Energy underinvestment creates new investment case: Datt Capital

More than a decade of underinvestment in global energy supply is creating a structural deficit that could reshape returns across the sector, according to Datt Capital chief investment officer Emanuel Datt.

Datt said declining investment in traditional energy production had reduced the buffer available to absorb supply disruptions, while demand continues to rise from electrification, artificial intelligence infrastructure and broader technology adoption.

"This is structural deficit, not a cyclical one," Datt said.

"Oil and gas fields are depleting assets by nature. Every producing field loses output year after year without continuous reinvestment and for more than a decade, the capital required just to hold global production steady has been falling short."

He said years of ESG-driven divestment, political pressure and regulatory challenges had constrained investment infrastructure before renewable capacity was sufficiently developed to fill the gap.

"The crisis is not a lack of money to find new oil. It is a severe lack of investment to maintain existing production infrastructure," Datt said.

The resulting decline in spare capacity and strategic reserves has left energy markets more vulnerable to geopolitical and supply shocks, he said, pointing to disruption in the Middle East as highlighting the reduced resilience of the global system.

Datt also warned Australian investors should not expect domestic energy prices to simply follow short-term movements in international markets, with local gas prices effectively linked to LNG netback pricing into Asia.

"Our local electricity costs are likely to stay firm regardless of near term moves in international prices," he said.

For investors, Datt said the disconnect between financial markets and physical supply conditions could create opportunities for long term capital.

"When paper-market selling pushes prices below what physical fundamentals justify, patient capital can buy in at a discount to intrinsic value," he said.

Datt Capital favours established energy producers with strong balance sheets and the ability to return capital through dividends and buybacks, rather than speculative explores.

The firm currently holds positions in New Hope Corporation, Yancoal and Whitehaven Coal, while also assessing opportunities across upstream oil and gas.

"We view energy as the ultimate safe haven," Datt said.

"Nothing runs the physical world like energy."