Rising energy costs have signalled the end of cheap oil. Yet global energy consumption continues to surge. Fossil fuels will remain the predominant world energy source for decades to come and depletion of supply will drive energy prices higher. This will create a favourable environment for companies with resource reserves and for their service providers and distributors.

Surging demand for energy from developing countries

The world's population is growing at a rate of 1% per year and is projected to rise over the next 20 years by 1.5 billion people. Over 90% of this growth will come from developing countries. The implications for energy consumption are profound. More motor vehicles will be sold over the next 20 years than have been sold throughout the entire history of the automobile industry. In China and India, among the world's largest and fastest growing economies, surging demand for electricity, cars and consumer goods will have a significant impact on the world's energy balance.

The rise in global energy demand is projected to continue long into the future. And it is highly likely that the majority of this demand will be met by mainstream energy sources like oil, natural gas and coal.

The world currently consumes about 86 million barrels of oil per day. Even after the global recession of 2008-09, it is striking to think that world oil demand is already forecast to reach a new high this year. By 2030, global oil demand is projected to reach around 105 million barrels per day.

Dwindling supply

Meanwhile, the risk that energy supplies fall short of what is required over the next few years is intensifying as, in particular, the era of low cost, easily extractable oil comes to an end. Non-OPEC oil production is projected to peak around 2010 and then decline slowly over the next decade. Any spare production capacity that OPEC countries may have today is likely to decline quickly as they respond to the expected rise in demand. Put simply, the oil industry faces a huge challenge to build up new supplies of oil to compensate for the rapid decline in existing fields.

Favourable environment for investing in energy

The combination of growing demand and dwindling supply signals that oil and other energy prices will move up over time. This would create a very favourable environment for companies with energy resource reserves and for their service providers and distributors.

The Guinness Global Energy Fund seeks to be as well placed as possible to benefit from the energy price environment described above. We keep coming back to one key proposition: oil and gas are running out and it does seem reasonable to believe that before they do run out they will trade at much higher prices than we have yet seen and shareholders in companies that are part of that world will be duly rewarded.