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Goldman Sachs: AI Could Take on Oil, Despite Tech Stock Overvaluation Concerns

Published September 4, 2024 12:27 PM

By Kurt Robson

Is AI the new oil? | Credit: David McNew / Getty Images.

Key Takeaways

AI could reduce oil prices within the next ten years, according to Goldman Sachs.
The investment bank said a negative impact on oil prices could decrease the incomes of oil producers.
AI consumes massive amounts of energy when training models.

Artificial intelligence (AI) could reduce oil prices as it boosts supply over the next ten years with increased logistics and profitability, according to Goldman Sachs predictions.

The multinational investment bank predicted that emerging technology could increase the number of profitably recoverable resources, despite technology stocks currently plummeting amid overvaluation concerns.

Will AI Reduce Oil Costs?

Goldman Sachs shared a note, reported by Reuters , stating that AI could potentially reduce oil costs “via improved logistics and resource allocation … resulting in a $5/bbl (£3.8 per barrel of crude oil) fall in the marginal incentive price, assuming a 25 percent productivity gain observed for early AI adopters.”

The investment bank said a negative impact on oil prices could decrease the incomes of oil producers, such as the members of the Organization of the Petroleum Exporting Countries.

Goldman Sachs said there will likely be a modest potential AI boost to oil demand compared to a demand for power and natural gas in the next decade.

However, the demand will likely be outweighed by AI’s negative cost impact on oil.

“We believe that AI would likely be a modest net negative to oil prices in the medium-to-long term as the negative impact from the cost curve (c.-$5/bbl) – oil’s long-term anchor – would likely outweigh the demand boost (c.+$2/bbl).”

Goldman Sachs said AI could potentially reduce around 30 percent of the costs of a new shale well. At the same time, a 10% to 20% increase in the low recovery factors of US shale, boosted by AI, could increase oil reserves by 8% to 20%.

Tech Stocks Plummet

The news comes as leading technology giants face falling stocks, catalyzed by Nvidia’s subpoena by the Department of Justice as part of an antitrust investigation.

Antitrust officials are concerned that Nvidia is making it difficult for buyers that do not exclusively use its AI chips, Bloomberg reported on Tuesday 3. Sept , citing people familiar with the matter,

The investigation has reinvigorated fears that Nvidia could be overpriced, sending the chipmaker’s stocks plummeting 11% in 24 hours at the time of writing.

Nvidia fell to as low as $105.04 in overnight trading from $119.37 at the close of trading on Tuesday, cutting over $80 billion off its market capitalization.

The stocks of AMD and Intel also dropped over 7% in the same period.

AI Boosts US Power Consumption

In July, Goldman Sachs equity analysts estimated that power consumption growth would “accelerate sharply to an annual average 2.4% pace in 2022-2030, boosted by data centers, AI, and EVs.”

“Such an acceleration in power demand growth to a faster pace than GDP growth would be significant because it has not occurred in three decades,“ Goldman Sachs wrote.

AI, particularly advanced forms like deep learning and large language models, consumes massive amounts of energy when training models.

The handling of large datasets, the scale of computations required, and the growing demand for AI-powered applications are skyrocketing energy consumption.

In May, new research from the Electric Power Research Institute (EPRI) found that data centers could use up to 9% of the total electricity generated in the US by 2030.

According to the Institute, the annual growth rate of AI electricity usage could range from 3.7% to 15% through 2030, depending on the efficiency of newly built data centers.

Sam Altman’s Call for Nuclear Fusion

In January, OpenAI CEO Sam Altman claimed an energy breakthrough is needed for the future development of AI, which he claims will require more power than the industry first expected.

Altman said the only way forward for AI i s climate-friendly nuclear fusion or solar power.

In July, the OpenAI CEO invested a sizeable amount of his personal wealth in nuclear fusion startup Helion Energy. The startup plans to open the world’s first fusion power plant by 2028, which will supply Microsoft with energy for AI training.

Altman believes that sustainable and scalable energy sources, such as fusion or advanced renewables, are essential to powering the future of AI.

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