The world is in an energy crisis. High demand is meeting low supply, and businesses and households are facing exorbitant costs or are without energy all together.
In the last five years, U.S. majors have invested less in energy infrastructure than in any other five-year period going back more than 70 years. Historically, these companies have spent about 10% of asset value on capex. Over the last five years that fell to 6%, and in 2021 it was just 4%. Fossil fuels have been an enormous windfall to humanity. Harnessing the energy they provide has allowed us to drive growth, productivity and ultimately improve quality of life. But it has not been without its costs, and we are running out of time to act. Optimizing energy production in a way that minimizes carbon emissions is therefore critical, but it will have a profound and, in our view, underestimated impact on both cost and efficiency.
So what does this all mean for investors? Absent a truly significant development in alternative energy technology, it seems likely we will see above average oil and gas prices for some time. High energy prices are a bad thing for most businesses and economies broadly, but we believe select opportunities among energy producers offer investors an excellent hedge against this risk.