RECENT NEWS
Benzinga  3 hrs ago  Comment 
The stock market hit a speed bump this week as plunging crude oil prices continued to pressure the energy sector. The benchmark Energy Select Sector SPDR (NYSE: XLE) fell to its lowest levels of 2014 on Friday and is now down more than 16 percent...
Motley Fool  3 hrs ago  Comment 
We don’t have a crystal ball, so we'll be looking for the answers to these questions in 2015.
Disciplined Approach to Investing  3 hrs ago  Comment 
Crude oil prices continue to take a beating and are seemly dragging the entire market lower this past week. A market concern now is the fact the price of a barrel of WTI crude has broken longer term support that had been in place for twenty years...
Motley Fool  4 hrs ago  Comment 
ExxonMobil’s energy outlook projects swift growth for renewables, but the largest growth will come from somewhere else.
Motley Fool  5 hrs ago  Comment 
The Motley Fool asked the analysts knee-deep in the energy sector what they're excited about for 2015.
Forbes  Dec 13  Comment 
When you're job-hunting, it's easy to fall into The Vortex. The Vortex is the energy field that sucks you in like a whirlpool in whitewater rapids. When people are interested in you, especially after a self-esteem drought like the kind many...
Reuters  Dec 12  Comment 
Banks are responding to tumbling crude prices by trimming the value of oil reserves tied to credit lines, possibly causing a cash crunch for some highly-leveraged U.S. exploration and production firms.




 

From carbohydrates to hydrocarbons, energy is necessary for work, and work is necessary for the economy. The pyramids at Giza were erected using human energy, the textile economy of 19th century New England was driven by water energy, and modern economic growth across the globe is powered by carbon energy. Today, emerging sources of renewable energy promise to drive the economy of the future.

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Electrical Generation by Source for 2008[1]

Oil Majors and Nationals

A few oil companies dwarf others in the industry, in terms of revenue, market cap, and profits. The oil majors are vertically integrated, international companies that do everything from searching for petroleum to refining it into fuels and chemicals. They include

Many nations, from Venezuela to the members of OPEC, are dependent on oil to drive their national economies - not as a source of energy, but as a major export. Some of these countries have oil companies in which the national government owns a large stake, and which rival the oil majors in size and scope. The oil nationals include

Independent Oil and Gas Companies

Independent oil and gas companies engage the petroleum activities as the oil majors, ranging from exploration to production to refining, but none of them are as involved in all parts of the industry as the majors or nationals. Independents tend to specialize in one aspect of the oil and gas industry.

Companies that focus on predominantly exploration for and production of natural gas include

Companies that focus on predominantly exploration for and production of oil include

Companies that heavily involved in exploration for and production of of both oil and natural gas include

Companies that are involved in refining include

Oilfield Services Companies

Most oil and gas companies don't build the seismic imaging, drilling, and piping equipment they need. For the essential hardware, especially new technologies needed for such advanced operations as deepwater drilling, they turn to oilfield services companies. These firms provide services to oil extractors, such as supplying drilling equipment and providing geological information to determine potential drilling sites. These companies are slaves to the cyclicity of the energy industry in general. When oil prices are high, extractors scramble to extract as much oil as possible to take advantage. This leads to high demand for new equipment and services. On the other hand, when the cycle is downward, there is little demand and historically services companies have absorbed large losses. Sustainable competitive advantages are rare - without significant switching costs or sticky businesses (these services are largely discretionary in nature), profits can disappear in no time.

Coal Power

Coal is the United States' most abundant fossil fuel; in 2006, U.S. coal reserves were estimated to be 1,162.8 million short tons[2]. Furthermore, coal is preferred over oil when it comes to base-load power generation, as it is cheaper, more abundant, and cannot yet be used efficiently as vehicle fuel. This form of energy, however, is extremely controversial for its role in contributing to climate change and causing terrible air pollution issues like acid rain and smog. Though clean coal technologies are being developed to make this source of energy more environmentally competitive, it will be difficult and costly to develop effective methods to stop the burning of coal from contributing to the greenhouse effect. Because of this, JP Morgan Chase, Citigroup, and Morgan Stanley have all downgraded coal, making it more difficult for companies to finance coal power plants or mining equipment.

