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Page added on June 9, 2014
Energy Deathmatch: Oil Versus Natural Gas
The media loves to hate on coal right now. And the latest news about Obama wanting to massively cut carbon emissions at fossil fuel-burning power plants certainly isn’t helping.
Don’t listen to the pundits.
Coal isn’t going away anytime soon. Not with more than 40% of the world’s energy still being provided from coal generation.
It’s still the top source of energy for electricity generation worldwide – thanks to increased consumption in emerging markets like China.
What’s more, as the long-term price trend in natural gas continues to push toward higher prices, we’re certain to hit a tipping point where coal becomes attractive again.
In fact, that tipping point is closer than you think.
Today, however, let’s focus on what’s presently in favor, natural gas and oil.
So which of the two makes for a better investment?
Time to Flip a Coin?
Deciding whether to invest in oil or natural gas isn’t easy, especially since (like coal) there are positive and negative factors swirling around each resource.
Oil is still the king of transportation, while natural gas is still moving forward in power generation – especially in power plants and consumer usage in homes.
Plus, as I wrote last week, the oil industry might not be as robust as today’s prices are indicating. More oil is being produced in the United States – and that supply is compounded by strong production out of the Middle East. Combine that with slowing growth in China, and we may actually see oil prices trade down to the $90 level before the end of this year.
For natural gas, prices have come down from their highs set in December and January – when freezing temperatures sent demand skyrocketing. Still, they’re up by more than 150% from the lows set just a couple years ago.
So do you place your bets on natural gas or oil right now?
A Potent Combination
The answer is actually much simpler than you might think: Invest in both.
Indeed, the best way to play this see-saw between oil and gas is to buy companies that are producing both.
Now, there are several companies to choose from. But to narrow down your search, focus on the best-performing global integrated oil and gas companies that are increasing their natural gas assets, as that’ll provide longer-term growth.
Here are two options for you to consider:
Combo Play #1: Total SA (TOT). This French energy giant currently trades at less than 12 times this year’s earnings – and pays a healthy 4.6% yield.
Combo Play #2: Statoil (STO). This Norwegian energy powerhouse will benefit not only from increased global consumption of non-coal fuel, but also from the situation in Ukraine, which is forcing Europe to rethink its relationship with Russia. It sports a dividend yield of almost 4%, while also trading at less than 12 times earnings.
Energy is still the best sector for solid returns and strong dividends. But if you’re seeking sustained capital appreciation, your focus should be global and diversified between both oil and natural gas.
And “the chase” continues,
Karim Rahemtulla
2 Comments on "Energy Deathmatch: Oil Versus Natural Gas"
Davy, Hermann, MO on Mon, 9th Jun 2014 7:34 am
A Wall Street article looking at the energy situation like it is a ball game. This is the nature of the psychopaths on Wall Street and their obsession with profits at the expense of what is best for society. Obama’s carbon policy will surely be a step in the direction of lower growth and economic troubles. When you limit any energy source at this stage of the game you are applying costs to the economy, distorting the markets, and promoting an energy policy. With the current difficulties we are seeing with all fossil fuels there is really no other source that can make up for the contribution coal makes. Any promotion of another energy source will create consequences and unintended consequences. We know the consequences mainly higher gas usage by utility firms, hopefully more AltE in the equation, hopefully more policies aimed at efficiency. The unintended consequences is higher energy prices and lower growth. This will further pressure the financial system, capex liquidity, and input costs. I am not making an ethical judgment on this action. AGW is serious business and we need to take some kind of action. Yet, we know Nat gas is leaking into the atmosphere so is contributing to AGW. This carbon quandary is a tar baby that cannot be mitigated except by less economic activity. I personally am hoping for 3 years more of a relatively stable BAU for lifeboat activities. My opinion is also a BAU in decline now is better than a forced BAU on steroids that breaks suddenly and violently to a lower level of economic activity later. The sooner we get on with this business of contraction the better. We need an induced BAU coma. I have made the statement there is no managed de-growth. My point was there is no managed de-growth without consequences and unintended consequences. The decent will be dysfunctional and erratic but the sooner it begins the less volatility potential.
Kenz300 on Mon, 9th Jun 2014 9:39 am
The price of oil, coal and nuclear keeps rising and causing environmental damage.
The price of wind and solar keeps dropping and they are safe and clean………….
The past is fossil fuels……… the future is renewables…