The sunset for Oil demand? via Reuters
It has been a recurring thought in my mind recently that the move towards less dependency on oil is going to eventually impact oil demand. This seems one of those medium term issues, that you sort of know will eventually come, but not quite yet. It may well play on your mind because of longer term investments you might have in the oil market via equities. Norway hit the headlines earlier in March when they announced that they would be phasing out investments in exploration and oil production companies. This piece I read on Bloomberg pushed the impact of falling oil demand into the foreseeable future, namely 2025.
The details are as follows and based upon the moves of the Legal and General Investment Management (LGIM), whom manage 1 trillion pounds of assets. Coincidentally, around the same value of the Norwegian fund.
- LGIM see Oil demand potentially declining from 2025, if countries impose climate change policies
- Oil demand could fall by 40% from today's levels by 2040's
- If no new climate policies are implemented then they foresee oil demand plateauing at 110,000 million barrels a day from around 2030
- If oil demand starts falling then the Oil and Gas industry will not be a s profitable as it is today (ok, I guess it never hurts to point out the obvious)
- Some companies could still be attractive if they respond to the threat by positioning to compete in the shrinking market (BP and Shell).
Ok, so this is now two trillion dollar funds in the last month getting nervous on the long term prospects of oil. However, both funds invest in the Oil majors, BP and Shell , and are planning to continue to do so. BP and Shell both invest in renewables, so they are trying to get ahead of the energy curve and are keeping the backing of these two big funds. BP and Shell are set to be supported for a good while yet. However, the industry as a whole is going to be shrinking with funds becoming aware of future falling oil demand.
