Why Oil and Gas is Still Set to Grow

With oil prices plummeting in 2014 and not returning to its peak levels for more than five years, the talks of the demise of the oil and gas industry has been rife. Analysts have also pointed to the growth of renewable, cleaner substitutes, as well as China’s determination to reduce their carbon footprint as catalysts for the fall of this traditional energy resource.

Having said that, over the last 40 years, there have been numerous premature predictions of the death of the industry, only for the oil and gas sector to rebound sharply after cycles of booms and busts. This current downtrend in oil prices could be no different.

Here are two reasons why I believe that the oil and gas industry still has a part to play in our world.

Increasing demand for energy outpacing renewable energy growth

Despite China’s economic expansion decelerating, the demand for oil and gas continues to grow annually.

There are two factors that are playing a part in this new surge of energy demand worldwide.

Firstly, emerging markets like India, Brazil, and Indonesia are growing at exponential rates. This more than makes up for China’s slowing economic expansion.

Secondly, global population is set to increase at a rate faster than renewable energy. The world’s population hit a staggering 7 billion in 2012 and is expected to increase to 8.4 billion by 2030. More people means there will be more demand for energy to run growing cities around the world, which the renewable energy substitutes cannot keep up with.

To be clear, the current low oil price is not because of a demand shortage but because of high oil supply created by Saudi Arabia. The country has done so in an attempt to stave off US oil companies by having oil prices artificially low, making these businesses unable to operate profitably.

Technological enhancement creates cost-saving methods to extract oil and gas

Even as prices continue to be low, oil and gas companies are still able to function successfully because of cost-saving technologies. PwC reported that a growing number of projects could even be feasible at close to US$30 per barrel.

This was probably unthinkable just a few years ago. The innovations and technology enhancements can continue to develop further cost-saving techniques and keep the industry afloat, even if demand for oil drops.

The Foolish bottom line

The oil and gas industry has seen multiple cycles of boom and bust in the last century. With each bust, bears touted the overall demise of the industry. Yet, each time the industry grew stronger, as demand increased and cost-cutting measures kept businesses afloat. The recent setback in the industry seems to be no different. Doomsayers will always be there, but the oil and gas industry is set to prosper despite the recent challenges it has been facing.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn't own shares in any companies mentioned.