This week, Platts, an energy information company (and subsidiary of McGraw Hill), released its annual ranking of the world’s energy companies' (both private and state-owned) financial performance. Platts' methodology (found here) takes into account a number of financial factors in ranking the richest and most successful companies in one of the critical sectors of the global economy.
The overall top 10 are no surprise. Exxon Mobil, one of the most successful private companies in history, sits at number one, with over $44 billion in profit in 2012. The remaining are long-standing private companies, like Chevron and Royal Dutch Shell, or state enterprises of the Soviet Union that were privatized after the end of the Cold War (Rosneft or Gazprom). All but two of the top ten are headquartered in the United States or Europe.
All in all, it represents a very traditional view of the global energy industry.
More intriguing, however, is which companies are growing the fastest and where they are located. Of the ten fastest growing energy companies, three operate in the Asia/Pacific. The fastest growing is Cairn India (for the second year in a row), an independent oil and gas company operating a large oil field in the Indian state of Rajasthan.
The remaining seven operate in North America and are, to various extents, involved in the natural gas and oil boom in both the United States and Canada, some of which is extracted through methods that have only become economically viable within the past few years (think hydro-fracturing or tar sands). Pembina Pipeline Corporation, for example, has an entire division dedicated to oil sands and heavy oil. Another company, Energy Transfer Equity, maintains a broad portfolio of natural gas assets, with a focus on building liquefaction infrastructure for export.
These rankings confirm energy sector trends over the past couple of years, with evidence suggesting these trends will not abate in the intermediate term. The U.S. Energy Information Administration’s Annual Energy Outlook for 2013, for example, forecasts growth opportunities for domestic U.S. oil and natural gas exploration and production, even after accounting for a growing share of renewable energy generation.
The changes in store for Asia are no less profound. The desire of countries in the region to push their populations into the global middle class will also have huge effects on global energy markets. The Asian Development Bank expects fossil fuel demand to explode, with net imports projected to exceed 25 million barrels per day in 2035.
Growing worldwide hydrocarbon usage presents policy difficulties. In the absence of a global, binding climate treaty, overcoming the level of energy poverty found in the Asia-Pacific countries involves energy choices that are not clean. Despite significant investment in renewables, fossil fuels remain the dominant option.
For the United States, the domestic economic benefit of continued production will be almost irresistible in the absence of some form of carbon price or government intervention into the market to cap pollution. As their economic performance makes clear, these companies (private and state-owned) can expect a bright future of compound growth.