The Future of Energy

As an energy investor, I have to look at industry trends to see where the next hot spot is. Throughout history, the hot energy commodity has never lasted long term, and trends can change on a dime. More recently, fracking has changed the game for oil and natural gas, coal is fighting to stay alive, and renewable energy is growing in some areas and struggling in others.

Below I've gone through the big trends to watch and what to consider while you're investing.

Coal is the past
The coal industry is struggling -- that's not debatable at this point. Some might say that onerous regulation has been the biggest detriment to the coal industry in the last five years, but the truth is that cheap natural gas has done more than anything to hurt the industry. Sure, environmentalists and some politicians would prefer that we burn natural gas, but the flood of plant closures and bankruptcies of coal miners hasn't been solely because of regulation.

Look at the consumption chart below and notice how both coal and oil have trended lower while natural gas has trended higher. Fracking changed the game for coal and there's no stopping the move to natural gas (which I'll get to in a minute).

US Coal Consumption Chart

U.S. Coal Consumption data by YCharts

The decline in U.S. consumption is troubling for coal miners, but China's move to rely less on coal and to produce more energy domestically has hurt U.S. exports. Now that China is getting into fracking in an effort to unlock its vast natural gas reserves, I'm afraid the best days are long behind the coal industry.

Oil and gas are still the heart of energy
Oil consumption in the U.S. is declining, but it's still rising in developing countries, so prices haven't taken a major hit in recent years. Unlike natural gas, oil is easily transported to the market that will pay the most -- now that China is the No. 1 oil importer in the world, oil still has a long run ahead of it.

Natural gas is the hottest commodity right now in the U.S. since fracking technology improved to the point where it can economically be removed from the ground. The cleaner-burning fuel is just now being adopted more widely for transportation, and the U.S. has a great opportunity to export cheap natural gas to the rest of the world.

Halliburton (NYSE: HAL  ) and Schlumberger are two of the largest companies providing equipment and technology that make fracking possible; they'll benefit as it expands around the globe. For investors, now may be the time to buy because rig counts have been falling due to low natural gas prices, but export terminals and natural gas fuel are on their way and they'll help improve prices. Drillers should see a pickup in coming years that will benefit the patient investor.

Another way to play the steady demand for oil and growing use of natural gas is through offshore drillers, particularly in ultra-deepwater. Just this week, a well drilled by Anadarko Petroleum (NYSE: APC  ) gave our first look into what may be the largest discovery ever in the Gulf of Mexico. As explorers drill in more deepwater locations offshore they'll continue to add to discovered reserves, which will lead to more drilling. This reinforcing loop will help rig owners like Seadrill (NYSE: SDRL  ) and Transocean, who own large ultra-deepwater fleets and command in excess of $600,000 per day for these specialized rigs.

Wind and solar are where the future is
So far, we've covered the decline of coal, growth in natural gas, and the steady demand for oil. But the real growth is in renewable energy. The U.S. solar market grew 76% in the last year alone, and the cost to install solar power fell 27% to $3.01 per watt. Market researcher GTM Research expects the U.S. solar market to grow 28% annually over the next four years, giving a great opportunity to investors.

First Solar (NASDAQ: FSLR  ) and SunPower (NASDAQ: SPWR  ) are the two major U.S. solar companies battling for market share. First Solar is the world's leader in utility-scale projects while SunPower dominates in the U.S. residential market with the most efficient panels in the industry. These two can continue to grow as the U.S. and China invest more in solar.

Over in China, the country plans to install 40 GW of solar by 2015, more than any other country has installed to date. There was also more wind generation installed than any other power source, beating out coal for the first time. China is also turning its back on coal in favor of wind and solar because these energy sources will reduce the smog filling its largest cities.

Foolish bottom line
The trends are clear. Coal is being replaced by natural gas, wind, and solar, both here and in China. Since the U.S. and China are the two largest energy consumers in the world, it's important to know which way trends are headed.

Investing in the future is as simple as picking the best companies in emerging energy sources. One to look at is First Solar.

