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Special Report: A new energy economy

While it is reasonable to predict that the oil price will rebound in the second half of 2016, the collapse of the commodity that began in 2014 – one of the most severe ever recorded – leaves a mark in investors’ consciousness. It could be seen as a one-off, isolated, albeit massive, supply shock rather than the expression of an underlying threat to oil. 

Either way, investors must recognise that the global energy sector is changing at an increasing pace. Several decades from now, fossil fuels will still be our main source of energy. But the weight of non-fossil fuels in the energy mix is increasing, and many parts of the world are becoming significantly energy-efficient. 

IPE’s special report on the energy sector sheds some light on the some of the most important trends in the sector, and hopes to offer insight into what the opportunities and the challenges are from an investment point of view. 

Joseph Mariathasan examines the factors affecting the oil price, today and into the future, while Jennifer Bollen looks at corporate activity in an oil and gas sector that is still facing huge pressure. Cyril Widdershoven assesses whether the dominance of Middle Eastern and North African countries in the oil market is being questioned. Within the report we also consider the impact of the removal of the UN sanctions on Iran. 

In addition, Christopher O’Dea looks at battery technology, one of the most exciting areas for energy investors. New technological developments offer great investment potential as our economy’s use of batteries increases. Indeed storage seems to be the cutting-edge of the various developments in energy, and other sectors, particularly solar power and electric vehicles, could receive a huge boost once certain breakthroughs are made.

But investing in new technologies is high risk while energy infrastructure, both linked to fossil fuels and renewables, represents a tried-and-tested investment opportunity for institutional investors. Yet the pension funds investing directly in infrastructure are still a minority. Arguably, more commitment is needed by governments if we are to expect a steady flow of energy infrastructure projects in the coming years. 

The post-financial crisis world ushered us into a prolonged period of low growth rates and rock-bottom yields. The effects have been clearly felt in the global energy sector, mainly via overinvestment in the oil and gas sector and through the Chinese slowdown. But when reflecting upon plausible economic scenarios, investors should never forget to discuss energy. The world can do with more than a few years of low yields, but even in a slower global GDP growth scenario, we need to grow energy production by huge amounts.

Carlo Svaluto Moreolo, Senior staff writer, IPE

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