Fund Managers Predict the Decline of Oil, But We've Heard This Before

GULF OF MEXICO – Transocean’s Development Driller II continues to dig a relief well in the Gulf of Mexico May 20, 2010. The Development Driller II and Development Driller III were brought into the area to drill relief wells in an effort to stop the flow of oil into the water after the Deepwater Horizon incident. U.S. Coast Guard photo by Petty Officer 3rd Class Barry Bena.

Guest opinion by Steve Goreham

World fund managers predict a fall in the value of oil companies. According to a survey published last month in the United Kingdom, climate change risks will force a lower valuation of oil company stock prices within the next five years. But despite many predictions of demise over the last 50 years, global consumption of hydrocarbon energy continues to grow.

Last month, the UK Sustainable Investment and Finance Association published its second annual “Not Long Now” survey, stating that “The fund management sector is clear that international oil companies will be negatively revalued within a few years because of climate change related risks.” Thirty fund managers responded to the survey, representing over £13 trillion ($17.8 trillion) in assets, including global giants such as Blackrock, Deutsche Asset Management, Fidelity International, BNY Mellon, and HSBC Global Asset Management.

The survey responses predict a decline in asset values based on damage to company reputations, litigation losses, and regulation to curtail “fossil fuel pollution.” A majority of fund managers responding to the survey also anticipate peak demand for oil and gas to impact stock values within the next ten years.

We’ve heard this many times before. In his address to the nation on April 18, 1977, President Jimmy Carter stated, “…we could use up all the proven reserves of oil in the world by the end of the next decade.” But while government pressure and public opinion may drive oil prices lower, there is neither evidence that we are running out of oil nor that market demand for hydrocarbon fuels—coal, gas, and oil—is declining.

Over the last 30 years, world efforts to try to halt human-caused global warming have dominated energy policy in developed countries. In 1988, the United Nations established the Intergovernmental Panel on Climate Change and began a global mission to fight man-made warming. At the Rio de Janeiro Earth Summit of 1992, 41 nations and the European Community signed a treaty pledging to reduce greenhouse gas emissions. By 2016, over 300,000 wind turbines were operating worldwide.

The world invested almost $3 trillion dollars in renewable energy from 2004 to 2017. But according to the International Energy Agency, coal, oil, and natural gas continue to provide 82 percent of world energy needs, exactly the same share as in 1985.

Nor has energy demand entered a decline. Energy consumption more than tripled since 1965. Each day the world uses the energy equivalent of the oil carried in 182 oil tankers, each with a 200,000-ton capacity, or the energy output of 370,000 Hoover Dams.

From 1996 to 2016, world oil consumption rose 31 percent, natural gas use rose 59 percent, and coal consumption climbed 62 percent. Each year, the world adds about a United Kingdom worth of new energy demand, most of it powered by hydrocarbons. Renewables cannot even supply the annual growth in energy demand, let alone replace traditional hydrocarbon fuels.

In addition to the historical growth in hydrocarbon consumption, other trends support the notion that coal, gas, and oil will be with us for many decades to come. Demand for oil, in particular, shows no sign of decline.

Biofuels have fallen far short of the goal of replacing vehicle, plane, and ship fuels from oil. After two decades of subsidies and mandates, biofuels provide about 8.5 percent of US automobile and truck fuel, using 40 percent of the nation’s corn crop. But scientists recently determined that when land use changes are taken into account, biofuel use does not reduce carbon dioxide emissions when compared to gasoline or diesel fuel. Governments and environmental groups alike now question policies promoting large-scale biofuel use.

Instead, electric cars are proposed as the new solution to end oil consumption. Spurred on by governmental incentives and mandates, leading car manufacturers have announced more than 100 planned electric car models.

