounting for some 80% of the total increase in global supply. US crude output will peak at 17m/bpd making it the “undisputed” leader among producers.
  • Efficiency is key. Global energy demand is predicted to grow by 30% by 2040, a slower pace than at present, although without improvements in efficiency the projected rise in final energy use would more than double.
  • The future is electric. Electricity is expected to make up 40% of the rise in final consumption to 2040 – the same share of growth that oil took for the last twenty-five years. Today, the total electric car count is just 2mn. The IEA predicts that could reach 50mn by 2025, and 280mn by 2040.

The IEA expects the US shale boom to maintain downward pressure on oil prices in the near-term. Its analysis also supports our long-term investment themes of energy efficiency and smart mobility. We see investment potential in companies focused on improving industrial process through automation and smart grids/buildings, as well as electric vehicle manufacturers and semi-conductor makers focused on smart mobility.

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