Phil Flynn is writer of The Energy Report, a daily market commentary discussing oil, the Middle East, American government, economics, and their effects on the world's energies markets, as well as other commodity markets. Contact Mr. Flynn at (888) 264-5665
For the first time in history the globe has invested more money in electricity than oil according to the International Energy Agency(IEA) and while that may seem to inspire thoughts of electric cars and cheap shale oil, the truth is it’s a problem we will have to deal with at some point in the future. The IEA issued a warning that because of a 20 per cent drop in global energy investment over the past three years, we are laying the ground work for oil and electricity shortages in the future.
The IEA said that oil and natural gas energy investment and power plant upgrades around the globe was only 1.7 trillion dollars which was down 12% percent from last year and 17% lower than 2014. A lot of that investment seemed to go into shale that skyrocketed by 50% as producers hoped to make a quick return on their money with no concern about the long-term viability of the project and with no concern for the looming future supply shortage. While right now we have ample supply, the IEA says that underinvestment “points to a risk of market tightness and under-capacity at some point down the line.”
The IEA said, “The largest planned increase in upstream spending in 2017 in percentage terms is in the United States, in shale assets that have benefited from a reduction in breakeven prices because of a combination of improvement in costs and efficiency gains.” Marketwatch said, “The big rise in U.S. activities is expected to give global upstream — or exploration and production — investments a 6% bump in 2017, following a 44% plunge between 2014 and 2016. Russia and the Middle East are also seen ramping up spending on upstream projects, albeit at a slower pace, as the chart below shows.”
Reuter’s reported that, “This decline (in energy investment) is attributed to two reasons,” IEA chief economist Laszlo Varro told journalists. “The reaction of the oil and gas industry to the prolonged period of low oil prices which was a period of harsh investment cuts; and technological progress which is reducing investment costs in both renewable power and in oil and gas,” he said.
The rapid ramp up of U.S. shale activities has triggered an increase of U.S. shale costs of 16 percent in 2017 after having almost halved from 2014-16,” the report said. The global electricity sector, however, was the largest recipient of energy investment in 2016 for the first time ever, overtaking oil, gas and coal combined, the report said. “Robust investments in renewable energy and increased spending in electricity networks, made electricity the biggest area of capital investments,” Varro said. Electricity investment worldwide was $718 billion, lifted by higher spending in power grids which offset the fall in power generation investments. “Investment in new renewables-based power capacity, at $297 billion, remained the largest area of electricity spending, despite falling back by 3 percent,” the report said. Although renewables investments were 3 percent lower than five years ago, capacity additions were 50 percent higher and expected output from this capacity about 35 percent higher, thanks to the fall in unit costs and technology improvements in solar PV and wind generation, the IEA said.
Oil prices at this point do not care. The market is focused on short term thinking with the belief that OPEC cuts won’t matter and the trend of falling U.S. oil supply does not either. The increase in U.S. oil production and the rebound in rig counts is controlling the market mood even if it’s a lot of smoke and mirrors.
Questions? Ask Phil Flynn today at 312-264-4364
A Subsidiary of Price Holdings, Inc. – an Employee Owned Diversified Financial Services Firm. Member NIBA, NFA
Past results are not necessarily indicative of future results. Investing in futures can involve substantial risk of loss & is not suitable for everyone. Trading foreign exchange also involves a high degree of risk. The leverage created by trading on margin can work against you as well as for you, and losses can exceed your entire investment. Before opening an account and trading, you should seek advice from your advisors as appropriate to ensure that you understand the risks and can withstand the losses.
The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or futures. The Price Futures Group, its officers, directors, employees, and brokers may in the normal course of business have positions, which may or may not agree with the opinions expressed in this report. Any decision to purchase or sell as a result of the opinions expressed in this report will be the full responsibility of the person authorizing such transaction. Reproduction and/or distribution of any portion of this report are strictly prohibited without the written permission of the author. Trading in futures contracts, options on futures contracts, and forward contracts is not suitable for all investors and involves substantial risks. ©2017
The Power to Prosper Is on the Fox Business Network! Call to get my Summer Solstice Webinar recording at 888-264-5665 or email me at firstname.lastname@example.org.
SubscribeReceive daily summaries of all Market Insights blog posts.
Enter email below.
Most Recent Posts
- Morning Softs 07/26/17
- Give me those Old Time Fundamentals. The Energy Report 07/26/17
- Busy Day Ahead. The Corn & Ethanol Report 07/26/17
- Here’s why oil just scored its biggest one-day rally of 2017
- The Windy City Trader 7/25/17
- Morning Grains 07/25/17
- Morning Softs 07/25/17
- Busy Day Ahead. The Corn & Ethanol Report 07/25/17