Читать книгу The Energy World is Flat - Lacalle Daniel - Страница 15

This flattening, or equalization, of the world happened in two phases.

First was the “boom phase”, which took place during the 1990s, as a technological revolution led by internet, mobile, and broadband, had a major impact on productivity and growth expectations. Valuations were going up exponentially, based on growth expectations, not on profits. Traditional valuation methods, such as PE ratios, were largely ignored. A venture capital mentality had developed, where the potential winners would more than offset the losers in the portfolio. The cash piling in was used to acquire smaller promising businesses, feeding into the frenzy. Everyone wanted to participate and large amounts of capital flowed into the new industry. Pretty much overnight, the world was “wired” with fibre optics. High return expectations had attracted capital from other industries. A gradual build-up that might have taken decades, happened instead in a few years. The bubble had accelerated a process.

Second, and equally importantly, was the “bust phase”. Valuations had gone too far, supply had increased beyond realistic expectations. Bad news for profits. Valuations collapsed and many companies went bankrupt. The “paper valuations” disappeared, but the assets, such as fibre-optic wires, stayed. And thanks to the write-offs, they were now available at very low prices, pretty much free. The investor party was over, but the consumer party had only started.

During the following decade, consumers were the main beneficiaries of the IT revolution. Outsourcing on a large scale became a reality. Our IT specialist was now able to support clients in Los Angeles, with lower cost and faster turnaround.

The world was becoming more equal. It was becoming flatter. For the first time in history, talent had become more important than geography. The brain drain from emerging markets was reduced, in fact, it reversed, as many experienced emigrants returned to their roots and developed successful businesses at home that took advantage of the new opportunities.

The dotcom bubble had played an important role after all.

Technological revolutions that increase supply. The “game changers”

The technological revolution of internet, mobile, broadband, and other technologies of the dotcom revolution has changed our lives. There was a “before” and “after”. No question about it.

Likewise, the energy revolution of fracking, horizontal drilling, and other aspects are “game changers” that produce a “quantum leap” in the supply of oil and gas reserves and production.

The energy revolution is already a reality in North America, but its reach is global.

The demise of peak oil theories and doomsday predictions are clear side effects of the energy revolution.

Not only has the United States become one of the largest producers in the world with 11 million barrels per day, but also global oil production today is more abundant and diversified than ever.

The “call on OPEC” (the barrels needed from OPEC to balance the market) has remained at 29 million barrels per day for years with spare capacity exceeding 2.5 million barrels per day.6

With shale oil and oil sands, the reliance on imported oil has shrunk to decade lows, the supply–demand balance is stronger, and the geopolitical risk premium attached to oil prices has been dramatically cut.

Think about 2013. Despite large disruptions in Libya, sanctions on Iran, Syrian unrest, and Iraqi cuts in supply, oil prices barely moved more than $10/bbl from bottom to peak, averaging $104/bbl7 despite global recovery in economic growth.

In the rest of the world, public opinion and governments are divided about the energy revolution exemplified by fracking. Some countries in the European Union started out by banning fracking, and many others are still ignoring the full implications and potential of the energy revolution, or perceive it as an irrelevant force.

Part of the scepticism comes from environmental concerns. But think about the early days of offshore drilling. In the early 1990s, ultra-deep-water drilling faced fierce critics from the media and environmentalists. The debate then was very similar to today's debate for shale. The oil industry learned from the accidents and offshore drilling is now a safe and major contributor to world oil and gas production. Likewise, fracking and horizontal drilling are and will continue to grow in a safe and environmentally friendly way.

High expectations attract large amounts of capital

During the dotcom revolution, equity valuations of many companies implied exponential growth. The word “dotcom” had a “Midas touch”. Capital was flowing in, and new ideas, technologies, and infrastructure were able to raise funding with extreme ease, as investors and “venture capital” looked for the next golden investment.

