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The Next (Energy) Revolution Starts Here

by | published January 14th, 2013

There are a few times in life when you stand at the beginning of a revolutionary change.

This is one of those moments.

On Friday, I introduced the next wave coming in energy. Profit centers are going to develop in the interconnections among the production, processing, storage, transmission, and distribution of distinct energy sources.

Indicators are emerging from some heavyweights that the move in this direction has begun in earnest. These include policy makers and analysts from the International Energy Agency (IEA) in Paris, the World Bank and White House in Washington, the Windsor Energy Group in London, as well as my industry contacts in several parts of the globe.

The new emphasis will be on energy balance. This means the building of an efficient network that allows for the substitution of sourcing and improves all stages of operation in the upstream, midstream and downstream sequences of energy delivery. For some regions of the world, this will translate into the availability of reliable energy for the first time ever.

While some of the ingredients will remain the same, the push towards balancing will put a premium on logistics, as well as introduce the need for parallel development.

This latter aspect will become significant for investors because it will require the reexamination of a basic market assumption. Currently, market participants believe that different energy types are in competition – investment in alternatives is viewed as coming at the expense of investment in crude oil production; shale gas instead of solar; offshore gas instead of onshore coal; and so on.

The “either or” nature is often the preferred approach for talking heads on TV, advancing the prospects of one energy segment at the expense of another.

The broader application of this is usually a kind of “discounting,” attempting to determine the relative advantage of employing capital to invest in one company rather than another, followed by a rough calculation of opportunity costs (investing in A precludes investing in B).

A zero-sum approach emerges – one wins, another loses.

Now much of the energy sector will continue to be driven by such a dynamic for some time.

But not from where the real shakeout and real profits are going to come.

Integration Drives This Mega-Shift

Different energy sources and delivery systems will find the most positive results will be coming from complementary development. Rather than choosing one energy over another, we will now have to identify the best (and most cost effective) ways of combining them into a seamless network.

This requires parallel development, in which energy sources can be exchanged or combined to maximize usage and reduce cost. Some aspects have been around for awhile, such as co-fueled electricity generators that use various fuels (coal, natural gas, renewables) or hybrid automobiles.

But these are “stand alone” applications. Each, while allowing more than one source to address a specific application, still comprises only a singular example of process or end use. .

And while the broadest of public and private sector policies seek an integration of energy for planning, analysis, and budgetary purposes, the energies contained within such an aggregate view remain organized as independent market streams.

In the future, the market expand this concept to entire segments of energy use and require that parallel, rather than competitive, energy sources and systems be pursued. Now this new world will exist alongside the more traditional current approach to energy. There will be tradeoffs and regional variations, as more abundant sources continue to control local markets.

But this will also introduce a very different way for traders to look at current volume and futures contracts. The increasing interconnection of the energy balance will allow prices to be set on a more expansive geographic basis. This will have significant impact on locations where energy is plentiful (such as the present U.S. shale gas largess) or in short supply (much of the developing world).

Where We Go from Here

As the parallel development requirements of the balance take hold, the pricing on both extremes obliged by the present energy trading market will be reduced, and the inefficiencies that come with them diminished as a result. The most desired outcome for the investor is a more level interregional base when it comes to the cost-price connection in generating and providing energy.

That is where we are headed.

The key to unlocking how an investor plays these departures will be an increasingly frequent component of OEI.

As the indications emerge in the months ahead, I will be providing you with first steps identifying three overarching targets to move on:

  1. Sectors;
  2. Companies positioned to benefit; and,
  3. The next generation of energy breakthroughs.

Of course, I will continue to lay out profit-making strategies to use in the existing energy mix.

No reason we cannot make money in both the current and the new.

Please Note: Kent cannot respond to your comments and questions directly. But he can address them in future alerts... so keep an eye on your inbox. If you have a question about your subscription, please email us directly at customerservice@oilandenergyinvestor.com

  1. William B. Smith
    January 14th, 2013 at 14:15 | #1

    Kent!

    What is inferred by your article may come to pass, but so far I have
    not seen many sighs of that, any advantages of it, any time scale
    proposed for it, any financing available for it, or new ideaology for
    it. Perhaps I am too blind to recognize these things. But don’t forget
    that theories are a dime a dozen. Does this article tie in with the
    possible down fall of the exponental, rapid over expansion of Western
    civalization?

    Your old friend and comrade in arms,
    Bill Smith

  2. Anonymole
    January 14th, 2013 at 15:33 | #2

    Dr. Moors,

    Could you comment on this supposed divestiture of oil fields by the large oil companies alluded to in the second part of this post on this question regarding energy on CNET?

    news.cnet.com/8618-17938_105-57562092.html?assetTypeId=12&messageId=13475180

    Are oil companies selling their lands off?

  3. John M. Chenosky, PE
    January 14th, 2013 at 15:38 | #3

    Any investment money that could have accomplished what you’re suggesting, was pissed away by this president and his incompetent
    minions. Four Trillion and counting and it keeps going on..and..on…and on………

  4. enthusceptic
    January 14th, 2013 at 19:58 | #4

    I have seen ads by big oil that show that they are interested in alternatives and renewables. I’m sure they want to sell expensive oil as long as possible, but they want to be ready to profit when change to alternatives becomes inevitable.
    Also I have found a new hobby horse/pet peeve/cause celebre: Coal is cheap and plentiful, but we have seen what it does to the air in China. Is clean coal really impossible? Does Dr. M. or anyone know anything or have any ideas about this, or does my broken record have to become so scratchy that one of the far right laissez faire persons out there – and there are many – start screaming for this “envirofanatic” to shut up?

  5. Anthony Walker
    February 10th, 2013 at 00:20 | #5

    The oil and gas sector’s strong lobbing group is well represented in Washington DC while the alternative energy group is still learning the ropes of getting the US congressional law makers to be equally fair to renewable energy sources (cellulose/bio-fuel, solar, geothermal, etc.). Alternative energy producers need to be progressive with marketing of their energy services to a younger generation; thus showing how it will improve their health and long term wealth.

    Oil and gas “subsides” or EOR and IDCs are favored by IRS legislation created for all mid size to small oil and gas drillers/explores. Ask any good tax specialist about IRS “Section 199″ tax code (Manufacturer’s Tax Deduction). Foe more details, see the Forbes article: Oil & Gas Tax Provisions Are Not Subsidies For “Big Oil” (Jan. 02, 2013)

    China’s recent environmental and polluted air quality will results in more by-products or inventions. For example; Catalytic converters, electric cars, natural gas trucks.cars etc. The US went through this back in the 1970′s-1990′s. Check the recent Bloomberg article called “Deadly China Pollution Breathes New Life Into Solar Debt” (7 Feb, 2013).

    The bottom line, there is a bright side for savvy investors and alternative energy sources. In Australia, the wind farms are generating cheaper electrical power than fossil fuel. For more details see the Bloomberg article, Energy: Solar & Wind Power, Bio fuel, Oil, Gas and Coal- by Bloomberg news (7 Feb, 2013). Follow the big money for greater returns in these articles and make the world cleaner and healthier for our children at the same time.

  6. Carol Ferguson
    March 23rd, 2013 at 14:10 | #6

    Thank you Mr. Moors, Energy Advantage is the best newsletter
    that i have ever subscribed to!

    comment, We are retirees so we look for dividend opportunities.
    Would it be possible to add dividend yield to the monthly
    newsletter.
    Carol

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