5 Megatrends in Energy

The energy industry is known for its cyclicality. However, underlying the recent down cycle are five mega trends that could lead to very robust returns for investors in the decades ahead.

Published in: Environment, Economy & Finance

5 Megatrends in Energy from The Motley Fool

Transcript

• 1. 5 Megatrends in Energy Photo credit: Flickr user Oregon Department of Transportation Photo credit: Flickr user Jo.sau Photo credit: Flickr user Nicholas A. Tonelli Photo credit: Flickr user Ken Hodge Photo credit: Flickr user Eli Christman
• 2. The sun isn’t setting on energy Over the past year, demand growth for oil has weakened, sending its price down 50%. However, overall energy demand in the future is still expected to be robust, with low oil prices today potentially creating new oil demand in the years ahead. Oil, however, is just one of the megatrends in energy that are expected to play out over the next few decades. Photo credit: Flickr user Jonathan C. Wheeler
• 3. No. 1: The oil megatrend Driven by diesel consumption in emerging markets Source: Exxon Mobil Corporation
• 4. No. 1: The oil megatrend • The world currently uses 90 million barrels of oil per day • By 2035, demand is expected to swell to over 100 million barrels per day • This growth will be largely driven by demand for diesel in places like China, Mexico, and Turkey • To meet this demand, global energy companies will need to invest $12 trillion by 2035 Despite the headwinds from fuel efficiency, demand for oil is expected to grow 0.8% per year
• 5. No. 1: The oil megatrend • Big oil: ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) • U.S. Independents: ConocoPhillips (NYSE: COP), Devon Energy (NYSE: DVN), and EOG Resources (NYSE: EOG) • Service providers: National Oilwell Varco (NYSE: NOV), Schlumberger (NYSE: SLB), and Halliburton (NYSE: HAL) Investment ideas:
• 6. No. 2: The fuel efficiency megatrend Growth for oil would be even higher if it wasn’t for fuel efficiency trends in developed nations Source: Exxon Mobil Corporation
• 7. No. 2: The fuel efficiency megatrend • In the U.S., CAFE standards are gradually increasing to a goal of 54.5 miles per gallon by 2025 • The rise of hybrid technology and EVs are also helping to reduce gasoline demand in the developed world A combination of high oil prices, environmental concerns, and energy security is leading to more efficient use of energy in developed countries
• 8. No. 2: The fuel efficiency megatrend • Energy efficient automakers: Ford (NYSE: F) and General Motors (NYSE: GM) • Electric vehicles: Tesla (NASDAQ: TSLA) Investment ideas:
• 9. No. 3: The natural gas megatrend Shale gas for the U.S. is a game-changer. Cheap natural gas is creating new demand and new markets Source: Kinder Morgan Inc.
• 10. No. 3: The natural gas megatrend • Natural gas production in the U.S. is expected to grow by more than 40% over the next decade • This will not only fuel growing demand in the power and industrial segments, but it will also open the door for exports Hydraulic fracturing and horizontal drilling unlocked a more than 100-year supply of natural gas in the U.S.
• 11. No. 3: The natural gas megatrend • Domestic pure-play natural gas producers: Chesapeake Energy (NYSE: CHK) and Southwestern Energy (NYSE: SWN) • Pipelines companies: Kinder Morgan (NYSE: KMI), Williams Partners (NYSE: WPZ), and Energy Transfer Partners (NYSE: ETP) Investment ideas:
• 12. No. 4: The LNG megatrend The shale gas boom in the U.S. along with growing demand for gas in Asia and Europe are expected to fuel a booming LNG market Source: Cheniere Energy
• 13. No. 4: The LNG megatrend • Over the next decade, demand for LNG is expected to grow 5.7% per year • This is as worldwide natural gas demand is expected to grow by 1.6% per year, which is well above the average growth rate for energy demand of 1% • This growth will be supplied by surging shale gas production in North America along with growing offshore gas output from recent discoveries in Australia, Africa, and the Middle East Energy security concerns in Europe along with environmental worries in Asia Pacific will lead to strong LNG demand over the next decade
• 14. No. 4: The LNG megatrend • Pure-play U.S. LNG exporters: Cheniere Energy (NYSEMKT: LNG) • Global LNG leaders: Chevron (NYSE: CVX), Exxon Mobil (NYSE: XOM), and Royal Dutch Shell (NYSE: RDS-A) Investment ideas:
• 15. No. 5: The renewables megatrend Renewable energy is expected to take share in the electric generation market in the years ahead Source: EIA
• 16. No. 5: The renewables megatrend • The U.S. Energy Information Administrations expects renewable power’s share of U.S. electricity generation to grow from 13% in 2013 to 18% by 2040 • Globally solar, wind, and biofuel demand is expected to grow by 5.8% per year, well outpacing overall energy demand growth of 1% per year Energy security concerns along with a focus to become less carbon-intense is expected to lead to strong growth in renewable power generation
• 17. No. 5: The renewables megatrend • Solar companies: SunPower (NASDAQ: SPWR) and Solar City (NASDAQ: SCTY) • Utilities: NextEra Energy (NYSE: NEE) • Yieldcos: Brookfield Renewable Power (NYSE: BREP) and NRG Yield (NYSE: NYLD) Investment ideas:
• 18. The sun isn’t setting on energy While demand might ebb and flow, the overall trend in energy is that demand is going higher. That’s creating five distinct megatrends that could generate a lot of profits for investors in the decades ahead. Photo credit: Flickr user Jonathan C. Wheeler
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