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INVESTMENT STRATEGY QUARTERLY

Permian Basin will only exacerbate this, along with increased Within the ESG ‘pie’, the largest ‘slice’ pertains to climate
access to Northeast markets from the Marcellus and Utica Shale change. To state the obvious, this trend is more positive for
formations. renewable and other low-carbon energy technologies as
compared to oil and gas (to say nothing of coal). However, it is
The supply side of the gas equation outweighs the mostly possible for oil and gas companies to make operational changes
upbeat story on the demand side, led by the ongoing ramp-up that will make their stocks more appealing for ESG-centric
of US liquefied natural gas (LNG) exports. Pipeline exports to funds. Only a few ESG funds have a blanket exclusion of all oil
Mexico are also a growth driver, whereas the power sector is a and gas stocks. Whether it is deploying solar instead of diesel
mixed picture. Retirements of coal-fired power plants are generators, reducing methane flaring, investing in carbon
disproportionately being replaced by wind and solar rather capture, or improving water conservation, the industry is able
than gas.
to adapt to ESG pressures.
Meanwhile, the European gas market is also rather weak, with
demand near 20-year lows. Wind and solar are capturing
market share in the electricity mix to an even greater extent
than in the US. Led by China, gas demand in Asia is growing, but
not as much as the industry would have hoped.

ESG INVESTING IMPACTS PRICES KEY TAKEAWAYS:
Finally, when thinking about the performance of oil and gas • We anticipate that global oil demand will grow
stocks - beyond the commodity fundamentals themselves - it slightly faster in 2020 than this past year.
will be increasingly vital to consider the environmental, social, • We forecast that global petroleum inventories will
and governance (ESG) dimension. ESG investing represents a reach historically-low levels, a recipe for higher
major long-term trend for institutional and retail investors prices.
alike. It is a striking yet under-appreciated fact that 26% of all • We forecast that WTI will reach $65/Bbl and Brent
US professionally-managed assets - equity and debt combined will reach $70/Bbl in 2020.
- are already covered by some kind of ESG criteria. Broadly
defined, total ESG assets are near $12 trillion, triple the amount • Barring a severe global recession, demand is
in 2012. unlikely to present much uncertainty, whereas
supply has many more ‘wildcards.’

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