Energy Investing: End Users

This article is part of our Energy Investing series. Click back to the series introduction to learn more and access easy-to-follow links to the entire series.

The oil and gas industry presents plenty of ideas for investors in need. There are so many options that, really, entire portfolios can be built to reflect the process of extracting commodities from the ground and turning them into an end product that people use every day. While I'm not suggesting you actually do that, I am suggesting taking a closer look at energy from start to finish and evaluating the best stocks for your current portfolio.

We've already tackled exploration and production, oilfield services, midstream, and refining. So now, we finish up the series by covering our end users.

Plenty of gas left in the tank
Let's start with our fuel gauge, as that's where our brains often go first when we think about energy. Natural gas is disrupting oil's dominance as our go-to fuel. Over the past few weeks, there have been numerous announcements of partnerships that could go a long way toward changing transportation norms in the U.S.

Westport Innovations (Nasdaq: WPRT  ) continues to grow its natural gas engine business, developing partnerships and closing acquisitions like there's no tomorrow. Recently, international truck and engine company Navistar announced it was getting in on Westport-designed engines.

Chesapeake Energy (NYSE: CHK  ) is also getting in on the action, partnering with 3M  (NYSE: MMM  ) to develop advanced CNG fuel tanks. The new tanks will be 10%-20% lighter with 10%-20% more capacity than the tanks on the market right now. Chesapeake announced a partnership with GE (NYSE: GE  ) as well, working with the conglomerate to build 250 natural gas compression stations across the country.

Manufacturing
We can follow the trail of energy from our cars straight to our daily grind, as the glut of U.S. natural gas has begun to bring manufacturing jobs back to the U.S. Perhaps no company embodies this trend better than Dow Chemical (NYSE: DOW  ) . Every day, the company turns 850,000 barrels of oil equivalent into chemicals, plastics, and a variety of other products.

The company will build what's known as a cracker facility, which takes natural gas byproducts and converts them to useful chemicals, on the Gulf Coast with plans to begin operations in 2017. It will also reopen another cracker facility in Louisiana and build two new propylene plants. Dow's CEO Andrew Liveris credits low, stable, energy prices for encouraging the return of U.S. investment.

Steel-manufacturer Nucor is getting in on the action, too. Who knew you could use natural gas to help turn old iron into steel? The technology is called direct reduction, and Nucor is currently constructing a plant in Louisiana to do just that. If all goes well, a second plant will follow, bringing the company's capacity to 5.5 million tons of direct reduced iron.

Power grid
Last, but certainly not least, natural gas is changing the power game. Coal-fired power plants are declining, and natural gas plants are taking their place. What this means is, even if you're driving one of Tesla's slick roadsters, you are still taking advantage of the natural gas boom.

Power prices have fallen with the price of natural gas, and energy suppliers like PSE&G are jockeying their business models to make up for lack of revenue from power.  

Healthy dose of skepticism
We have watched the impact of our natural gas boom affect the price of methane, and subsequently our pockets, as the cost of heating our homes has dropped. But when we talk about changing our transportation infrastructure, well, that's a heck of a lot of work for something that may or may not be a flash in the pan. There is no real consensus regarding the exact volume of natural gas reserves in the U.S., and it is risky to place a bet on something with a future that unknown.

However, giant deposits of natural gas are being discovered all over the world. China's reserves are thought to be 50% greater than ours. Early discoveries off the coast of East Africa are in the 15 trillion to 30 trillion cubic feet range -- with potential for more to come later. We may not all be driving CNG vehicles in five years, but natural gas is the real deal, and the innovation that's happening in the States right now is likely to take hold abroad in a big way.

Foolish takeaway
Chances are, there is an end user that's just right for your investing needs. Checking in with our CAPS community and utilizing the Fool's My Watchlist service are both great ways to do more research to narrow down the choices for your portfolio.

This series has covered a lot of potential energy ideas, but if you're looking for something outside that realm, check out the Fool's Top Stock for 2012.

Fool contributor Aimee Duffy doesn't own shares of the companies mentioned in this article. If you have the energy, check out what she's keeping an eye on by following her on Twitter, where she goes by @TMFDuffy.

 Motley Fool newsletter services have recommended buying shares of Westport Innovations, 3M, Chesapeake Energy, Nucor, and Tesla Motors, as well as creating a diagonal call position in 3M. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On March 14, 2012, at 2:39 PM, nancydog wrote:

    I wonder, if extracting billions and trillions cfs of natural gas, plus the crude oil, from deep down, may have a deleterious affect on our home on earth. We already know, from the effects of deep drilling and filling, that we may manufacture earthquakes, such as happened recently in Youngstown. Have any reliable studies been done on the affect of mining, drilling and extracting. I'm not calling for a halt to anything, or trying to be a wet blanket. Just asking.

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