Major coal companies include

Nuclear

Nuclear energy is arguably the most controversial form of energy. Supporters tout its lack of smog, acid, and greenhouse gas pollution, as well as the fact that uranium and plutonium don't come from politically turbulent countries the way oil does. Detractors respond by pointing to the highly toxic, difficult-to-remove, radioactive waste resulting from nuclear power operations. They also highlight the fact that a "nuclear meltdown" in the best case would release deadly radiation for miles around and in the worst case burn a tunnel into the earth (an effect known as the China Syndrome)[3].

Despite its risks, nuclear energy currently provides 16% of the world's energy supply[4]; with world energy demand increasing and the installation cost of this generation of nuclear plants falling from $5000 per kW to $2000 per kW[5], nuclear's share of the energy spectrum is well-positioned to increase.

Hydroelectric

Water is one of the oldest sources of mechanical energy to be harnessed by humans, so it's only natural that it was one of the first forms of "alternative energy". Despite the ecological effects of damming a river, the release of greenhouse gases from decaying plants in flooded regions, and the risks posed by a bursting dam to communities downhill from a major hydroelectric plant, hydroelectric energy still generates 19% of the world's electricity[6], and is growing in countries like China, where many rivers have not yet been dammed. Major international hydroelectric plant operators include Vale and Idacorp.

Renewable Energy

Oil, gas, uranium, water - as power sources, all have the potential to run out during the course of human development, possibly in the next couple of hundred years. Renewable sources can sidestep step this problem by using energy sources that either will last longer than the human race or can be regenerated through agriculture. Most renewable energy sources are also environmentally friendly, fight global warming by reducing carbon emissions, and allow economies to reduce their dependence on politically turbulent nations.

Wind energy is best established of the renewables, constituting 1% of global energy production[7]. It can also be the most cost-efficient, especially when large installations using large turbines can take advantage of economies of scale. On the other side of the fence, solar power is the most expensive, least efficient form of renewable energy - for now. Recent spending in the sector has caused tremendous improvements both in cost and efficiency, and this has caused companies from China, Europe, and the U.S. to flood the sector, increasing competitiveness and driving even greater improvements. Geothermal energy gets relatively little attention, but with states along the fault lines and geysers of the Western United States increasingly passing renewable energy mandates, its potential is growing. Biofuels, however, have been all the rage, and with Congress's recent passage of an energy bill mandating increased production of ethanol and cellulosic ethanol, the stage is set for their use to greatly increase - in spite of protests from social activists who are worried about rising food prices.

Despite the fact that oil prices have risen over $100 per barrel, most renewable technologies are still less cost-efficient than fossil fuels - though recent government support has led to heavy spending in search of ways to close this gap. Renewables are quickly catching on in progressive regions like Europe, and with over 750,000 deaths in China caused by air pollution and other environmental damages each year[8], the market for clean energy is expected to grow in there as well.

Power Generation Costs for Various Energy Sources in 2008[9]
Fixed Cost (cents/kWh) Variable Cost (cents/kWh) Total Cost (cents/kWh)
Coal 4.1 3.3 7.4
Natural gas 2.8 7.8 10.6
Nuclear 8.0 0.8 8.8
Wind 8.2 0.0 8.2
Energy Return by Source in 2008[10]
Energy return on Energy Invested
Coal-fired power plant 2.5
Nuclear power 4.5
Hydroelectric power 10
Wind power 35
Natural gas 10.3

Geothermal

Geothermal energy uses hot water deep within the earth's crust to spin turbines and produce power 24 hours a day, seven days a week. It produces few carbon emissions and can re-inject used water back into the earth to be used again, making it fully sustainable. Not every part of the planet has geothermal resources; usually, they can be found in regions where there is volcanic activity, or where two tectonic plates meet. This is why places like Indonesia and the Philippines, which are situated on the Pacific "Ring of Fire", or California, with its myriad fault lines and hot springs, are such strong markets for geothermal technology.