But electric car demand is disappointing. According to auto research firm JATO Dynamics, electric vehicles totaled only 0.8 percent of the 86 million cars and light commercial vehicles sold worldwide in 2017. Gasoline- and diesel-fueled sport utility vehicles now dominate world car demand, growing to 34 percent of vehicle sales in 2017. SUVs not only dominate the market in North America, but SUV sales are growing in Europe and booming in China.

Fund managers trust the theory of human-caused warming, but world markets don’t seem to be buying it. The decline in oil demand and the fall in oil company stock prices remain decades away.


Originally published in the Washington Examiner, republished here at the request of the author.

Steve Goreham is a speaker on the environment, business, and public policy and author of the book Outside the Green Box: Rethinking Sustainable Development.

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Ah, yes.
It was 1955, and I was a sophomore in high school. My text at the time explained that we had reached peak oil, and that no further oil would be found.
63 years have passed since then. Fracking has been developed and put into practice. The North Sea has been opened. Alaska has been opened.
In 1955 we were taught to look for Global Winter, which would be brought on by unlimited Nuclear War. We would all die. I got really good at hiding under my desk at school.
Now we are subjected to AGW, while I froze my way into Spring. And there seems to be a problem with the Sun, in that the amount of energy we are getting is going down instead of up. Gosh. Could that be the reason temperatures are not rising?
There is a problem with those who predict the future. They have records similar to the late Jean Dixon, a long-time Prophet (what she predicted did not happen).
Facts are such inconvenient things. Like the fact of the Medieval Warming Period, which according to the UN never happened.
Like the fact of the disappearance of sun spots.
Nope. No more oil. Not ever.
Just remember what an expert is. Ex- means former. and a spurt is a blast of water. So an expert is a has-been drip under pressure. Take that, Michael Mann.

DC Cowboy

“Fracking has been developed and put into practice” — Actually, fracking has been around since the 1930’s

R. Shearer
Simon from Ashby

Can I have some of it on my fruit trees?

Shunyata

AGW impact on oil companies is a red-herring. So is oil depletion – oil companies will close up shop when there are still billions of barrels still in the ground.
The world has a lot of demand for low-cost energy, high cost not so much. Shale and deep-water oil are not cheap, and oil companies are not covering the marginal costs associated with these projects unless oil price is a lot higher. The economy cannot afford this oil, unless it is paid for with credit. Credit is become problematic, and so are the prospects for oil companies.

John Endicott

There is a real AGW impact on companies. Not as a result of C02 emissions, but rather from misguided “green” regulations and laws that burden businesses needlessly.

john york

My Dad always said: expert = ex is an unknown quantity; spurt is a drip – therefore an expert is an unknown drip.

Big T

Abiotic oil proven, methane lakes on other moons, fossil fuel is fake info and out of date. Check it out. No shortage ever.

Blah blah blah, lies, lies, lies.
The elite money changers are divesting to cull the population. This has nothing to do with the health of the planet. Eugenics. Full stop.

“The fund management sector is clear that international oil companies will be negatively revalued within a few years because of climate change related risks.” Does anybody believe these fund managers? Do they know anything about climate change risk? I wouldn’t touch them with somebody else’s barge pole.

MarkW

Notice how all the so climate related risks are all actions by government.

PUMPSUMP

Of course not, talk down oil like fury and quietly lay on those calls – and cash in later.

Rick C PE

If these fund managers could accurately predict the future values of stocks, they should consistently and substantially out- perform the market indices. The only fund manager who has done that recently, AFAIK, is Bernie Madoff.

Pardon, I was speaking to the discussion of oil divestment, not the guest opinion. My apologies for the confusion

ClimateOtter

I gave it 50 / 50 which side of the fence you were on….

Latitude

” will force a lower valuation of oil company stock prices within the next five years.” ……HA
” SUVs not only dominate the market in North America, but SUV sales are growing in Europe and booming in China.”….cause the things are practical, safe, and people can afford them

Alba

I got a briefing from Schroders today It was very bullish about electric cars. It also offered the opinion that China was going to take avantage, in the electrc car market, of President Trump’s climate realism policies (although they didn’t put them exactly in those terms).

