Exxon Mobil's Outlook On Energy Demand

By Eric Fox | December 07, 2011 AAA

Exxon Mobil (NYSE:XOM) predicts that global demand for energy will increase 30% by 2040, led by economic growth in developing nations. This estimate and others regarding future supply and demand for energy are contained in the company's annual energy outlook report.

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Outlook For Energy
The Outlook For Energy is published annually by Exxon Mobil and covers long-term supply and demand trends for crude oil, natural gas, coal and other forms of energy. The company also extended the report's time horizon, adding 10 years and bringing the end date to 2040.

Other major oil companies have similar reports. Energy Outlook 2030 also attempts to predict long-term trends in energy use, and is issued by BP (NYSE:BP) at the beginning of each year. (To learn about investing in oil, read A Guide To Investing In Oil Markets.)

Demand
Exxon Mobil predicts that demand for energy will grow at an annual rate of 0.9% from 2010 to 2040. The global assumptions behind this expected growth in energy demand are annual population growth of 0.8% and annual GDP growth of 2.9% over the 30-year time horizon.

Much of the growth in energy demand will be due to economic trends in the developing world, which Exxon Mobil expects to continue through 2040. Energy demand from the developing world is expected to be nearly 60% higher in 2040, compared to 2010.

The increased use of electricity will be a major influence on energy demand and Exxon Mobil believes that growth here will be higher than demand in the residential, industrial, transportation or commercial sectors.

One important prediction made by Exxon Mobil involves the mix of fuels used to produce electricity. The company believes that the trend towards using fuels with less carbon content will continue over the next generation and that natural gas will produce 30% of global electricity by 2040.

Coal currently produces much of the world's electricity and Exxon Mobil predicts that coal will still maintain this rank in 2040. However, the company believes that its use as a fuel will eventually peak and then start to decline. (For related reading, see Peak Oil: What To Do When The Wells Run Dry.)

Transportation Efficiency
Exxon Mobil also expects to see improvements in energy efficiency in the transportation sector, with advanced hybrid vehicles holding a 50% market share by 2040, compared to only 1% in 2010. This trend will increase the average fuel efficiency of new vehicles to 50 miles per gallon by 2040.

The auto industry is on the way to reaching this fuel efficiency goal. Toyota Motor (NYSE:TM) manufactures the Prius line of hybrid vehicles and estimates that current models have a combined city and highway fuel efficiency of 50 miles per gallon. Honda Motor (NYSE:HMC) also manufactures hybrid vehicles and estimates that its Civic line of hybrids have combined fuel efficiency of 44 miles per gallon.

Exxon Mobil estimates that without the expected gains in fuel efficiency, global energy demand would be four times higher than the expected growth rate of 30%.

The Bottom Line
Although 30 years may be too long an investment horizon for even the most hardcore value investors, we should all pay attention to this report, as the changes predicted by Exxon Mobil will be profound, and given the lead time involved, this should not take any of us by surprise. (To learn more about value investing. read The Value Investor's Handbook.)

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

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