Global energy demand increased 23 out of the past 24 years 1 as consumers rely on energy for basic life needs—heating homes, fueling cars and powering energy-consuming products. Private energy companies play a critical role in the development and production of our nation’s energy resources and make up the majority of the energy and power industry in the U.S.
From 2010 to 2040, worldwide energy demand is expected to increase approximately 26%, driven by a rising global population and the development of emerging markets such as China and India.2 In fact, the combined energy demands of China and India are expected to nearly double from 2010 to 2040.2 Meeting this demand will require significant investment by energy and power companies.
PETROLEUM AND OTHER LIQUID FUELS CONSUMPTION
Measured in millions of barrels per day
Types of energy companies
It takes a vast network of companies to locate, extract, process and deliver energy to consumers.
Upstream: Exploration + production
Finding, developing and extracting energy resources
Midstream: Pipelines, storage, shipping, gas processing
Gathering, processing, storing and transporting of energy
Downstream: Oil refining, gasoline marketing, retail
Refining, marketing and distributing of energy resources
Power: Power generation, power transmission + distribution, alternative energy production
Generating, transmitting and distributing power and electricity to end users
Service + equipment: Services for oil/gas exploration + support for power industry
Support from the many service and equipment businesses that provide specialized services and materials to aid in every step of the energy lifecycle
Energy assets are depleting
Many energy companies, especially upstream companies, have depleting asset bases, meaning their oil and gas reserves must be continually replaced through ongoing development or acquisition. These companies have and, we expect, will continue to require significant investment in order to replenish their oil and gas assets.
The vast private energy sector
Out of approximately 21,000 U.S. energy and power companies in operation today, approximately 98% are private.3 Despite volatility in commodity prices since mid-2014, many private companies will continue to experience large capital needs in order to replace depleting assets and otherwise fund their operations.
Lending to private energy companies
Loans of private energy companies tend to have a low correlation to traditional investments, such as stocks and bonds, which may help diversify a traditional portfolio.
In addition, loans to energy companies are typically backed by the assets critical to a company’s operations (e.g., oil and gas reserves, pipelines and machinery) and may help mitigate losses in the event of financial stress or commodity price volatility.
CORRELATION OF HIGH ENERGY LOANS TO BARCLAY U.S. AGGREGATE INDEX
1 Performance measured from 12/31/2004 through 12/31/2014. Enerdata Global Energy Statistical Yearbook 2015.
2 Exxon Mobil, “The Outlook for Energy: A View to 2040,” January 2016.
3 S&P Capital IQ as of December 2015