Global Energy Report

Global Energy Report

What to watch ?

  • Oil’s impact on various segments and industries
  • Risk of bankruptcies and defaults in U.S. high-yield sector given current low oil prices 
  • Iran’s capacity to return to previous levels of oil exports, which would add to the global supply glut 
  • Chinese rebalancing weighing on increase in internal demand for petroleum products
  • M&A opportunities poised to grow in 2016 boosted  by very low valuations of oil sector assets

Energy Sector Value:
6,822bn USD

Energy Sector Risk Rating

Sector-Risk-Medium
Last reviewed: 02/02/16

Energy id card

Fragmentation
Fragmentation-1 
Internationalization
Internationalisation-3 
Capital Intensity
Capital-intensity-4 
Profitability
Profitability-3 

Sector risk map: Energy

Pulling the plug on capex appears to be the easiest way to address low oil price

We expect investments in the exploration and production oil sector (or capital expenditures, aka CAPEX) to continue plunging in 2016, with a -25% fall, on the heels of a -28% dive in 2015. Delayed investment spending accounts for the equivalent of about 30bn barrels of oil reserves, and new investments are not due to come on stream before 2020 at least.
By postponing (if not cancelling) investment spending, oil companies have started to offset the impact of lower revenues and curb the fall in margins. The main culprits are Canadian oil sands projects, new U.S. shale oil wells, and high-cost deep water fields, especially those in Angola, Nigeria, the North Sea and the Gulf of Mexico.
A few oil players such as state-owned companies in GCC countries benefit from sovereign funds’ large cash hoardings and might get away with long-term depressed oil prices. Although the underlying problem remains and the ongoing de-hoarding of cash cannot last forever, wealthy producers are still far away from running out of money. Thus, these countries can easily withstand this period of turmoil. 
Considering Iran’s looming return to the market, the question is: how long will oil prices remain low?

key players

Country

Role

Sector Risk

UNITED-STATES
#1 Producer
Dot-Risk-Medium
China
#2 Producer
Dot-Risk-Sensitive
Japan
#3 Producer
Dot-Risk-Medium

Strengths

  • Emerging countries’ rising demand causes a hike in power energy prices 
  • Electricity increasingly indispensable as a source of energy 
  • Oil is indispensable for all kinds of boats, planes or cars to be operating properly

Weaknesses

  • Fossil fuels hit by the slowdown in Asia, especially China
  • Environmental costs
  • Rising awareness of coal and nuclear fallout 
  • Low oil prices curtailing further growth in renewable energies

Energy Subsectors insights

Coal: Still the dirtiest and most vilified fossil fuel, coal remains essential for electricity production in many countries including Japan, China, India and Germany. 
Renewable sources: Although clean energy companies have been heavily subsidized especially across Europe, profitability has eluded most businesses. Low oil prices do not help the sub sector reach financial strength

Global Sector Reports

picto-aeronautics
Aeronautics
picto-agrifood
Agrifood
picto-automotive
Automotive
picto-chemicals
Chemicals
picto-construction
Construction
picto-energy
Energy
picto-household-equipment
Household Equipment
picto-information-communication-technologies
Information & Communication Technologies
picto-machinery
Machinery & Equipment
picto-metal
Metal
picto-paper
Paper
picto-pharmaceuticals
Pharmaceuticals
picto-retail
Retail
picto-textile
Textile
picto-transportation
Transportation