Why Fools Still Need Fossil Fuel Stocks

This article is part one of a two-part series on why the U.S. needs both fossil fuels and alternative energy sources, and how savvy investors can benefit from both.

In 2011, President Obama declared an all-in energy policy, in which the U.S. will develop and use all types of energy resources at its disposal. Although proponents of fossil fuels may not always agree with the president's policies, there's no end in sight for America's use of fossil fuels – and our county (and investors) can still benefit from these old energy sources.

Limited doesn't mean useless
In 2011, renewable energy (minus hydroelectric) only accounted for 6% of the world's energy needs. It's not difficult to figure out what made up the additional 94%.

Yes, the amount of coal, natural gas, and oil is limited – but that doesn't mean we don't have a lot of it. Arguments saying that limited fossil fuel resources mean we should switch now to alternative energy is like telling a billionaire to stop spending money because he only has a finite amount. Yes, we'll run out – but we have a good amount of resources right now.

A recent report from the Energy Information Administration said the U.S. will produce enough of its own energy in 2035 to be energy self-sufficient. The vast majority of this energy will come from fossil fuels. The U.S. may have enough recoverable oil reserves to be oil independent by 2020. There are no guarantees, obviously, but U.S. oil reserves look better than they ever have.

Right now, Valero (NYSE: VLO  ) is refining billions of barrels of oil from America's Midwest and exporting it to countries around the world. Offshore drilling is opening up additional sources of oil and natural gas. BP (NYSE: BP  ) and ExxonMobil (NYSE: XOM  ) lease millions of acres of land from the government to drill for oil and natural gas off our country's shores.

Aside from offshore drilling, the U.S. is experiencing a natural gas boom thanks to hydraulic fracturing and horizontal shale well drilling. By 2035, the U.S. will get almost half of our natural gas from new shale gas reserves.

The companies that produce coal have had a difficult time lately, but worldwide coal still creates 42% of the world's electricity. China, the U.S., and India are the biggest coal producers in the world, and two of those countries still have massive infrastructure needs that will depend on steel made from coal.

Why invest in fossil fuels
Investing in companies that focus primarily on fossil fuels may not be sexy, but it's very logical. We have large amounts of these resources, and the infrastructure is already in place to use them. To simply give up on these companies while we build existing renewable resource technologies simply wouldn't be prudent.

Some companies certainly manage their fossil fuel extraction better than others, and those whose negligence harms the environment or people should certainly be held accountable. But to write off an entire industry that provides 84% of the United States' energy would be to misunderstand America's energy needs, and miss out on future investing potential.

Tracking down the best stocks in the fossil fuel industry is a tough nut to crack -- not because there aren't great companies, but because there are so many to choose from. But within the fossil fuels spectrum, I'm particularly fond of Energy Transfer Partners (NYSE: ETP  ) at the moment. The company, which used to be dependent on natural gas pipelines, now has access to crude oil, refined products, and natural gas liquid pipelines with its recent acquisition of Sunoco Logistics  (NYSE: SXL  ) . This diversifies the company's revenue streams and helps protect ETP from shifting demands between oil and gas. ETP pipelines are also contracted out on a fee basis, so rising and falling commodity prices won't affect the company too much. In addition to all this, new ETP pipeline projects are coming online right now that should open up new revenue for the company.

ETP's diversification in oil and gas and its pipeline access in natural gas dependent areas like Texas, Florida, and the Northeast, make the company a solid player in America's recent oil and gas boom. To see if ETP and its industry-leading yield will be a fit for you, click on this detailed premium report, which will supply you with a thorough analysis of this midstream company.

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  • Report this Comment On January 07, 2013, at 4:48 PM, fredricjl wrote:

    Your article has an error. ETP took over Sunoco, Inc, not Logistics. As part of the deal they received shares in Logistics and the 2% general partner interest in Logistics along with everything else Sunoco. This includes lots of assets which ETP and ETE are just now starting to rationalize. The article is a good start but is missing so much that your readers should know. Please try harder.

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