Matt Insley

Despite what your mom said, you don’t matter that much.

In fact, with each passing day, you, me and the rest of the developed-world-dwellers are losing our clout. Today I’ll prove it to you with a few newfound energy statistics – plus, we’ll discuss what you can do about it.

As I type, the developing world is gobbling up market share for the world’s resources – oil, natural gas, coal, you name it. It’s the same story, really, but it’s coming true in front of our eyes.

To put it bluntly, the developing world is growing while we’re standing still — there’s more mouths to feed in developing countries, their population is growing, their income is growing and their demand for energy per capita is on the rise.

For your investment’s sake, you better get used to this changing of the guard…

Here are a handful of the latest facts, released last week in BP’s Energy Outlook 2030:

  • By 2030 world population is projected to reach 8.3 billion, which means an additional 1.3 billion people will need energy; and world income in 2030 is expected to be roughly double the 2011 level in real terms.
  • [Emerging market] energy consumption in 2030 is 61% above the 2011 level, accounting for 65% of world consumption.
  • Almost all (93%) of the energy consumption growth is in [emerging] countries.
  • Oil demand in China grows by 7 Mb/d to 17 Mb/d in 2030, surpassing the US in 2029 (US demand falls by 2 Mb/d to 16.5 Mb/d over the outlook period). Other [emerging] Asia also shows strong growth of 6 Mb/d (of which almost two-thirds are in India).
  • China is on pace to match Europe as the world’s leading energy importer by 2030, and will replace the US as the world’s largest oil importing nation by 2017.
  • However, the growth in Chinese energy imports will be taking place in a context of robust economic growth. Adjusting the volume of energy imports for expected economic growth will leave China relatively less dependent (per unit of GDP) than EU on imported energy.

(Emphasis added)

Getting back to my initial comments above, we’re less important. A great way to look at this visually is through energy demand projections. You, me and the rest of the developed world are represented as the blue lines below…

As you can see, the emerging/developing world (non-OECD, red) is launching a full-blown bid for the world’s energy. They have more people, more growth and now, more money!

China, for example, has money. It’s not some crazy new-fangled currency either – although that may be in the works. Instead, it’s good old fashioned U.S. dollars. Here’s a reminder of how it works…

The Chinese, for decades, have exported goods to the U.S. and, in turn, collected U.S. dollars. On a large scale, a lot of those dollars are then lent back to the U.S. in the form of treasury notes. These notes come in all forms (short-term debt, long-term debt), but all pay interest. So through this cycle, over time, the Chinese have amassed a large amount of U.S. cash.

In the meantime the Chinese have been growing their population and their economy at a rapid clip. And according to the BP data above, their energy consumption is set to skyrocket.

Add it all up, and just like the old-timer at the poker table, the U.S. is soon to be outmatched (and outbid) by China and other young-gun markets.

The recent run-up in oil prices is a good example of this. At home, the economic outlook is still rather bleak. Normally at a time like this the price of oil would be headed lower. But take a look at the ticker and you’ll see that oil prices are rallying higher. $96 at last check!

Doesn’t seem normal, does it?

That’s because there are new players at the table. Elbowing past the Europeans, these fresh faces saddled up right next to us. They’re calling our bluffs, bidding up prices and, worst of all, getting the drink lady’s attention first.

The drink lady, oil-rich nations in this case, doesn’t have any affinity to one player or another. As long as you have cash, she’ll take your order. The more cash, the better the service and the more she wants your business.

The Chinese have the cash and so do other emerging market contenders. The heydays are coming to an end for America’s world demand dominance. By 2030 this will be an elementary, well-known fact. Today, though, we’re still watching the opening credits.

Many talking heads think the price of oil will fall if Europe and the U.S. can’t spur growth. But, I urge you not to accept that tainted line of thinking. Growth is poised to come from outside of the Western world. The BP data is a testament to this thesis.

No, this isn’t the curtain call for the U.S. by any means, but there is a new cast entering the stage. Important for us, we’ve got to keep a close eye on this emerging trend.

The biggest short-term loser I see in this mix is Europe. If BP’s latest report is any indication, the Eurozone is in for an uphill battle – they have no energy supply, their economy is faltering and their currency is faltering.

So in a simple, transitive way, what Europe loses the emerging world will gain.

The world is going to be a different place in 2030. Keep your eyes open and stay tuned.

Keep your boots muddy,

Matt Insley

Original article posted on Daily Resource Hunter 

Matt Insley

The Managing Editor of the Daily Resource Hunter, Matt is the Agora Financial in-house specialist on commodities and natural resources.  He holds a degree from the University of Maryland with a double major in Business and Environmental Economics.  Although always familiar with the financial markets, his main area of expertise stems from his background in the Agricultural and Natural Resources (AGNR) department.  Over the past years he's stayed well ahead of the curve with forward thinking ideas in both resource stocks and hard commodities. Insley's commentary has been featured by MarketWatch.

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