As the “tide was rising” everything looked good. The internet revolution was a game changer. Some of the more established firms like Microsoft were in a strong position, but there were many small start-ups, such as Google, Amazon, and eBay, that have become large multinationals and showcase the reality of the new economy. But some others became major “flops”, such as pets.com in North America or boo.com in Europe. With the benefit of 20/20 hindsight, it is easy to see why the winners won, and why the losers lost.

The “euphoria” of the markets was no excuse to get involved in the wrong company or business, but also no excuse to miss out on the good companies and businesses. The opportunities then, and today, are enormous.

In the energy space, the energy revolution is facing similar dynamics. On the one hand, it has the potential to be a game changer, but not everything that goes up with the tide will be winners in the long run. Today's current extreme price differentials across regions and across fuels offer very attractive returns on investment. And the capital is flowing in and supporting large investments in infrastructure of supply, from exploration through distribution. Annual capital expenditure exceeds $750 billion.8 Look at exploration, with major discoveries in Kazakhstan, Israel, Cyprus, Uganda, Ghana, Mozambique, Brazil and Colombia, to name a few. Or LNG with major investments in Australia, West Africa, and Yamal (North East Siberia). Or look at the pipelines, expanding all across Europe and Asia. Or storage and trading hubs, such as Shanghai and Singapore. The “invisible hand” is responding to the incentives.

In the energy revolution, just like the internet revolution, there will be large winners and losers. There are some “energy Googles” and “energy pet.coms” out there. We do not have the benefit of 20/20 hindsight, but we do have the tools to analyse and understand the forces and dynamics at play.

As a senior member from the Central Bank of Spain once told me, “Trading is not a science. It is an art. But it helps to know a lot of science!” Very true.

Excessive expectations for demand growth result in overcapacity

During the dotcom revolution, expected returns were largely driven by assumptions of exponential demand growth. From telephone landlines to mobile phones. From shops to e-commerce. From regional to global. The potential for growth seemed unlimited. Invariably, many sectors built significant overcapacity. Among them, fibre-optic broadband infrastructure was one of the most critical.

Similarly, in the energy world, investment decisions are predicated on a view of “world energy demand growth”. Demand forecasts are based on “diplomatic” assumptions about global growth (which tend to be revised down more often than not) and where important forces such as efficiency or substitution are often underestimated or ignored. We know from the past that overcapacity is often the result of overly optimistic assumptions about the future. As Jim Steinman wrote, “the future ain't what it used to be”. Well, today's demand expectations seem to imply that “Asia will buy unlimited amounts of gas at an unlimited price”. Is the writing on the wall?

Furthermore, think about the impact of shortages in energy and infrastructure: “black-outs”, “brown-outs”, or simply long queues at the petrol station. Not good news for the economy. Worse news for politicians. The overcapacity of energy supply is therefore a desired state for consumers, which explains why, in addition to “private” investors, there is a strong centralized, planned, and strategic process driven by governments and state-owned enterprises. Look at China …

Efficiency is also proving to be a game changer, acting as a source of “demand destruction”, and often ignored in demand growth estimates. Think of global industrial output for example, which has increased by 2 % per annum with flat energy consumption growth since 2005.9 The world is producing more with less energy. In the US gasoline demand has fallen every year since 2007 thanks to efficiency, as the light duty vehicles went from 20 miles per gallon to 24. The IEA estimates that improving efficiency to 34 miles per gallon could reduce global oil demand by 4 %.

According to the International Energy Agency (IEA), greater energy efficiency could cut the growth in global energy demand by half. The accrued resources or “savings” from efficiency gains could facilitate a gradual reorientation of the global economy to higher added value investments and a gross domestic product (GDP) that is led more by the consumer than industry.10

We will continue to hear and read optimistic assumptions about energy demand growth. It hasn't happened since 2005, yet many anticipate that the “big demand growth” will come. These expectations are missing a key point: the change we are seeing is not cyclical, it's structural. The new economy, even in China, is less about large industries and massive construction.