Thursday, 16 January 2014

The best bits of the BP Energy Outlook to 2035 report

It is impossible NOT to learn something from the BP Energy Outlook to 2035 report (link here).  Even though, by definition, the concepts being talked about are desperately medium-term, energy is a slow-moving business given the multiple years it needs to get production prospects to market.  Any investor therefore has to have at least half an eye on the world beyond the next quarter or three. Here are a few of my favourite charts...

The energy and CO2 linkage is is the hoped-for decoupling in the future, but the chart on the left is just as strategically striking: Asia the region with an ever-growing energy deficit.  That is why China and India - amongst others - are so active in the international markets buying and joint venturing in projects.  This trend is unstoppable: look for energy companies with quality assets but probably not the internal resources to fully develop them (Apache, BG amongst others).
Following on from the above, energy demand at the margin is all about the emerging world.  The ten year increment graphic is very striking. 

Part of the reason for flat OECD demand is demographics but technology also matters.  The push for greater energy efficiency makes huge sense at many levels.  Firms like ABB, Siemens and GE that help facilitate this are always worth monitoring.  Meanwhile I am slightly surprised that renewables proportionately remains so low.  A statistic / graphic to watch going forward?
Renewables are still growing absolute terms the most in China, but in relative terms Europe remains the global leader. 

One imponderable remains supply side shocks.  The below graphics show that this can still happen, even if US oil production expansion has helped alleviate any issues from Libya, Iran etc in the last year or so.  I am still thinking about the interesting link concerning Saudi Arabia, Iran and the US I posted in my weekly Sunday review (see link here)

How about the rise of unconventional sources of (gas) supply?  Much has been made of shale gas but outside North America, BP are fairly sceptical.  Old school pipelines seem to matter more in Europe and China. 

Finally, in the revisions chart, some good news for global energy companies like BP.  The combination of higher supply hopes from North America, lower supply hopes from Asia (but greater non OECD demand) is a good combination for them strategically.

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