Joel Snider

Kind of under the heading ‘keep saying it and the messaging will make it happen.”
They’re not going to stop trying.

Great piece, Steve. Nobody has a good record for predicting the future. “Don’t make predictions, especially about the future, sayeth Casey Stengel.

wws

I first got involved in the oilfield in 1981. Since then, through the ups and downs, I have observed something that happens so regularly that it must be some kind of immutable law, with two parts.
1st Part: Whenever analysts and others start talking in a big way about how oil is going to go permanently lower, and oil companies are going to take huge hits in their valuations, it has always been a sign that a new oilfield boom is on hand, and oil company valuations are about to soar. This has always been one of the most powerful long term oil stock buy signals I have ever witnessed.
2nd Part: Whenever analysts and others start talking in a big way about how High Oil Prices are Here to Stay, and oil company valuations have reached a New Plateau and will never go back down – BEWARE! The next great oilfield crash is just around the corner!!!! Sell Everything!!!
I am starting to lose count of how many times I have seen this cycle play out.

mkelly

Did not a middle east country just report a large oil find?
The cure for high oil prices is high oil prices.

CD in Wisconsin

@wws: Exactly right. I recall hearing peak oil predictions numerous times in the past 30-40 years. I found a table that lists 36 of them:comment image.
The list includes Hubbert’s predictions in the 1970s. His first prognostication was in the 1950s. Ehrlich is on the list as well (surprise, surprise). Some of the predictions are already past their doomsday date, while others are yet to come.
Wikipedia’s write up on the subject: https://en.wikipedia.org/wiki/Predicting_the_timing_of_peak_oil.

wws…
I also started in ’81… Spot on.

PUMPSUMP

Pretty much nailed it – if the savvy market participants get a whiff of a change of direction, they yell the opposite of their trade (or get their journo shills to do it for them).

rgirouard@sbcglobal.net

Let’s see, the UK Sustainable Investment and Finance Association (UKSIFA), does any on think that their predictions may not be sustainable? I am not interested enough to actually read their report but I will bet a mixed case of Secret Trails beers that the UKSIFA is bullish on off-shore wind and solar.
( http://www.secrettrailbrewing.com )
btw, IIRC,”FA” has and interesting colloquial meaning in the UK and OZ.

rgirouard@sbcglobal.net

“does any onE…”

Tom in Florida

From the actual report “We wrote to 69 fund managers operating in the UK and 30 responded”
That kind of skews the results, eh?

AllyKat

I bet those 69 fund managers were not picked at random. Probably chosen based on what the association believed would be their response.

R. Shearer

97% then.

RayG

Mods, goofed with WordPress login again. Please take down my email address. Thanks

commieBob

We are soooo hooked on oil.
The NDP government of British Columbia (BC) (Canadian province) needs the support of the Green party to stay in power. That means the NDP must oppose the Trans Mountain Pipeline that would take Alberta’s crude to tidewater. link
In response, the Alberta government is threatening to cut off BC’s gas and oil. Needless to say, BC opposes this and is squealing like a stuck pig. link
The hypocrisy is painful to watch. Alberta and Saskatchewan should turn off the taps. The thus angered people of BC should sign petitions to force recall elections. link It would take only a few seats to get rid of the NDP government and its Green masters.
When Green fanaticism starts really hurting, the population will quit giving the Greens any lip service and unceremoniously kick over the traces.

Thomas Homer

commieBob: “We are soooo hooked on oil.”
Yes, and we should acknowledge and accept that humans will continue to consume Oil. We continue to put locks on our doors and windows, passwords on everything possible because we can’t trust each other, yet we’re to believe there will be a global moral reckoning for all mankind to stop using fossil fuels? We’re going to consume them, and rightly so. Now is the time we have the infrastructure in place, we need to leverage that infrastructure while it exists.
And, the unintended consequence of burning fossil fuels is an increase of atmospheric Carbon Dioxide which fuels the Carbon Cycle of Life. Knowing that, I still believe that extracting the most efficiency possible from fossil fuels is a noble goal.