Solar

The appeal of solar power is obvious. It is a virtually limitless resource. It's free of greenhouse gas emissions, widely thought to contribute to global climate change. In developed countries using lots of air conditioners, it generates more electricity exactly when you need it-- at times of peak electricity usage (e.g, you run your air conditioners more during the hottest, sunniest days of the summer time). Once installed, solar systems can function for 25 or more years with little maintenance or oversight.[12]

Solar comes with limitations, however, with poor cost-efficiency being the most notable. Solar is weather dependent and intermittent, requiring storage or back-up systems to supplement during times of weak generation. More importantly, thanks to fast-rising silicon prices, solar systems average $8,000 per kilowatt installed[13] - extremely expensive even in comparison to other renewables. Still, the solar market has exploded over the past year, with electricity generated from solar systems increasing from 2.5 GW in 2006 to 3.8 GW in 2007[14].

Wind

Wind is caused by different parts of the earth heating at different rates to different temperatures, creating pressure gradients and leading air molecules to move from areas of higher pressure (density) to areas of lower pressure (density). As long as the sun shines, the wind will blow. It would appear that wind is the ultimate source of energy, but, like all other renewables, it faces some issues. Not every region has winds that are the right speed year-round; furthermore, turbines are very dangerous for birds, particularly during migrations. Wind parks can also "overproduce" on windy days, creating more electricity than needed by the utilities grid, though there are massive batteries being developed to store some of this excess energy for periods when the wind is weaker than needed.

Wind turbines have the lowest installation costs of any of the renewables, and with large wind installations taking advantage of economies of scale to reach lows of $800 per kilowatt installed[15], today it rivals natural gas as a form of cheap, base-load energy.

Wave Power

Wave power uses the kinetic energy from ocean waves to generate electricity. Most wave energy producers are private labs and emerging companies, but Ocean Power Technologies has emerged as the first publicly traded wave power producer in the U.S.

Biofuels

Biofuels are sources of energy that are renewable in the truest sense of the word. They are made from plant matter; since plants can be regrown, the energy source can be renewed. Major biofuels include biodiesel, ethanol, and cellulosic ethanol, though there are currently private companies working on refining biogasoline. In the U.S., major companies that dabble in the three main forms of biofuels include Pacific Ethanol, ConAgra, Archer-Daniels-Midland Company and Aventine Renewable Energy Holdings.

Ethanol

Ethanol is a biofuel that can be blended with gasoline; it is made by fermenting sugar, and corn is its primary input. Currently, American cars can run on a mix of 90% gasoline and 10% ethanol, though there isn't nearly enough corn-based ethanol being produced at the moment to meet this capacity. There are also cars that can run on 85% ethanol and even pure ethanol, though these vehicles are few and far between in the U.S. VeraSun Energy is a major producer of corn-based ethanol.

Cellulosic Ethanol

Recent energy legislation has mandated an increase in the amount of ethanol used in the U.S. far past the nation's corn-production capacity. Another form of ethanol, cellulosic ethanol, uses industrial or biological processes to refine ethanol from cellulosic matter, like paper, wheat husks, and dead plants. Companies like Bluefire Ethanol refine ethanol from trash, while others like Verenium Corporation use lab-developed enzymes to break down cellulose from plant matter like leaves and grass.

Biomass and Energy-From-Waste

Companies like Covanta use trash instead of gas to generate the heat needed to spin steam turbines. These companies burn waste from farms and landfills, converting leavings that would otherwise not me monetized into valuable electricity.

Traditional Energy Sources

Oil and Natural Gas

Oil, the "black gold", has always been a rich source of energy, used for a variety of purposes from electricity generation to gasoline production. The oil and gas products industry consists primarily of firms that take crude oil or other raw materials and convert them into usable products such as gasoline, motor oil, and diesel fuel. Refining as a business model is a tough one.

First of all, refining is very capital intensive, requiring a lot of maintenance, upkeep, and replacement costs to keep refineries running smoothly. Secondly, there is no real way to build a competitive advantage with refining as a pure play business model. While OPEC protects crude oil prices for upstream (extraction) firms, nobody is protecting the cost of gasoline or motor oil! Lastly, refining profits are heavily cyclical, usually inversely dependent on the price of crude oil. Refineries buy crude and sell products, so an ideal situation for them is lower crude prices and relatively higher end product prices.

