While downside risks – from electric
vehicles, stranded assets and carbon pricing –
are surmountable, at least in the medium term,
the politics of an energy transition are trickier.
Take natural gas. The industry consensus is that
gas will be the most important benefciary of any
move towards environmental sustainability due
it having lower carbon intensity than oil.
It also can be used for both baseload electricity
generation and vehicle mobility. Most of the
major integrated oil companies have
correspondingly shifted their resource towards
natural gas in the past few years.
The fundamentals certainly justify such a
move. From a pure supply and demand
perspective, despite the current weakness of US
and international gas prices, the outlook for gas
production into the next decade remains much
more robust than for oil.
Happily for producers,
supply gaps emerge against the current
commercial portfolio by 2020 under all
scenarios. Over and above assumed supply
growth of one-third from North America, this
implies a need for the continued development of
new areas – East Africa, Russia, and global
unconventionals. A slowing of development
activity in anticipation of a constrained outlook
for future demand looks premature.