Decoupling of GDP and energy growth: A CEO guide. McKinsey Quarterly April 2019

Decoupling of GDP and energy growth: A CEO guide. McKinsey Quarterly April 2019

Decoupling of GDP and energy growth: A CEO guide. McKinsey Quarterly April 2019

In the analysis below ACF takes a short form look at the data within the most recent McKinsey Quarterly report and overlays some of its own interpretation.

When I try to reduce the whole of economics to one idea to make it a more accessible subject at the theory level, sometimes I like to use the following idea – energy must be injected into a system that contains things we dug out of the ground in order to make the things we want. This principle applies to agricultural commodities as much as it does to making metals and composites for motor vehicles.

The McKinsey Quarterly April 2019 analysis… ‘The decoupling of GDP and Energy Growth’ does not change anything about our primary statement above.

The report makes, amongst others, the following points:

‘It is axiomatic (to date) that economic growth and energy demand are linked’. Which is to say that If energy is constrained, so is GDP growth.

‘The world will not become less “energy hungry” but technological innovation and behavioural trends should cause the energy demand curve to flatten’ – i.e. energy pricing will decline (supply) as energy demand rises, which is akin to an oversupply of energy, that will be important for Oil & Gas and mining.

‘Wealth creation has depended on a society’s proficiency at burning things’.

Until fossil fuels almost all the energy we created through burning ‘things’ was lost (wood burning originally lost nearly 100% of its embodied energy in the burning process). Fossil fuels in stark contrast loose about 40-70% of their embodied energy in the burning process. What this tells us is that although modern economies require ever more energy, the energy we burn from oil and gas goes far further than it did when burning wood was the primary energy supply.

The decoupling of energy demand from economic growth is driven by four changes:

  1. Aggressive decline in energy intensity of GDP – essentially due to the shift from manufacturing to services in rapidly growing economies such as China and India.
  1. Climb in energy efficiency – technological innovation stimulated by actual or perceived high future energy prices is improving energy efficiency.
  1. Increase of electrification – electricity is more efficient in many applications.
  1. Growth in the use of renewables – energy resources that don’t require a skill at burning. And if we think about photons (solar) combined with increased electrification, this won’t just flatten the demand curve, it will change energy to a constant, C, in the equation. Energy will become essentially irrelevant as any sort of constriction to economic growth.

Energy costs are a significant proportion of total costs in many businesses; therefore, energy savings have a disproportionately large and positive effect on Net Income generation.

Energy needs (globally) per capita will fall 10% by 2050 vs. 2016 – this is in spite of the emerging economy households entering the middle classes and so the high energy demand “refrigerator/aircon/car” economy.

The transport sector will deliver some of the most dramatic improvements in energy efficiency.

Electrification – the rise of electrification will also contribute to the likely plateau in energy demand. ICE vehicles hit a ceiling at about 40% energy efficiency, electric motors reach their limits at a little above 90% efficiency. Electric battery costs are anticipated to continue to decline.

Oil (currently the dominant but declining transport fuel of choice) is therefore becoming significantly more price elastic. Put another way, Cartels will have increasingly less effect on price setting for the price of oil (and gas) and every time they exercise their remaining influence, so they will hasten their own demise.

  • By 2020 renewable electricity will be cheaper than most new build (the most advanced) coal and natural gas power stations, almost everywhere.
  • By 2025 renewables are probably going to be a cheaper way of producing electricity even when compared to the marginal cost of running existing power stations in many parts of the world.
  • By 2035 renewables (wind, solar, hydro etc.), will provide over 50% of global electricity supply.
  • Over the next 15 years only natural gas of the non-renewable energy sources is likely to maintain its market share.
  • By 2050 demand for coal and then oil will level off and then begin to decline.
  • Emissions – the McKinsey analysis suggests that emissions will contract by 20% from 2016 levels by 2050.