Felix

The US would be happy to pipe your petroleum and gas to the Gulf Coast, or even the Pacific, if OR, WA and CA should prove less hypocritical than BC,
Oregon bans “death trains” carrying coal from Wyoming to the Columbia River, to sell to China.

Richard Patton

The idiots here have also banned building any more natural gas pipelines, long-distance power transmission lines, and non-renewable’ power sources. And if they had their way they would remove all the dams on the Columbia River.

Trebla

250,000 wind turbines and it hasn’t even made a slight dent in the level of CO2 in the atmosphere or any reduction in hydrocarbon use? What’s wrong with this picture? Will we need 2,500,000,000,000 wind turbines? Or is it that wind turbines don’t have an impact on CO2 levels? After all, they do need cement, steel, rare earths, additional cabling to connect them from where it is windy to where the juice is needed, natural gas standby generation etc.etc. Somebody please enlighten me!

Follow the money rather than the analysts…

Energy execs: Private equity money starting to flow offshore again
Joshua Mann
American City Business Journals•May 3, 2018
The longer investment cycle associated with offshore oil and gas production makes it tough to draw private equity money into the sector, but investment activity is returning, albeit in a different form, industry experts say.
Part of the reason for the return is the lower breakeven price, which has reached about $52 per barrel, said Brian Reinsborough, the CEO and founder of Venari Resources, speaking at a panel on the subject at the Offshore Technology Conference on May 2. Venari is based in Dallas, but it also has an office in Houston.
But the return looks different than previous investments in the space. It involves more subsea tiebacks and phased projects, he said.
“Big greenfield projects are becoming less common,” Reinsborough said.
The declining breakeven can be traced, in part, to new efficiencies in the space, along with higher reliability that cuts downtime, said Luis Aguilar, Gulf of Mexico finance manager for California-based Chevron Corp. (NYSE: CVX), at the panel. Chevron has a major footprint in Houston.
Additionally the economics on additional developments, like subsea tiebacks, are even stronger then those for the original project because the initial investment has already been made, Aguilar said.
Barriers
The biggest barrier to private equity investment in the offshore sector, though, are the large capital requirements and years of development time required to get from investment to first oil production, Reinsborough said.
“The minute you start a company that’s private equity baked, you’re thinking about your exit,” Reinsborough said. “That’s why you start a company, is to exit.”
[…]

https://www.bizjournals.com/houston/news/2018/05/03/energy-execs-private-equity-money-starting-to-flow.html?ana=yahoo&yptr=yahoo
It’s not too difficult to drop your break-even price well-below $52/bbl.

Robert W Turner

The post truth world is interesting. So many supposedly pragmatic and educated people are living in LALA Land.

Don K

I’d be inclined to go with these folks: https://www.bp.com/en/global/corporate/energy-economics/energy-outlook.html
Their summary for the period 2018-2040:
. Fast growth in developing economies drives up global energy demand a third higher.
.The global energy mix is the most diverse the world has ever seen by 2040, with oil, gas, coal and non-fossil fuels each contributing around 25%.
. Renewables are by far the fastest-growing fuel source, increasing five-fold and providing around 14% of primary energy.
. Demand for oil grows over much of Outlook period before plateauing in the later years.
. Natural gas demand grows strongly and overtakes coal as the second largest source of energy.
. Oil and gas together account for over half of the world’s energy
. Global coal consumption flatlines with Chinese coal consumption seeming increasingly likely to have plateaued.
. The number of electric cars grows to around 15% of the car parc, but because of the much higher intensity with which they are used, account for 30% of passenger vehicle kilometres.
. Carbon emissions continue to rise, signalling the need for a comprehensive set of actions to achieve a decisive break from the past.

