The United States uses a lot of energy, but demand growth is slow. That's a pattern replicated around the developed world. Countries that haven't developed to the same extent, like China and India, are where new demand will lead to notable energy industry growth.
The past and the future
Population expansion and industrialization are in the rear view mirror in developed countries. Although demand for energy is likely to keep increasing, it won't be at a robust pace. However, what developed nations provide is a glimpse of the future for emerging markets. And that future spells increased demand for energy for everything from cars to smartphones.
Putting some numbers to that, the U.S. Energy Information Administration projects that energy demand from developed countries will inch higher at a 0.5% rate through 2040. Developing countries will see demand grow at a 2.2% rate -- more than four times as fast.
Oil and gas
Royal Dutch Shell (NYSE: RDS-B ) , one of the highest yielding of the oil majors at around 5%, has a partnership with China National Petroleum focused on shale drilling. That gives Shell direct exposure to a market desperate for more energy.
The partnership is focused on oil and natural gas, so Shell is set to see a double benefit. First, from gasoline demand driven by booming car sales. And second, from natural gas, which should see increased use in the electricity sector. U.S. natural gas is currently a black spot on Shell's business, with write-offs and low commodity prices weighing on results. That, however, is an opportunity to get aboard a global energy giant with key emerging market relationships.
In the United States, natural gas is a long-term problem for coal. That's because, in a slow growth market, coal power is being displaced by gas. In countries where electricity demand is growing rapidly, there's room for both. That's where a company like Peabody Energy (NYSE: BTU ) comes into play.
Peabody has a large operation in Australia, selling both thermal and metallurgical coal. As more power plants and cars are built, steel demand will grow. Met coal is a key ingredient in the steel-making process. Thermal coal, meanwhile, will see growth as more coal power plants come online. The company's impressive scale in the U.S.' ultra-cheap Powder River Basin should also be a boon to results as more U.S. thermal coal gets exported.
That's the same thing that companies like fellow PRB miner, Arch Coal (NYSE: ACI ) , are waiting on. Arch also mines met coal, but its mines are located in the United States. That's been a disadvantage because low prices and additional shipping costs have made it difficult to export steel coal. That said, of the two, Arch probably has more upside potential, and more risk, because it isn't as financially strong as Peabody.
Along with coal and natural gas, nuclear is going to be a big player in emerging markets. Cameco (NYSE: CCJ ) , the largest public uranium miner, notes that there are more than 45 nuclear power plants under construction in Asia alone. That spells increasing demand for a company like Cameco that supplies reactor fuel.
That's why Cameco is working to increase its production by more than 60% in the next five years. It's also buying up properties to ensure it can keep delivering uranium for years to come. Like the other energy companies above, however, Cameco is currently out of favor because of the broad mining industry downturn. That spells opportunity for investors with a longer view.
The template is in front of you
It's easy to say that emerging markets are where global growth will come from. When it comes to energy, however, the future in emerging markets will mimic the past for developed ones because energy is a base necessity for economic growth. That puts out-of-favor companies like Shell, Peabody, Arch, and Cameco in line to benefit.
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