Trading the Energy Supercycle
Convergence. The perfect storm is right now!
Global upstream oil and gas spending has fallen 55% since 2015 just as electricity-related investment has crossed 60% of the total; the convergence is clear for a brave new era of energy supply and demand.
This is Part 1 of 4. Part 2: The demand shifts up. Part 3: The players and landscape. Part 4: The playbook
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Articles
When the Strait Closed- Goehring & Rozencwajg
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JP Morgan: Energy innovation and sustainability trends
The State of the Strait: The Role of Hormuz in the Middle East War So Far
In its hunt for critical minerals, the US is misconstruing what is and is not America’s
Climate Intuition: Demand is here, time to build the grid of tomorrow
Why miss priced Risks and AI Demand Are Creating New Energy Investment Opportunities
The Convergence
I believe that we are now at the foothills of an incredible and enduring bull market in energy. The chief catalyst for this bull market has been the gross underinvestment over the last 15 years in upstream spending. Now we also look to significant dual tailwinds. A.I build out and the largest energy shock in modern history. Read ‘The New Normal’ 11th May 2026.
For most of the last decade, hydrocarbons were out. ESG mandates emptied institutional positions. Capital chased tech-growth, biotech, anything but barrels. Value investors and dividend hounds were openly laughed at and beaten up in the streets! It was NOT cool to be crude!
Negative oil prices in April 2020 were a market dislocation, but nonetheless served as a wake-up call to energy capital. Confidence in energy markets bottomed out
(Historical dip buying op). This ultimately served as the catalyst for shareholders across the energy space to shout for more capital efficiency and cut short expansionary growth spending. Investors wanted dividends and tighter cap ex. They got it.
Six years on, the verdict has flipped. The same tech sector that pulled capital out of energy is now the largest single new customer of the power it produces. Data centre electricity demand is on track to more than double by 2030. The companies that called oil dirty a decade ago are placing their biggest infrastructure bets on whoever can keep the lights on for an AI training run. The world that abandoned energy is about to find out exactly how important fossil is, but at the same time, we will have to adopt renewables faster than we were.
This series takes the full energy stack, with crude as the load-bearing pillar and gas as the transitional fuel. We are entering a ‘New age of electrification’ as Fatih Birol, Executive Director of the IEA put it in a June 2026.
There are the traditional two sides to this. 1. Supply has been starved quietly for a decade. 2. Demand is inflecting loudly in the last 24 months. The convergence is where they meet, and the meeting is now.
The Scars
The stage is set. Oil companies have been wearing the scars of a one-two punch. The post-shale bust, then the COVID shock. The damage left a shareholder trauma that has ruled capital expenditure planning for the last five years. The Cap Ex control Baby rather than Drill baby!
The result: greater free cash flow, more capital efficiency, but slack drawn down across the system. Less new asset development, with demand still inelastic and still growing, has run operations leaner and leaner.
AI-led efficiencies are now compounding the discipline. Rig up and spud-in times, geological surveys, drilling, reservoir analysis, work over plans. All becoming faster and cheaper, with more to come. But there is a limit, and the limit is geology. AI sharpens the inputs. It does not conjure barrels.
US Spare capacity
The starvation is visible across North America. A healthy enough looking DUC (drilled but uncompleted wells) inventory on the surface of 4972 wells. This has been the buffer the majors have been leaning on. This is the reason production has increased while new rigs decreased. However, DUC inventory is down 20% in the last 24 months. What is worse is that approximately 4000 of this total in my view are non economical DUCs. They were not drilled deep or lateral enough to be economically viable today. They actually require significant further drilling. More than a work over that you would perform on an ageing well to re-stimulate production. The final factor that bites US spare capacity is the well known drop off on shale wells. A typical shale well will have a 60-70% production flow dropoff within 12 months. So later, you need to have 2 fresh wells to get back to where you were. You see the issue. Onshore while not dead, is in trouble.
We will keep a close eye on this over the next 24 months. E&P is shifting elsewhere, which is what I will cover with great detail in Part 4.
But this picture is not just North American. The IEA, in its 2026 World Energy Investment review, puts the global number on it: upstream oil and gas spending has fallen 55% since 2015. Exploration portfolios are depleted. Offshore rig markets have been tight but are having a strong resurgence as long as financing rates remain low-more in Part 3. The capital that built the last cycle has not yet come back to build the next one, at least not at the scale the demand side now requires.
What the market got instead was a step-change in how the majors return capital. Dividends and buybacks have surged since 2022, holding firm even as cash flow from operations has eased. Shareholders are paid. Production is not pursued.