Energy Transition watch list – three we think particularly relevant:

  1. Transformation of businesses – a retailer becomes an energy producer – solar panels on store roofs
  2. New market dynamics – Consumer preferences change increasingly to green products and so-called circular solutions
  3. Government policy/regulation – Bans e.g. on plastics or diesel, in turn constraining business operations.

ACF Equity Research’s view (read through) of what McKinsey’s Quarterly April 2019 means for:

Oil & Gas E&P – The changes are a risk and opportunity for oil and gas E&P in the lifetime of current managements, remembering that markets will come to recognise these changes way before the growth of oil and gas consumption is expected to plateau, which in the McKinsey analysis is within the next 10-15 years.

Miners – (i.e. other minerals) should benefit tremendously as the energy to make things from what they dig out of the ground becomes a Constant in the equation or for now at least tends to marginal cost zero (just like the impact of the cost of sending data down a telco pipe – a change that took just two decades).

Christopher Nicholson, Managing Director, ACF Equity Research

Christopher Nicholson

Managing Director/Head of Research

I am a financial analyst, entrepreneur, professionally qualified equestrian and amateur eventer. Amongst others, I trained as a financial analyst at Global US based fund manager Legg Mason Investors and have been head of Technology and Media Equity Research at Bryan Garnier, a pan-European investment bank and brokerage.

I founded ORACA Independent Equity Research a ground breaking highly independent thinking large-cap secondary comm business and ACF Equity Research, a very high-quality independent issuer-pays small and mid-cap research business. I opened our first corporate finance business (Destrier Partners) and am approaching the launch of our first non-financial services business. In my view, I am only able to do these things because of the quality of the team I work with at ACF. For 11 years I broadcasted as an expert guest and wrote regularly in the leading pan-European and international media including Bloomberg Television, BBC Radio 4 and the Financial Times.

I studied Biochemistry at Kings followed by Economics at LSE and can conduct business in English and French, I speak German and have basic knowledge of Spanish and Italian. My free time, which I make sure I carve out, is in part each day spent on my passion – riding, competing with and caring for my horse(s).

 Mike Wort,Non-Executive Chairman, ACF Equity Research

Mike Wort

Non-Executive Chairman

I have managed over 20 IPOs in the US, UK and Europe from small to large cap, I am proud to be ACF Equity Research’s Non-Executive Chairman.

I am also Executive Chairman of Texadon Oil Plc focussed on oil & gas production in the Texas Gulf Basin and is a Non-Executive Director of UK AiM listed Diaceutics, a diagnostics commercialisation business. I am a life sciences communications expert and have a background in large and mega cap pharmaceuticals.

During my more  thann  20 IPOs and secondary raisings I have brought in well in excess of £600m.

In addition, I have co-founded a number of life science start-up companies in Europe and the USA.

I am a life science communications expert and former life sciences CEO (large to start-up). He graduated in microbiology and lectured to science undergraduates in both the UK and Nigeria. He joined the pharmaceutical industry, working in a number of senior sales, marketing and clinical roles for Glaxo, SmithKline and Wellcome in the UK and overseas.

Appointed IR Manager for Wellcome, I helped organise its global roadshow for a £2.4bn secondary offering.

I have consulted on and conducted M&A and DD in the life science sector and developed disaster recovery programmes for SME companies.

I worked with Deutsche Bank to privatise the Bulgarian pharmaceutical industry. As the CEO of Balkanpharma, I led the consolidation of the three key assets into one cohesive unit. Balkanpharma has, through a series of M&A activities, become a significant part of NYSE listed Allergan.

Formerly MD at De Facto Communications, Bell Pottinger’s healthcare offering, I recently retired from Walbrook, the UK’s most successful SME PR/IR agency.


Amalia Barnoschi, Head of Operations, ACF Equity Research

Amalia Barnoschi

Head of Operations

Joining ACF at its founding I started in financial services in 2007 on the sell-side with ORACA, a large-cap independent equity research business that changed the industry. Before financial services I was a highly successful and rapidly promoted young manager in manufacturing and have worked closely at board level for over 15 years with SMEs in the City and in other financial markets.

