Taking a Long-Term View of Energy Investing


"No matter how you drill, mine or harness it, energy isn't getting cheaper."

At less than $70, the price of a barrel of crude oil might seem like a bargain when compared with last summer's $140 price tag. But go back to 2001, when oil was trading at about $30 a barrel, and it is easy to identify the trend.

No matter how you drill, mine or harness it, energy isn't getting cheaper.

According to the Energy Information Administration, demand for energy from 1965 to 2007 almost tripled, while the world's population doubled. EIA projections out to 2030 show the world's population growing 1% annually to reach 8.4 billion people.

Energy demand during the period is expected to grow 1.6% a year.

"The theme is growing demand for energy, in general, and oil alone can't meet that demand," said Craig Callahan, president of Icon Advisers Inc., a $2.5 billion asset management firm in Greenwood Village, Colo.

The reality that oil alone won't be enough to support the booming growth already unfolding would seem to bode well for sources of energy now thought of as alternatives. The same growth factors, moreover, bode well for investments in traditional energy sources, too.

Global demand for crude oil has grown by 37% during the past 20 years, while oil-refining capacity has grown by just 16.5%. Natural gas consumption is projected to increase at an annual rate of 1.8%, which would deplete natural gas resources within 40 years, according to Icon.

Wind, solar, hydro-electric and alternative fuels present potential longer-term opportunities; these areas are likely to redefine and expand the energy sector.

Beyond supply and demand, the broader energy category will also be affected by political and regulatory actions, including the controversial cap-and-trade legislation.

Continued development of non-fossil fuels is inevitable, but the growth of enterprises and technology linked to such non-traditional energy sources still is affected by the extreme volatility in oil and gas prices.

Regardless of the longer-term prospects for traditional energy, the handwriting is on the wall, pointing toward a much broader definition of what is now considered energy investing.

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