BHP Billiton Limited backs fossil fuels as energy source

Energy demand has been tipped to increase a staggering 30% over the next two decades.

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BHP Billiton Limited’s (ASX: BHP) chief executive Andrew Mackenzie has stated that the world’s reliance on fossil fuels for energy will continue well into the future despite them playing a key role in causing climate change.

Developed parts of Europe and the United States have switched their energy supply from coal to less carbon-intensive sources such as gas, prompting speculation that gas could replace coal as the world’s most prominent energy source. Mackenzie dismissed this theory, stating that we could not expect such a transition in other developing areas such as Asia and Africa due to the higher costs involved and the higher-quality infrastructure required.

Mackenzie forecast that by 2030, more than 70% of global energy will be supplied by the fossil fuels, oil, gas and coal, and that energy demand would grow by 30% over the next 20 years driven by “impoverished parts” of developing nations getting on the grid for the first time. In fact, the miner even forecast that Asia will drive around two-thirds of new energy demand in that time with the majority of growth coming from China and India.

Speaking at a major energy conference in Houston, Mackenzie’s comments were made following Norway’s decision to investigate whether its sovereign wealth fund should be banned from investing in fossil fuels. This would come as a major blow to BHP should the fund be banned given that it is one of BHP’s top three shareholders. The fund is also a shareholder of other major Australian companies including Whitehaven Coal Limited (ASX: WHC) and Woodside Petroleum Limited (ASX: WPL).

Although fossil fuels are far less efficient energy sources, emissions could instead be reduced by technical innovation and open markets.

Foolish takeaway

While lower demand from Asia is currently acting as a downward pressure on the price of coal, the commodity will remain part of BHP’s “four pillar” strategy given the miner’s strong long-term forecasts.

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