Ahead of IW’s Fund Management Summit, to be held on 23-24 September 2014 in London, here is a preview of the event, with thoughts from one of our speakers.
Tim Guinness (pictured) is chief investment officer of Guinness Asset Management. In his speech to delegates at the Fund Management Summit, he will discuss the energy revolution, fracking and shale gas.
Guinness runs a $239m Global Energy Fund, a $9.9m Alternative Energy fund, and a Sustainable Energy EIS.
What sectors of the energy market are most appealing? Which would you avoid?
We believe the average oil price over the next few years is likely to rise, with $150/bbl oil by the end of the decade very plausible. As a result, we are attracted to global and regional exploration and production companies with long-life reserves of oil in the ground, as we expect these reserves to appreciate in value.
We also believe the prospects for a recovery in the US natural gas price are good, which leads us towards US gas-focused producers.
Away from conventional sources of energy, we are increasingly positive on the solar sector, where the fall in manufacturing costs has been sufficiently great to put solar close to parity with other forms of electricity generation, without the need for subsidy.
We think the coal sector is one to avoid: the rise of natural gas and renewables is taking demand away from the sector, a structural trend we expect to continue for some time.
Which geographic regions have the most ability to benefit from fracking and shale gas?
With regard to global supplies of shale oil, there are a number of regions of interest, notably Argentina (Vaca Muerta), Russia (Bazhenov), China (Tarim and Sichuan) and Australia (Cooper).
However four factors lead us to believe international shale is at least ten years behind North America.
The US is far better understood geologically, the infrastructure is already in place and service capacity is high. The interest of the landowner is aligned in the US with the E&P (exploration and production) company, whereas in many other prospective regions, the state owns the mineral rights leading to a conflict with the landowner who has no incentive to pursue development.
Finally, shale development is highly water intensive and renewable water per capita in the US is nearly seven times greater than in China.
What is your view on the theory that the US will be energy sufficient by 2035?
There are many opinions about when the US will become energy self-sufficient, with Exxon expecting self-sufficiency by 2020 and BP by 2035.
It is clear the US is becoming more self-sufficient and, if the current trajectories are maintained, then it is likely self-sufficiency is achieved around 2020.
We note the significant resource potential in the US both in terms of oil and natural gas, and fully expect strong production growth from both hydrocarbons in the coming five years.
However, our greater concern is over the demand outlook for the US. The day of energy self-sufficiency may be delayed as a result of higher self-consumption and less need to be energy efficient.
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