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Read/Post Comments (10) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 26, 2013, at 4:29 PM, wankap wrote:

    Sitting in the Patent Office right now are several green energy devices that serve homes or small businesses. these devices may be scaled to serve communities and factories. The devices have 0 environmental impact. Tracking Solar Energy Gatherer it also powered by the Sun. Direct Heat energy to electricity, Energy Storage. Wind Energy to Electricity. There devices are all made to run for years without any maintenance.

  • Report this Comment On March 26, 2013, at 4:40 PM, dsong wrote:

    This is a great article from Motley. It clearly points

    out the energy trend of the future.

    Without the question, solar is the #1 in future.

    Solar panel is one way to take solar energy. It might directly use solar heat to drive steam machine. Wind is not stabilizing. Solar is the solution. Do you know how many energy solar

    shine on the earth in one minute. It is equal to

    whole energy consumpt in earth for more than 1 year!

  • Report this Comment On March 26, 2013, at 7:08 PM, johngol4 wrote:

    just one word and it should not be for tomorrow it should already be today ...HYDROGEN...the cheapest and most efficient...the gov't should be building stations and demanding car companies build them they already know how...everything should be hydrogen all we need is water and electricity....furnaces, electric plants, homes can have their own generators....it will happen

  • Report this Comment On March 27, 2013, at 3:08 AM, dividendgrowth wrote:

    Even if solar is the future, current batch of solar panel makers is going to lose.

  • Report this Comment On March 27, 2013, at 3:10 AM, dividendgrowth wrote:

    As for oil&gas discoveries, the more companies report exciting new discoveries, the WORSE it is for the overall industry.

    Back in 2008, one NG company after another reported higher production and higher reserves. Then very soon afterwards, they ALL crashed hard.

  • Report this Comment On March 27, 2013, at 1:58 PM, damilkman66 wrote:

    Wind is a dog in my opinion. Its all being run by subsidies and unlike other forms is unreliable. Smart Grids have never lived up to their promise. I love the big announcements of how they mention the peak capacity coming on line knowing they are lucky to get 30% on any given day and that the coal fired plants have to stay on line in case the wind stops. At least we all know when the sun goes down.

    I think the best long term play is solar combined with fuel cell. You could run your solar to separate Hydrogen and Oxygen by day, and recombine at night when the sun is not up.

    I don't know if this is feasable but if you still had a deficit use a natural gas line to augment the fuel cell. That might be tricky as I imagine a fuel cell has to be instrumented for Hydrogen or Methane. It would be nice if it could take what you had available. But I dunno.

    I also like some of the biofuel solutions as you can't be diesel & oil for concentration.

    Did I mention I hate wind?

  • Report this Comment On March 27, 2013, at 3:17 PM, cadepend wrote:

    Does graphene have a role in any of these energy discussions, for example as a solar panel material?

  • Report this Comment On March 27, 2013, at 7:20 PM, TheRealRacc wrote:

    I expect coal usage to soar in emerging markets making a lot of the anti-coal sentiment have little value.

  • Report this Comment On March 27, 2013, at 11:04 PM, Merton123 wrote:

    England has restarted its nuclear power program. The BBC News has an article about a New Nuclear Plant being approved and a French Company who will be putting in the next generation of nuclear reactors. China is also getting into pebble nuclear reactors (i.e., small nuclear reactors the size that power our nuclear submarine fleet).

    Fracking is getting the last bits of energy below ground. A couple of years from now we will have to build mutliple nuclear reactors on an emergency basis. When an emergency occurs large monopoly type profits will occur. Buy GE now and wait for the market to reprice the stock accordingly a few years from now (efficient market theory) and make a lot of money. And if the emergency doesn't occur GE stock gives a solid dividend and should appreciate comfortable in my opinion.

  • Report this Comment On March 28, 2013, at 12:11 AM, TerryHogan wrote:

    @Merton123

    I like GE, but you don't have to be bullish on nuclear to like them. They are into Wind, NatGas, Oil and renewables generation. No matter what happens with energy, GE gets a piece of that pie.

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