QQQ - U.S. Energy Steadily Powers The Globe

2023-06-21 05:00:00 ET

Summary

• Oil demand is expected to grow in the next five years, reaching nearly 106 million barrels a day by 2028, alongside an ongoing energy transition.
• U.S. shale basins, particularly the Permian Basin, continue to lead in oil and natural gas production growth, and support global demand.
• The fundamentals of global energy offer a strong and consistent energy investment case, with technological innovation driving new efficiencies in production and cleaner hydrocarbon molecules.
• The doldrums of the market offer a time of reflection about what type of investor to be.

U.S. oil and gas dynamics and fundamentals are addressed through observations of the various shale basins' production and growth. Michael Hopkins at Seeking Alpha participates with me in a discussion about energy markets, basins and trends. There seems to be a continuing reset post pandemic and as Europe alters its energy supply chains. Sticky inflation and unknowns regarding China's energy demand weigh into my feeling of market doldrums.

In general, oil demand grows probably more than expected — even from a few years ago — given the energy transition that was imagined and is occurring. The forecast by the Paris-based International Energy Agency offers color on demand:

On Wednesday, the International Energy Agency’s annual update predicted oil demand growing in the next five years, even if at a slower rate than historically from 2026 onward due to more efficient internal-combustion vehicles and, at the margin more electric cars. By 2028, the final year of the IEA’s forecast horizon, global oil demand will reach nearly 106 million barrels a day, up from 102 million in 2023. Note that according to the IEA, to meet the net zero emissions by 2050 targets, oil demand would need to drop to 75 million barrels a day by 2030.

U.S. Energy Powers and Supports Global Demand ( Link to video )

Importantly, coal demand is not abating as much as hoped either. As noted in the video with Jay Hatfield , CIO of [[AMZA]], a publicly-traded MLP fund, natural gas should be utilized to reduce emissions. It's abundant in the U.S. Texas reduced its carbon emissions by fuel switching and greater renewables penetration, as noted in my article "Texas Million-Dollar Miles."

In Texas, the Permian Basin continues to lead U.S. oil production growth, even natural gas production, owing to associated gas. While Appalachia is the natural gas heavyweight, the Haynesville Shale importantly drives supplies as well. Having a lower-cost barrel, the Permian Basin reveals an enduring theme of increasing efficiency, the efficiency that shale producers recognized early on.

Tightness in the world oil market is expected in the last half of 2023 and as reflected in world stocks. Some rig count has slowed in the Permian Basin in the last three months in particular, largely owing to concerns over demand and the effects of rising interest rates. This can be summed up as cautiousness and restraint in the production of resources, which also meets shareholder demands.

Both BP (BP) and Shell ( SHEL ) recently altered their strategies, to varying degrees, in light of the headwinds of the green energy transition. It does not mean that renewables are not growing, they very much are. The majors are investing in the transition differently and re-working the optimization of their asset portfolios.

(Below is the mix of slides discussed in the video above, and below is the link encore.)

U.S. Energy Powers and Supports Global Demand ( Link to video )

The pandemic era reveals interesting performance across a number of oil and gas producers. Over a three-year time horizon, Occidental Petroleum ( OXY ), Chesapeake ( CHK ) and EQT ( EQT ) offered decent total returns. The charting speaks to my real asset story that plays alongside technology's forward march.

Over the last year, tech stocks competed with energy differently. Exxon Mobil ( XOM ) stayed steady relative other energy names. The ten-year view discussed in the video shows the stock powering through many challenges.

In the U.S., natural gas exports to Japan and South Korea have increased over time, as have exports to Europe and the UK, as Russian pipeline supply faded out.

The U.S. energy scene can be characterized as steady and consistent, with global demand calling on U.S. shale. The doldrums can be good.

In investment terms, one has to decide what type of investor they are — whether total return, income, growth or some combination thereof. My energy portfolio is like a steady engine, and tech investment choices boost performance. The fundamentals of global energy offer a strong and consistent energy investment case. The many demands of technological innovation will require predictable energy sources. And that very innovation will support new efficiencies in energy production and the cleaner hydrocarbon molecules the market expects.

Reference material:

This Seeking Alpha article discusses changes afoot with energy and potential tech use cases:

Energy, Tech And AI: Use Cases And Markets

For further details see: