Almost all market commentators agree that energy is an excellent business in which to invest for the long run. Unfortunately, the agreement on energy investing essentially ends there. The retail investor is left hanging. Nonetheless, every portfolio should incorporate some energy investments.
When people speak about investing in energy, the very first thing that springs to most people's minds is oil. Will oil prices reach $150 or $200 per barrel? Unfortunately, nobody knows. However, there are a few things to bear in mind with oil. First, oil prices have increased over five-fold in the past ten years. Second, that dramatic price rise has led to numerous major discoveries, most of which aren't yet producing at full potential. Finally, at current prices, alternative energy sources are nearly competitive. With these matters in mind, the price of oil seems extremley unlikely to repeat its performance of the last 10 years, although it will continue to rise.
Many commentators are bearish on the price of natural gas, however the outlook for it is much less clear than the outlook for oil. Natural gas was anticipated to become an alternative low-carbon fuel, replacing oil and driving the value up. However, increasing production has pushed prices down much further than most people expected. Some expect that extensive untapped supplies will keep the price low for the foreseeable future. Nevertheless, it may yet be one of the better energy investment opportunities. A long-term outlook for stable or falling prices may be precisely the stimulus necessary to drive oil users to convert to natural gas.
Needless to say, to many, investing in energy for the long term implies investing in alternative energy. To date, alternative energy investments remain a highly speculative game. Although there's much talk about price parity of oil, solar, and wind, it has not yet been reached and, to some degree, alternative energy developments still depend on subsidies for profitability.
For any conservative investor, utilities are probably the best energy investment opportunities. Because utilities are regulated, they're not as likely to produce blow-out profits. However, they're more likely to be profitable and most offer outstanding dividends. Also, natural gas pipeline utilities may benefit more from increased production volumes compared to producers themselves.
Energy investing is challenging at the best of times, and these are not the best of times. Even so, in the long run, most energy investments will probably deliver excellent returns.
When people speak about investing in energy, the very first thing that springs to most people's minds is oil. Will oil prices reach $150 or $200 per barrel? Unfortunately, nobody knows. However, there are a few things to bear in mind with oil. First, oil prices have increased over five-fold in the past ten years. Second, that dramatic price rise has led to numerous major discoveries, most of which aren't yet producing at full potential. Finally, at current prices, alternative energy sources are nearly competitive. With these matters in mind, the price of oil seems extremley unlikely to repeat its performance of the last 10 years, although it will continue to rise.
Many commentators are bearish on the price of natural gas, however the outlook for it is much less clear than the outlook for oil. Natural gas was anticipated to become an alternative low-carbon fuel, replacing oil and driving the value up. However, increasing production has pushed prices down much further than most people expected. Some expect that extensive untapped supplies will keep the price low for the foreseeable future. Nevertheless, it may yet be one of the better energy investment opportunities. A long-term outlook for stable or falling prices may be precisely the stimulus necessary to drive oil users to convert to natural gas.
Needless to say, to many, investing in energy for the long term implies investing in alternative energy. To date, alternative energy investments remain a highly speculative game. Although there's much talk about price parity of oil, solar, and wind, it has not yet been reached and, to some degree, alternative energy developments still depend on subsidies for profitability.
For any conservative investor, utilities are probably the best energy investment opportunities. Because utilities are regulated, they're not as likely to produce blow-out profits. However, they're more likely to be profitable and most offer outstanding dividends. Also, natural gas pipeline utilities may benefit more from increased production volumes compared to producers themselves.
Energy investing is challenging at the best of times, and these are not the best of times. Even so, in the long run, most energy investments will probably deliver excellent returns.
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