Low-cost, high-grade coal, oil and natural gas will be a distant memory by 2050. Much higher-cost remnants will still be available, but they will not be able to drive our growth, our population and, most critically, our food supply as before.
Our long-term investment themes
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The end of cheap oil
Despite what one might think following the collapse in oil prices in 2014-15, the world is running out of cheap oil. Marginal production costs are about $40 per barrel today – a far cry from pre-crisis times, when marginal production costs were in the low $20s.
Most oil producing nations are very dependent on oil revenues; hence they are reluctant to cut production when prices weaken. Meanwhile, consumers need to heat their home, and they are very dependent on their car to get around. Consequently, both demand and supply for oil is very inelastic, causing small changes in either to have a big impact on price resulting in substantial volatility in oil prices in the years to come.
That said, the shale revolution has put a lid on oil prices, and we expect oil to trade in a range of $40-70 (give or take) in the foreseeable future. Not that long ago, the average production cost was in the $80s per barrel, but it is now in the $60s.