Power to the people

20 March 2014

Standard Life Investments, the global investment manager, believes that substantial changes to energy markets in recent years could significantly influence the development and shape of the global economy. Regional energy markets continue to be more important than international ones, so the optimal energy mix will still vary from country to country.

The latest edition of Global Perspective examines issues related to supply and demand for global energy, and what this may mean for the future including international pricing, the economic impact of shale gas and its implications for an industrial renaissance in the US, and how the renewables race is shaping up.

Some of the key points found are:

  • The US is now self-sufficient in gas, while still importing oil. Optimistic projections are that it could be self-sufficient in oil as well as early as 2020. That would be a game changer.
  • Energy efficiency is declining, a headwind to the global economy.
  • The effects of the shale gas and tight oil ‘revolution’ are more modest than commentators generally claim.
  • Progress in renewable technology is starting to make its mark, but its generation share is still capped.
  • Events in the Ukraine have added urgency to energy security concerns relating to Russian gas supply – around a fifth of Europe’s gas supply originates in Russia and passes through the Ukraine.
  • The EU, and particularly the UK, have seen reserves of Liquid Natural gas fall in the last ten years as production has outstripped identification of new recoverable reserves.
  • Energy consumption is forecast to grow rapidly in non-developed regions, including Asia Pacific, Middle East and North Africa, while North America and Africa have strong production growth potential.

Frances Hudson, Global Thematic Strategist, Standard Life Investments said:

Frances Hudson

“The energy industry is evolving. Alongside the development of conventional, if increasingly expensive, deep sea oil fields, such as in Brazil, the shale gas revolution and progress in renewable technology are starting to make their mark.

“However, there are reservations about whether and on what timescale shale will become a global phenomenon, despite recent headlines with claims of the shale gas boom leading an industrial renaissance in North America. Economic impact assessments suggest that the effects in the US, so far, have been modest both at county and national levels.

“Our analysis suggests that in all forms of energy, from hydrocarbons to renewables, regional convergence of pricing is more likely than international or global convergence. Hence, the optimal energy mix will vary considerably from country to country, as production costs and drivers are very different.”