Through a little story telling, history and data points, Tim Humphreys, Co-Manager of the IFSL Marlborough Global Essential Infrastructure Fund says although we have a way to go in the shift towards genuine sustainability, investors are presented with an exciting and potentially rewarding prospect of far-reaching benefits that support positive, lasting change.
There are several claimants to the august title of World’s First Commercial Oil Well, but the most compelling is usually thought to be the Drake Well. Drilled by former railway worker Edwin Drake in 1859, it sparked the US’s original oil boom.
Drake had been hired by the Seneca Oil Company to investigate possible oil deposits in Titusville, Pennsylvania. Although he had no military experience, his employers dubbed him “Colonel” in a bid to impress the locals. He was earning $1,000 a year at the time.
Sited on the bank of a creek in Titusville’s Cherrytree Township, his well triggered an unprecedented wave of investment in the drilling, refining and marketing of oil. In effect, it marked the birth of an industry now worth trillions of dollars. No wonder it features on the US’s National Register of Historic Places.
You could be forgiven for reading the bare bones of this story and inferring that the Drake Well dramatically reshaped the global economy in short order, if not virtually overnight. In fact, more than a century elapsed before oil replaced coal as the pre-eminent source of energy.
Particularly for investors, this may serve as an important lesson for what is happening today. We find ourselves in the midst of an epochal shift to genuinely sustainable energy sources, yet it would be wrong to believe such a huge transformation will be quickly and easily achieved.
This is why the term “energy transition” might be slightly misleading – at least for now. It would be more accurate to say we’re witnessing an energy addition – a process in which the proportions of energy produced by different sources are set to change over an extended timeframe.
Infrastructure will be at the heart of that change. Addition and transition alike entail radical disruption across multiple industries, sectors and themes – not just utilities but the likes of transport, construction and digitisation.
In other words, the era-defining journey now unfolding is likely to prove lengthy and complex – perhaps more so than first envisaged. In my view, this should be of marked interest to investors who have a long-term focus, a desire for diversification and an appetite for attractive returns.
“The economic transformation of our age”
Global demand for energy increased by 2.2% in 2024, the most recent year for which figures are available. According to the International Energy Agency, renewables accounted for the largest share of the growth in supply (38%), followed by natural gas (28%), coal (15%), oil (11%) and nuclear (8%).
These numbers alone underscore a key consideration, which is that we’re still a long way from renewables completely replacing fossil fuels. Rather, they’re adding to the overall quantity of energy being produced.
Crucially, global demand for electricity during the same period climbed by 4.3%, compared with a 3.2% increase in global GDP. To put this into perspective: the extra amount – nearly 1,100 terawatt-hours – exceeds Japan’s annual electricity consumption.
Numerous factors are driving what is likely to be an ongoing rise. They include a much greater prevalence of extreme temperatures, which requires more cooling systems; wider use of electric vehicles, which requires more charging networks; and the ubiquity of big data, which requires more energy-intensive data centres.
In my opinion, trends such as these clearly highlight the case for listed infrastructure. As Simon Stiell, Executive Secretary of the United Nations Framework Convention on Climate Change, remarked at November’s COP30 summit in Belém, Brazil: “This is the growth story of the 21st century – the economic transformation of our age.”
Yet this is only part of listed infrastructure’s current investment appeal. Curiously, despite its place at the centre of the shift to genuine sustainability, this is an asset class that can be accessed relatively cheaply right now. Although it has a record of generating strong cashflow growth and avoiding sizeable drawdowns, it has generally been rated down since the COVID-19 pandemic – whereas global equities, by contrast, have generally been rated up.
Listed infrastructure can therefore be seen as at a point on its cycle which presents a notable opportunity – one that could lend itself to both tactical and strategic allocations. Remember, too, that this is an arena that involves no lock-ups, no barriers to exit and significant scope to resize positions in response to macroeconomic events.
The world has certainly moved on since “Colonel” Drake’s day. But it has plenty more moving on still to do – and that represents an exciting and potentially rewarding prospect for investors who recognise the far-reaching benefits of supporting positive, lasting change.
Main image: scott-greer-en4zW6KFvC8-unsplash
