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
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

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!