By Bryan Livingston
Managing Partner and CEO

Interest in renewables is at an all-time high and the world’s big car makers are making a muscular push into electric vehicles. But one of the most interesting predictions for the future of the energy sector relates to conventional oil production.

Demand for conventional oil production will rise significantly in the coming years and meeting this demand means production must step up — significantly.

Approvals of conventional oil projects need to double from where they are now, according to a new report from the International Energy Agency (IEA). “Without such a pick-up in investment, U.S. shale production, which has already been expanding at record pace, would have to add more than 10 million barrels a day from today to 2025, the equivalent of adding another Russia to global supply in seven years – which would be an historically unprecedented feat,” the IEA said in a news release announcing the new report, World Energy Outlook 2018.

We’ve blogged in the past about the importance of the U.S. shale revolution and its relevance continues to grow and change the world energy landscape.

“The shale revolution continues to shake up oil and gas supply, enabling the United States to pull away from the rest of the field as the world’s largest oil and gas producer. In the New Policies Scenario, the United States accounts for more than half of global oil and gas production growth to 2025 (nearly 75% for oil and 40% for gas). By 2025, nearly every fifth barrel of oil and every fourth cubic meter of gas in the world come from the United States.” © OECD/IEA World Energy Outlook 2018, IEA Publishing, License: www.iea.org

Recently-released capital budgets for oil & gas majors and supermajors, like Shell and Chevron, reflect future demand growth. Some analysts have drawn attention, however, to a persistent CAPEX gap, which is likely to result in elevated commodity prices in the years ahead.

We think these future global energy scenarios, which are also addressed in the IEA report, are among those that bear close watching:

1. Shift to Asia: We’ve noted on our blog previously that the world energy markets are entering a period of uncertainty and volatility and that includes a potential supply gap in the early 2020s. Demand for natural gas is rising, with China being a major consumer now and into the future.
2. Government influence: Over 70% of global energy investments will be government-driven, according to the IEA, and that means the “world’s energy destiny lies with government decisions,” said Dr. Fatih Birol, the IEA’s executive director. “Crafting the right policies and proper incentives will be critical to meeting our common goals of securing energy supplies, reducing carbon emissions, improving air quality in urban centers, and expanding basic access to energy in Africa and elsewhere.”
3. Renewables gain favor: They’ll make up almost two-thirds of global capacity additions to 2040, thanks to economics and government support. The share of renewables in power generation is predicted to rise to over 40% by 2040, from 25% today, IEA says, even though coal remains the largest source and gas remains the second largest.

Whether it is in the area of renewables or conventional oil & gas exploration, the United States, and the world, will need to figure out how to best meet a growing demand for energy, or face the consequences of coming up short.

Capital Alliance Corporation is a Dallas-based investment banking firm with an extensive international reach and a 40+ year history of providing trustworthy advice to private company shareholders who want to sell their businesses. Our team has deep operational and M&A experience across many sectors, including energy infrastructure.

Industry: Energy