Eye on the Market I March 22. 2012 JP Morgan Reservoir Digs: on energy investing and private equity We try to invest as much in the things people need as in the things they want. While our pre-IPO digital media investments will be interesting to watch, investments in healthcare, industrials, consumer staples and energy in aggregate play a larger role in our portfolios. The charts below show the well-understood contribution of energy to rising per capita GDP since 1800. There are fierce debates about the long-term externalities involved with fossil fuels, but it seems clear that we will be living in a carbon- driven world for the foreseeable future. We have written in the past about the enormous challenges that renewable energy faces before it makes a larger contribution, and will not do that again here. Oil and natural gas play a central role in the global economy that will not be easily disintermediated away. US primary energy consumption by source US per capita GDP Quadrillion BTUs Real constant dollars, thousands 100 35 90 80 70 60 50 40 30 10 - 20 5 - 10 0 1805 1875 1925 1954 1964 1974 1984 1994 2004 Sou ce. EIA. Data as of 2010. Renewables (including wood) 30 25 20 15- 0 1800 1850 1900 1950 2000 Source: 'Statistics on World Population, GDPand Per Capita GDP, 1.2008 AD' Angus Mad dison, University of Groningen. • • • • Gett'n2 started: publicly tradable energy stocks After two long decades of underperformance (1980-2000), energy stocks have done well over the last decade, a reflection of rising non-OECD growth and energy consumption, rising crude prices, and declining spare crude oil capacity. Within the non- OECD, much of the demand has of course come from China; in the chart below, Asia-Pacific ex-China demand hasn't grown that fast. Energy stocks have also been very volatile, registering the 2n° highest sector volatility, behind only financials (sorry about that). In the last couple of years, several facto