by Elliott Morss, Morss Global Finance
Introduction
Even with the US pulling out of the Paris Accord, there has been a lot of positive press about growth in the use of renewable energy worldwide. In this piece, I look at energy data to illustrate what has really been happening.
Energy Consumption
Table 1 provides data on energy consumption by leading countries and regions. The countries/regions listed constitute 81% of the world total. Million tons oil equivalent (MTOE) standardizes data from all types of energy.
Note first the column on the far right. It measures energy consumption (tons oil equivalent) per capita. The US’s high consumption stands out. In terms of total consumption, China passed the US in 2009. The very low consumption figures for Africa, India, and the Americas signal areas where energy use will grow rapidly as their economies progress. While the US and the European Union have been able to reduce their energy consumption by a bit since 2006, consumption in India, China, and the Middle East has soared.
Table 1. – Energy Consumption by Area
Source: BP Statistical Review of World Energy – 2017
Table 2 shows the energy mix of leading countries and regions. For the world, only 3% of energy comes from renewables with 86% coming from fossil fuels. The “coal dependency” of China and India are particularly notable. And as Africa and South America develop, their energy demands will increase rapidly with a large amount coming from fossil fuels. Fossil fuel dependence in the US, the European Union and Russia is lessened somewhat by the use of nuclear energy.
Table 2. – Energy Sources by Leading Countries, Regions, 2016
Source: BP Statistical Review of World Energy – 2017
Growth in Energy Use
Table 3 shows compounded annual growth rates by energy type. And certainly the renewable growth has been impressive.
Table 3. – Energy Consumption Growth Rates, MTOE
Source: BP Statistical Review of World Energy – 2017
So what does the future hold? Let’s start by supposing that over the next decade, energy use will continue to grow at the same rates as over the last decade. The results appear in Table 4. The renewables’ share most definitely grows but fossil fuels remain the dominant source of fuel by far. Of course, such straight-line projections are not realistic. But even with significantly different projections, fossil fuels remain dominant.
Table 4. – Global Energy Source Projections
Source: Author’s projections from BP Statistical Review of World Energy – 2017 data
Reserves
So what countries are positioned to most benefit from the continued use of fossil fuels? Table 5 addresses this question for oil, natural gas and coal. The table provides shares of the world’s total and also how many years of reserves each country has at current annual production rates.
The Table attests to the tragedy of Venezuela. With larger oil reserves than any other country, the country is in chaos with people starving. Many countries with large oil holdings also have large natural gas holdings. It is notable that like Russia, the US appears in all three lists. However, the US’s energy demands are voracious, so the number of years it has left at current production rates is limited.
Table 5. – 10 Countries with the Largest Reserves of Fossil Fuels
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Source: BP Statistical Review of World Energy – 2017
Conclusions
Global energy consumption continues to grow, and the growth in renewable will not be large enough to significantly cut into the use of fossil fuels in the foreseeable future. As a consequence, the world should continue to warm for some time.
New technologies are causing significant changes almost everywhere, including energy. What does the future hold? Will ways be found to store electricity more efficiently, thereby giving renewables a real boost? Will new fuels discoveries continue? Will fracking lead to the contamination of a major water supply? We must wait and watch.
But there are some certainties:
- Global energy consumption continues to grow, and the growth in renewable will not be large enough to significantly cut into the use of fossil fuels in the foreseeable future. As a consequence, the world should continue to warm for some time.
- Both China and India will use more coal and oil. That means CO2 emissions will increase, whatever the US and Europe do to reduce them. The world should prepare for changing climates with more violent weather and rising ocean levels.
Investment Implications
Oil companies remain “well-positioned”. They have plenty of cash. They will be major beneficiaries of the new natural gas discoveries. And rest assured, they will manage oil and gas prices so investments in renewables remain chancy at best. Just note what has happened recently: lower oil and natural gas prices have made renewable investments less attractive.
At some point, we might be able to invest in Saudi Aramco, Gazprom, or the National Iranian Oil Company, the three largest oil companies in the world. But until then, ExxonMobil (XOM), PetroChina (PTR), BP (BP), and Royal Dutch Shell (RDS-A) will just have to do. Or you might prefer an oil company ETF, like (VDE) or (IXC).