There are a lot of steps in the process of extracting oil from the ground to selling it to consumers. First, the company must own or lease land that contains oil deposits. Then the company must extract the oil from the ground and get it to refineries via pipelines. These steps are called the "upstream" process. From there, the refineries convert the crude oil into products which are then marketed and sold to consumers. This is the "downstream" process. Companies in the oil & gas segment have operations to handle all of these steps. They are commonly known as "integrated" oil and gas companies.

Global demand for oil is predicted to increase by 2.1 million barrels, to 87.8 million barrels, in 2008[16]; with emerging economies depending on accessible fossil fuels to drive growth, these numbers are predicted to keep growing.

Oil is, however, a controversial source of fuel. In the past six months its price has risen to record levels, over $100 per barrel, and it continues to be in great demand. It is the main source of funding for dictatorial, tyrannical, and terror-supporting governments from the Middle East to Venezuela. Its extraction causes ecosystem damage and its burning releases smog, particle pollutants, and greenhouse gases.

Most importantly, however, it is a limited resource. Many believe that we are near a condition called "peak oil", in which half the world's reserves have been used; with oil prices reaching record highs in recent weeks, it's clear that the demand for this resource has greatly outpaced its supply.

Natural gas, another hydrocarbon, is often lumped in with oil; it is found in the same reserves as those containing oil, its price tends to fluctuate along with oil prices, and it is also a limited resource. Natural gas is, however, a cleaner form of energy, and is the second most used source of electricity (after coal). It has been touted by a number of sources as "the" alternative to oil and coal; as a source of heating energy, gas is cheaper[17] and, in recent years, seemingly more abundant than oil. Companies that produce one, however, tend to produce the other.

Conclusion

Right now, the world is powered by fossil fuels. Oil is the richest industry on the planet, with some of the highest grossing companies of all time; these days, nations rise and fall based on their ability to supply or procure oil to drive their economies. Coal is emerging as a major fuel source in markets like China, where it is easily accessible and cheap to use. In developed, politically progressive markets like Europe, renewable energy is taking over, driving new economic development internally, as companies like Vestas grow to be the largest companies in their home nations, and abroad, as countries like India and China pump out low-cost renewables developers to compete on world markets.

The energy industry is incredibly broad, and is becoming increasingly volatile as a result of issues developing around traditional energy sources like oil and coal. As the reserves in more stable nations dry up, oil is increasingly being imported from politically unstable countries. This means that every time a bomb goes off in Iraq or a coup occurs in Africa, the price of oil spikes. Fossil fuels are also on trial in the court of international opinion for contributing to global warming, which has led to the adoption of renewable energy mandates in more progressive regions. To many, the energy industry appears to be in a state of transition, though developing nations are still turning to cheaper, more traditional sources like oil, coal, and natural gas. Cases can be made for the long-term growth of every form of energy, so the answer to what source will be the "next big thing" is still up in the air.


Notes

  1. SeekingAlpha: Electric Utilities: Coal vs. Renewables
  2. Energy Information Administration, Annual Coal Report: 2006
  3. Wikipedia: Nuclear Meltdown
  4. NuclearInfo.net: Energy Requirements and Issues
  5. NuclearInfo.net: The Benefits of Nuclear Power
  6. Wikipedia: Hydroelectricity
  7. "Energy companies make wind power a top investment"
  8. The Wall Street Journal, Blog by Mark Gongloff, July 3rd, 2007
  9. Montana Environmental Information Center
  10. Suzlon FY 07-08 Annual Report, Management Discussion and Analysis, p. 5
  11. Chevron Geothermal Website
  12. University of Wisconsin - Madison News: "UW-Madison employee shines light on solar power, energy conservation"
  13. http://www.wind-works.org/Solar/SolarPVCurrentInstalledPricesperkWinCaliforniaElsewhere.html
  14. SeekingAlpha, "Contradictions in the Solar Market"
  15. http://www.telosnet.com/wind/future.html
  16. "IEA increases 2008 global oil demand forecast"
  17. http://en.wikipedia.org/wiki/Natural_gas#Cost_comparison_with_heating_oil_in_the_USA

Companies in the Energy Industry (552)

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