I co-run ACF with our MD, as Head of Operations, responsible for driving profitability and developing and designing processes and managing projects for ACF and for client partners to allow our portfolio of businesses to grow. I am bilingual English/Romanian, read Italian and am working towards my accountancy ACCA qualification with AAT.

I love to relax by making time for my favourite out-of-hours activity – photography – taking my first formal nature course in May 2018. I have a keen understanding and interest in horses, though not a rider, this is combined with a life-long love of polo.

Anne Castagnede, Head of Sales & Strategy, ACF Equity Research

Anne Castagnede

Head of Sales & Strategy

I am a sales professional with a top-tier luxury goods background. In the past 5 years I managed flagship boutiques as well as working for some of the great Haute Couture houses including Chanel and Jimmy Choo, where I established a reputation as a top performer by developing, maintaining and offering information and guidance to new and existing clients.

I have researched, recommended and implemented service opportunities as well as improvements. In the early days of my career I trained with Air France and later with Chanel. On my journey I acquired management skills from back office through to front office and have a high degree of practical IT literacy.

I know from personal experience that passion leads the way to perfection and my will to learn matched with my sales ability will result in clients being in very capable hands. My bilingual languages are French and English and I speak Spanish. Off-duty my passions are languages and art.

Renas Sidahmed, Sales & Strategy / Staff Analyst, ACF Equity Research

Renas Sidahmed

Head of ESG / Staff Analyst

I am a macro-economic and financial analyst, linguist, mathematician, professional dancer and chef. I worked for four years with the IMF, two and half years with the International Finance Corporation (IFC) and eight months with the World Bank in Washington DC.

I also wrote award winning research notes and met with senior politicians with varied global and local interests in both wealthy and less developed economies. My sector expertise includes natural resources (particularly oil & gas) healthcare, manufacturing, infrastructure and investment portfolio management.

At ACF, as part of my staff analyst role, I am also Head of ESG / Sustainability and its products and services.

Before joining ACF Equity Research, I worked with Japan’s second largest brokerage, Mitsubishi Bank, in the London office. I speak six languages including English (native), Italian, French and Arabic and obtained an MBA in Rome and a Mathematics degree from a sister Ivy League – Smith College. I joined ACF because of its entrepreneurial, female friendly City culture, overarching global values and excellent growth prospects.

Anthony Kimber

Anthony Kimber

Senior Analyst ESG / Sustainability

I have considerable experience in the wealth management and private banking industries. I am co-author of the Platforum UK Wealth Management Market Overview report, and previously was Research Director at PAM Insight, a specialist publisher for the wealth management industry. I engage in research and analysis both qualitative and quantitative and am an experienced project and business development manager. I have been commissioned by UHNWI's, companies and organisations for various bespoke projects.

I also contribute to major news and media organisations, compiling and analysing data and research for the Daily Telegraph and Evening Standard on national government and environmental issues. Prior, I contributed to the Guardian, the Spectator, BBC news and investigative programming, the Sunday Times, and the Sunday Times Rich List.

My interest in ESG and sustainability is focused on raising awareness and achieving practical and workable solutions to the climate crisis we are facing. I enjoy spending my free time with family and friends, watching cricket, theatre and film.

Anda Maria Onu, Sales & Strategy, ACF Equity Research

Anda Maria Onu

Sales & Strategy

I have strong analytical, planning and execution skills, I love working as part of a team both inside ACF and externally with our clients and prospective clients.

I am used to working with and within senior leadership teams and understand the needs of small and medium sized companies through my current and previous professional experience, I graduated in life sciences with a specialisation in Ecology and Environmental Protection in Romania in 2007 and for my first job I worked in a laboratory carrying out chemical analysis of industrial waste-water.