The Iranian premium
There is no going back, so can we please wake up and let go. The SOH is no longer a free-flowing choke point. And bypass capacity projects will not open before 2030. The alt infrastructure that exists today is thin.
Saudi Petroline, the East-West Pipeline, moves crude from the Eastern Province to Yanbu on the Red Sea-around 5-7mb/d.
ADCOP carries UAE crude from Habshan to Fujairah on the Indian Ocean 1.5mb/d.
The Iraq-Saudi pipeline has been dormant since 1990.
The Iraq-Turkey route through Ceyhan has been suspended since 2023.
Combined effective bypass is a fraction of the 20+mb/d that typically transits Hormuz in crude and product. Most of the stranded barrels never get a bypass at all. Qatar LNG, all 77 million tonnes a year, exits through the straits. Kuwait and southern Iraq are in the same trap on crude. The math does not close
The IEA, in the same 2026 review, is blunt: confidence in the reliability of transit through the Strait of Hormuz has been profoundly shaken. The premium is structural now, not transitory. Yet the front month prices remain contained by the wall of OECD SPR oil. Read last weeks ‘Don’ fight the SPR’ 31st May 2026.
Full treatment of the bypass landscape, project timelines, who pays and who might be our saviour. This will be in ‘New Normal 2’, next week.
Okay, that is the supply side. Demand has been moving in the opposite direction, and accelerating.
The New Load
Electricity is what the new demand wants. The IEA’s 2026 review puts the number plainly: electricity-related investment now makes up nearly 60% of all global energy investment. Tech, the sector that abandoned the oil patch a decade ago, is now its largest new customer.
AI is the demand vector that broke the model. Orders for new natural gas-fired power plants surged to 130 GW in 2025, a 25-year-high. In Q1 2026, US captive data centre turbine orders surpassed grid-connected for the first time. The IEA’s framing is direct: if data centres were a country, they would be the second-largest destination for gas turbines ordered from Q1 2025 to Q1 2026.
The tech sector now accounts for around 40% of all corporate power purchase agreements signed globally. Total energy sector investment in data centre infrastructure cleared $100 billion in 2025, more than total energy investment in the whole of Africa.
Electricity is entering a new age. The only problem is, that this will be generated by more than just solar. See the mix below. By 2030, 49% of this will still be fossil fuel generated. 38% by 2035.
The New Build - Got Coal?
Does someone want to tell Kier Stramer to reopen the mines?
AI load is only one layer. Beneath it sits a structural build cycle that has been gathering pace since 2022. Reindustrialisation under the US Big Beautiful Bill. A €500 billion ‘fiscal Bazooka’ package in Germany. An industrial build out across India and the rest of emerging Asia. Apollo’s tracking of non-defense capital goods orders shows the cycle is no longer a forecast. It is in the data.
The geography is where the next decade’s marginal demand lives. Emerging markets grew at 4.4% GDP in 2024 against 1.7% for advanced economies. Asia-Pacific now accounts for nearly half of global energy demand and the majority of incremental growth. Per-capita energy consumption across most of the EM block remains a fraction of OECD levels, which means the runway is long.
And the transition itself, the thing the 4splace hydrocarbons, is in fact a vast new energy customer in its own right. Building solar at scale takes energy. Building grids takes energy. Building battery factories takes energy. Building EV plants takes energy. The IEA expects $550 billion of grid investment alone in 2026, a 20% rise year-on-year. Nothing in that build is energy-light. The demand side is not just inflecting. It is stacking.
The Net Net
This is the convergence. Both lines crossing on the same chart. A decade of starved capex meeting a structural demand inflection. The stack is being repriced, not the barrel. This is not a price call. It is a value-migration call.
I have put this series together in the middle of this energy shock to serve as an all-weather roadmap into the eye of a large storm. It will be easy to get lost when front month futures begin pricing in a post-SPR release world. Step into September in this exact fashion and the world drastically starts to change. Inflation kicks in. The US bans exports before Christmas. Japan enters severe crisis. The Western world starts making fast friends with Russia again. Through all of it, energy demand will outrun anything solar can build fast enough to meet.
Step forward twenty years and we will look back at the energy dark ages. Smart intelligent grids. Micro and self generation. Oil at $200 a barrel. We will be happy enough, provided we did not pick the losers of the new landscape.
I opened by saying we are at the foothills of an incredible and enduring bull market in energy. We are. Supply is locked into geology and geography. Unlike The Fed response, we can not print our way out of this situation, but we can invest in the path out of it.
Stay tuned for the next series of articles.
The New Normal 2
Part 2: The demand shifts up.
Part 3: The players and landscape.
Part 4: The playbook
That’s the report!
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