Royal Dutch Shell plc (ADR) (RDS.A), BP plc (ADR) (BP): We’re Closer to $5 Gas Than You Think

Page 1 of 2

There are several reasons to be optimistic about America’s energy prospects: Oil and gas production is climbing, alternative energy use is skyrocketing, and efficiency gains are giving us more bang for our buck. Yet despite all this good news on U.S. shores, we cannot forget that the U.S. is only one piece of the global energy puzzle. There are a lot of signs around the world that $5 gas is very possible, and more likely than many of us would like to think.

Royal Dutch Shell plc (ADR) (NYSE:RDS-A)

Demand is falling… here
The demand for oil across the U.S. and Europe has been either flat or declining for the past decade, and demand for oil from OECD countries is less than it was 15 years ago. Certainly these kinds of numbers should be encouraging, right?

Source: U.S. Energy Information Administration, author’s calculations

The only problem is, it only tells half the story.

Source: U.S. Energy Information Administration, authors calculations

Based on projections, next year it will be less than half the story.

By 2014, the petroleum demand of countries not in the OECD is expected to surpass that of OECD members, and is expected to be double that of OECD countries by 2030, according to the International Association for Energy Economics. The world will still struggle to keep up with petroleum demand, and the costs to find these new sources will constantly go up because the costs to extract these new sources is much higher than what we were used to.

Between 2011 and 2012, the average reserve replacement cost for the top 50 exploration and production companies listed on U.S. exchanges nearly doubled to $32.72 per barrel. Even worse, integrated majors Royal Dutch Shell plc (ADR) (NYSE:RDS.A) and BP plc (ADR) (NYSE:BP) saw reserve replacement costs balloon to $41.76 and $72.03 per barrel, respectively. Companies like these two are big players in the global marketplace and their actions can have major implications on global markets. When costs get so high, prices will follow suit because companies will need to recover their costs.

The oil market is still pretty inelastic
I cannot deny that the appeal of alternatives to gasoline vehicles is getting stronger everyday, but we need to keep this in context. While many people may be more aggressive in pursuing an alternative to gas as prices climb, the infrastructure to make that a reality just isn’t in place for it to happen yet.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!