Many countries are moving toward more renewable sources of energy. According to BP, in one of their more optimistic scenarios, renewable energy could supply almost half of the world’s energy by 2050.
That is still a long way away, but long-term investors should start thinking about the potential winners and losers now.
The losers in a shift to renewables are likely to be fossil fuels. What defines a loser? We are defining it here as a fuel that will lose market share.
The biggest loser among fossil fuels is likely to be coal. Oil is also likely to see a significant loss of market share.
Natural gas’s market share is likely to hold up best among the major fossil fuels.
In BP’s business as usual scenario, natural gas demand rises consistently over the next three decades. In BP’s rapid renewables adoption scenario that ends with renewable energy accounting for close to half of global energy supply, natural gas demand rises over the next decade and a half before gradually declining to a level that matches current demand.
In BP’s most optimistic scenario for renewables, natural gas demand peaks within the next decade and falls by about 35% by 2050.
In terms of fossil fuels, natural gas is likely to be the long-term market share winner for fossil fuels, but don’t take that as a signal to sell all your oil and coal investments. Prices are set by the balance of supply and demand. Consider that over the last 25 years, the global demand for aluminum has nearly trebled, but the price of aluminum is not much higher than it was 25 years ago. Supply kept pace with demand, holding down the price. The converse can also be true. Commodities with falling demand can see rising prices.
You can read more about BP’s outlook for natural gas here.