Investment Themes - Global Middle Class

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September 16 2015

Commentary by Eoin Treacy

We are nowhere near peak coal use in India and China

This article by Frank Holmes appeared in Mineweb and may be of interest to subscribers. Here is a section

It’s possible that if China’s coal consumption dramatically declines, India will be there to fill the hole. Macquarie estimates that by 2025, India’s Energy demand will rise 71 percent, with coal taking the lead among oil, gas, hydro, nuclear and others. The south Asian country is already the second-largest importer of thermal coal, and it might very well surpass China in the coming years. Macquarie writes:

Although all Energy use will rise [in India], coal is the major theme as consumption and local production are both set to almost double by 2025 on the back of large-scale coal power plant construction plans.

The group adds that, unlike China, India has no present interest in reigning in its use of coal. Most emerging markets, India included, recognize that coal is an extremely affordable and reliable source of Energy, necessary to drive economic growth.

Even if these predictions don’t come to fruition, the consensus is that we haven’t yet seen peak coal use in Asia. Estimates vary depending on the agency, but everyone seems to agree that demand in the medium-term will rise before it retreats. A 2014 MIT study even suggests that Chinese coal consumption could rise more than 70 percent between 2012 and 2040.


Eoin Treacy's view -

North America and Europe engage in a great deal of navel gazing when it comes to climate change and yet US emissions have been falling because of natural gas boom and the EU has seen aggregate emissions decline not least because of its sluggish economic recovery. The main future contributors to carbon emissions are the up and coming developing economies. If governments are truly interested in tackling the issue, doing everything possible to help China and India migrate from coal is in everyone’s interest. This is no small task because above all else coal is cheaper now than it has been in a decade. 

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August 12 2015

Commentary by Eoin Treacy

Musings From the Oil Patch August 12th 2015

Thanks to a subscriber for this edition of Allen Brooks’ report for PPHB which may be of interest. Here is a section: 

We are not convinced that the stock market needs higher commodity and oil prices in order to continue to rise. In our view, the shift in the direction of commodity prices since 2010 reflects a transfer of the benefits of higher commodity production from producers to consumers. That means basic industries and consumers should be the beneficiaries of falling commodity prices. Long-term, commodity prices should climb in response to increased consumption, which will drive up corporate earnings that are necessary to support higher share prices. A higher stock market can come without oil prices reaching new all-time highs, but they need to be higher than current levels for Energy company earnings to rebound, that is unless substantial operating costs can be removed from the Energy business. The Energy business may get both, and investors will benefit from increased share prices. Unfortunately, this isn’t likely until sometime in 2016.

Eoin Treacy's view -

A link to the full report is posted in the Subscriber's Area. 

It strikes me as odd that anyone thinks you need a high oil price to support a bull market in equities outside the Energy sector. The stock market does not need high oil prices to rally but it does need the perception that the future will be better than the past to justify progressively higher prices. Admittedly this is often associated with higher Energy demand.

The concentration of revenues in the Energy sector that occurred as a result of the high Energy price environment is over. This has acted as an incentive for mergers. Consumers will be medium-term beneficiaries as Energy savings accrue and spending power improves. But what about the short term?


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