There is no doubting the importance of the global energy transition as the world moves toward its net zero 2050 target. However, recent events in respect of both renewable and legacy energy supply disruptions across the globe have driven sharp rises in oil, gas and coal prices. This has highlighted that the path to net zero will be a long and winding one.
While the very long-term outlook for fossil fuel demand appears bleak, we still appear to be some way from peak oil demand, while the (in our view unavoidable) role of gas as a transition fuel suggests demand is likely to accelerate in coming years, before plateauing and ultimately declining much further down the track.
These sticky demand patterns are playing out against a backdrop of very limited capital expenditure needed to deliver new supply to replace the inherent yearly decay in global production capacity.
Solid medium-term demand with limited supply has for some time seemed to us as a very bullish setup for the Australian oil and gas sector for the next few years. In this week’s report we go on to discuss:
- Energy sustainability pivot has weighed on the Australian energy sector
- Are equity valuations now permanently impaired or too cheap to ignore?
- Our Focus List (overweight) energy sector positioning
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Written by
John Lockton, Australian Equities
John is a leading investment strategist with 20 years experience.