Plays For BP's 2030 Energy Outlook

By Aaron Levitt | January 27, 2011 AAA

As emerging nations such as China and India grow to their full potential, they will require a staggering amount of energy. Analysts estimate that total worldwide energy usage will grow by nearly 40% over the next 20 years. Ninety-three percent of the growth will come from non-OECD countries like China. This huge increase in predicted energy demand has made funds such as the WisdomTree International Energy (NYSE:DKA) popular investments. Recently, energy giant BP (NYSE:BP) released its estimations of future world energy demand, including some surprising revelations.


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An Interesting Report
After 60 years of publishing the BP Statistical Review of World Energy, British Petroleum decided to produce their first forward look at the world's energy use. The BP Energy Outlook 2030 report follows the general notion that overall energy demand/usage will rise over time, with emerging markets leading the way. What's interesting about the report is, despite coming from one of the largest oil companies on the planet, BP estimates that overall crude oil usage will fall. The company estimates that overall diversification of energy sources and non-fossil fuels such as nuclear and hydro are expected to be large sources of growth for the first time. Between 2010 and 2030, the renewables sector, including solar, wind, geothermal and biofuels, contribution to energy growth will increase from 5% to 18%. These alternative energy sources and other renewables will continue to grow strongly, increasing their share in primary energy from less than 2% now to more than 6% projected by 2030.

BP's report also had some interesting things to say about traditional fossil fuel energy sources. Overall, analysts estimate that fossil fuels' contribution to primary energy growth is projected to fall from 83% to 64% by 2030. Both coal and oil are likely to lose market share as all fossil fuels experience lower growth rates, with crude oil usage growing slowly at only 0.6% per year. However, natural gas is projected to be the fastest growing fossil fuel at more than three times the projected growth rate of oil. New horizontal drilling techniques and the ability to tap various shale formations will help drive growth. BP also estimates that developed market oil demand peaked in 2005 and that by 2030 OECD demand will be roughly back at its 1990s levels. Biofuels will account for 9% of global transport fuels.

The report also noted that a mix of improved energy efficiency technologies will help with overall energy demand and intensity. In addition, global greenhouse gas emissions will peak just after 2020, but will still be approximately 20% above 2005 levels.

Investing in this Framework
While the report is just an estimation of energy usage and demand for the future, it still can serve as an overall thesis for investment in the energy sector. Investors looking to emulate or plan for BP's outlook do have some choices for their portfolios.

As natural gas is likely to be the big winner in future fossil fuel energy demand, the First Trust ISE-Revere Natural Gas Index (NYSE:FCG) follows 31 different global firms that drill for natural gas including Range Resources (NYSE:RRC). The fund has been basically flat since inception, but could be a big winner as natural takes off. Investors can also use the iPath DJ-UBS Natural Gas ETN (NYSE:GAZ).

With renewable energy estimated to become a bigger part of energy mix by 2030, investors can add the Market Vectors Global Alternative Energy ETF (NYSE:GEX) as a broad play on the sector. The PowerShares Cleantech (NYSE:PZD) highlights the growth in various energy efficiency methods.

Finally, BP estimates that nuclear energy will grow to nearly 10% of the world's energy pie. The iShares S&P Global Nuclear Energy Index (Nasdaq:NUCL) follows 25 firms within the sector. The focus of the ETF is on utilities, electrical equipment and construction subsectors of nuclear industry.

Bottom Line
BP's recent global power projections highlight the growing demand for various sources of energy. Both the traditional and alternative energy sectors are poised to flourish. For long-term investors wanting to use BP's report as a framework, investments in natural gas, energy efficiency and renewable sources make the most sense. (Learn the important ratios and terms that you'll need to know to get involved in this trading sector. See A Primer On Offshore Drilling.)

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