Paul Penrose

As good as anybody else’s WAG, I suppose.

Jtom

Do any of these brilliant analysts realize that gasoline is not the only thing that is derived from oil? If oil companies face economic pressures stemming from the use of gasoline, what do they think will happen to the price of jet fuel, pharmaceuticals, plastics, manmade fabrics, and thousands of other products? Perhaps they will one day realize the true scope of the oil industry.
In the meantime, my shares of BP have risen over forty percent since I bought them last year. As soon as I saw that Trump was actually reducing regulations and improving the business climate of the nation, I knew that demand for oil – and all its products – would be increasing. But what do I know. I’m not a fund manager.

Ian MacCulloch

The key number for any resource company is the conversion ratio of resources to reserves. Long running companies maintain this as a more or less constant ratio. Never legislated (only reserves in US) but occasionally a large resource company will talk about. And that my dear friends is why the market continues to support medium to large resource companies with a constant conversion ratio of all stripes as “Jtom” elegantly points out.

Ozonebust
u.k.(us)

…”Fund managers trust the theory of human-caused warming, but world markets don’t seem to be buying it. The decline in oil demand and the fall in oil company stock prices remain decades away.”…
===========
Per:
https://digest.bps.org.uk/2017/11/07/contrary-to-stereotypes-study-of-hedge-fund-managers-finds-psychopaths-make-poor-investors/
“If you’re a psychopath who’s good with numbers, you could make the perfect hedge fund manager. Your lack of empathy will allow you to capitalise blithely on the financial losses of others, while your ability to stomach high-risk, but potentially high-return, options will send your fund value soaring…. Well, that’s the story that’s been painted by popular media, folk wisdom and Wall Street insiders alike. The problem, according to a new paper in Personality and Social Psychology Bulletin, is that hedge fund managers with psychopathic tendencies actually make less money for their clients.
————
So who do you trust, the psychopath or the degree in psychology ?
If I had to bet, I’d go with the psychopath, ‘specially in a/the dark alley.
Every time.

Louis

Demand for oil will continue to rise until there is a cheaper alternative that is as reliable. Do these fund managers really believe that will happen in the next 5 to 10 years? As long as there is no large-scale, viable alternative to fossil fuels, they will remain in demand. And if the demand is there, litigation and regulation costs can simply be passed on to consumers. If there comes a time when oil becomes scarce, demand will increase even higher. Oil companies will make money on less production by raising prices. Do these fund managers really believe that companies cannot make money selling scarce resources? Companies that mine or sell rare-earth elements must be going out of business left and right then.

JPGuthrie

Fund managers are more interested in state-subsidized alternative energy projects, in which managers can earn profits while the taxpayers assume the risk, and foot the bill for any losses.

Ed Zuiderwijk

As the ‘associated climate change risks’ are a figment of the green mind and their non-existence will become clear over the next five years, I predict a substantial rise in the value of fossil fuel stock.

ResourceGuy

The analysts and their computer trading programs are able to turn on a dime or should we say a microsecond with today’s high speed trading networks. They like to press the market down a little also in order to get an extra large spike in the trading swing on the upside. Greed is fine tuned in the modern era.

ResourceGuy

Don’t tell the market what to do…..
Blackstone news
WSJ
The world’s biggest listed private-equity firm is marketing its latest energy fund to capitalize on rebounding oil prices and tighter financial discipline among public oil producers. The New York firm is raising the pool three years after it sealed $4.5 billion for its previous energy fund, people said. When Blackstone finished raising its last energy fund in 2015, plummeting oil prices shook the oil-and-gas industry, generating bargains for private equity.

John Garrett

As of 10 May, the energy sector (mostly comprised of large market capitalization integrated hydrocarbon companies) is the 2nd best performing industry thus far in 2018:
https://investor.vanguard.com/etf/list?assetclass=ss#/etf/asset-class/month-end-returns