I am passionate about the environment and work as a volunteer for the Sussex Wildlife Trust doing conservation work at the Old Lodge nature reserve. In my spare time I am a school governor and have been a juror at the Royal Court of Justice. My hobbies are dance, horses, swimming, opera and theatre.

Zak Mir, Technical Analyst, ACF Equity Research

Zak Mir

Technical Analyst

Zak Mir has 30 years financial markets experience and understands credible influencing across digital channels in order to drive stock liquidity. He is an accomplished author.

I am part of ACF’s advisory and execution team helping growth companies (nano, micro, small and mid-cap) maximise their profiles to achieve the optimal investment message.

Amongst others I have worked for Man Group companies, Berkeley Futures and Sucden. I have been a technical analyst, derivatives broker and Chief Market Strategist for a number of brokers in the retail space developing and optimising client trading strategies. I ran the well-attended annual Master Investor conferences and am a keynote speaker at the UK investor show. I also host the CityAM Podcast.

Analytical communications is part of my forte – I have variously been a markets columnist, editor and commentator for influential retail financial information outlets, amongst others – Investors Chronical, Yahoo! Finance, Shares Magazine, international leading long-form periodical The Spectator, CNBC and Bloomberg TV.

Away from the markets, I am a song writer and musician and have a long and patient interest in politics – areas that continue to be potential additional professional careers.
I was attracted to ACF because of the effectiveness of its high quality research and its forwarding thinking culture.

Richard Calvert, Director, Distribution & Service, ACF Equity Research

Richard Calvert

Director, Distribution & Service

I’m a Modern Marketing Strategist with a strong CXM, digital transformation and innovation background working with global blue chip clients, modern creative and media agencies and start-ups.

I put people, data, technology and brand at the heart of everything I do – always delivering highly creative and effective integrated solutions with engaged, excited teams. I believe in taking everyone from the Account Exec to the C-suite client with me on the journey.

I work with Global clients as easily as entrepreneurial start-ups across a broad range of categories from Automotive to FMCG, Financial Services and Technology. My recent focus has been on Digital integration; Relationship Marketing; Content Planning and Brand evolution.

Specialties: Strategic Planning, CXM, Digital and Business Transformation, Programmatic Marketing, Proposition Development, Content Planning, User Experience Development and Design, Mobile, Consumer Insight Development, Brand Planning and Development, Information Architecture and Design, Business Development, Digital Channel Strategy Development, Brand Development, CRM Strategy and Delivery, Business Development

Vicky Ryce, Director, Research Distribution, ACF Equity Research

Vicky Ryce

Director, Research Distribution

I am a digital communications and distribution specialist and strategist used to board level decision making. I started my career as part of the ground-breaking young cadre that for a short exciting time formed the original Text 100, and whose members have gone on to lead and influence thought in digital communications.

During my career I have worked with world leading agency Publicis and counselled the C-suite of some of the world’s biggest public companies, including Philips, Xerox and Microsoft, on how to improve their communications reach and then helping them execute. I also work with smaller and mid-sized private and public companies on the FTSE 250 and below. I am as comfortable dealing with retail reach, as with corporate and institutional capital markets distribution strategies.

I am an equestrian, proven entrepreneur and charitable volunteer and when I can cut out the time, I help young adults via the Princes Trust. I am an English and History graduate with an MA in Media and Culture. ACF Equity Research has a determined problem solving, enlightened forward-thinking capital markets culture and a global values set.

Adrian Chiappe, Editor, ACF Equity Research

Adrian Chiappe


Adrian has over 20 years investment research writing, editing and supervisory analysis experience for leading investment banks including Barclays Capital, UBS, BNP Paribas, Jefferies, S&P, Danske Bank, ABN Amro, Lombard Odier and Bear Stearns.

He has a deep understanding of his subject. Adrian has executed editing and supervisory analysis for investment banks, brokerages and fund managers. He has up-to-date knowledge of the operational and regulatory framework for international institutional equities markets. Adrian is a materials scientist and has languages