The growing percentages of respondents who expect more natural gas and renewables in their business plans in the future is a statement about the shifting nature of the energy business.  Many energy industry executives understand that current crude oil prices may be precariously supported by the withdrawal of supplies by OPEC and Russia, and that the recent oil price increase might work to boost output from other oil suppliers while also reducing global oil demand.  Not only may oil prices work to unseat the current oil price recovery, but the shift to electric vehicles (EV), which a number of forecasters see happening sooner rather than later, may further accelerate the adverse impact on oil demand.  Based on a new EV forecast by Bank of America-Merrill Lynch (BAC-NYSE) investment analysts, they see a more rapid growth of EVs contributing to a peak in oil demand by 2035.  Bank of America now joins Shell and oil consultant Wood Mackenzie with such an outlook.  Although a 2035 peak in oil demand may not bother independents and small to midsized oil companies as they may be out of the business by then, the majors and super-majors need to contemplate such a development in their business future.  As the role of the largest companies in the global oil and gas industry grows, their strategy shifts will likely have a greater impact on overall business trends than in earlier periods.  

 As Mr. Morse of Citigroup put it, “Momentum is gradually building towards making decarbonization of the energy system a higher priority, but there is still a lot of uncertainty about how we will get to that desired outcome.”  The uncertainty about the route - but not the destination - will work to keep much of the oil and gas industry from sharply ramping up its capital spending.  Going forward, future annual spending increases are likely to be modest.  Spending will increasingly be tilted in favor of natural gas projects.  More importantly, those investments will be competing against increased spending for renewables.  Over time, these spending trends will alter the tilt of the industry, and potentially its power structure.    

Eoin Treacy's view

Here is a link to the full report.

Here is a section from the report:

The growing percentages of respondents who expect more natural gas and renewables in their business plans in the future is a statement about the shifting nature of the energy business.  Many energy industry executives understand that current crude oil prices may be precariously supported by the withdrawal of supplies by OPEC and Russia, and that the recent oil price increase might work to boost output from other oil suppliers while also reducing global oil demand.  Not only may oil prices work to unseat the current oil price recovery, but the shift to electric vehicles (EV), which a number of forecasters see happening sooner rather than later, may further accelerate the adverse impact on oil demand.  Based on a new EV forecast by Bank of America-Merrill Lynch (BAC-NYSE) investment analysts, they see a more rapid growth of EVs contributing to a peak in oil demand by 2035.  Bank of America now joins Shell and oil consultant Wood Mackenzie with such an outlook.  Although a 2035 peak in oil demand may not bother independents and small to midsized oil companies as they may be out of the business by then, the majors and super-majors need to contemplate such a development in their business future.  As the role of the largest companies in the global oil and gas industry grows, their strategy shifts will likely have a greater impact on overall business trends than in earlier periods.  

 As Mr. Morse of Citigroup put it, “Momentum is gradually building towards making decarbonization of the energy system a higher priority, but there is still a lot of uncertainty about how we will get to that desired outcome.”  The uncertainty about the route - but not the destination - will work to keep much of the oil and gas industry from sharply ramping up its capital spending.  Going forward, future annual spending increases are likely to be modest.  Spending will increasingly be tilted in favor of natural gas projects.  More importantly, those investments will be competing against increased spending for renewables.  Over time, these spending trends will alter the tilt of the industry, and potentially its power structure. 

If Asia and indeed Africa follow the trend of energy usage in the OECD then it is logical to expect more gas fired power generation and more gas used for cooking. At the same time the evolution of the electric vehicle represents a growing challenge for gasoline demand over the medium-term. At the same time electricity demand is likely to trend higher and gas will play a part in the energy mix along with renewables, batteries, nuclear and coal. These are medium to long-term considerations which energy executives will need to come to terms with but what about right now?

The oil price has trended consistently higher since June and with today’s pullback it has now posted its largest reaction, breaking the consistency of pullbacks that were less than $5. The $65 level is an important area of potential support and a failure to bounce soon will confirm a peak of more than short-term significance.

This article from Bloomberg detailing the dividend increases being announced by shale oil drillers may be of interest. Here is a section:

Shale drillers, rolling in cash as oil recovers from the worst price slump in decades, are spreading the joy to shareholders.

Pioneer Natural Resources Co. quadrupled its dividend on Tuesday, the first such boost in a decade. Anadarko Petroleum Corp. followed on Wednesday by quintupling its dividend after reporting profit that trounced analyst estimates. Next in line may be Devon Energy Corp., Noble Energy Inc. and Cimarex Energy Co., according to Charles Robertson, a Cowen & Co. analyst.

The increases show shale executives are yielding to investor demands for stronger returns and more cautious expansion. They are also evidence that CEOs are confident the price rise is more than temporary, and that disappointing results by Exxon Mobil Corp. and Chevron Corp. aren’t signs of broader weakness in oil.

The headline grabbing dividend increases for these companies belies the underlying story which is that the yield on Pioneer will increase from 0.05% to 0.18% with similar moves by the other shale drillers. For the most part these are highly leveraged companies that benefit from being able to ramp up supply when prices rise and quit drilling when prices fall. However, the fact they feel confident enough to increase their dividends is a signal that the price of oil has risen enough to give them a sizeable cushion in cashflows. That raises the potential that supply is coming back into balance with demand.