Why Invest in Oil over Alternative Energy


". . .increasing focus on so-called alternative and renewable energies will. . .probably increase world consumption of fossil fuels."

For investors, the question is not whether energy is the right investment, but which kind. Oil is still the prime source for energy, followed by coal and gas. And at least for the next decade or two, oil and gas will remain in this top position.

I'm somewhat less enthusiastic about coal due to its lower energy density (by mass) and the inability to distribute it via pipelines. I believe that the increasing focus on so-called alternative and renewable energies will not just fail to decrease but probably increase world consumption of fossil fuels.

Alternative energy is all the rage lately, dominating politics and the media. However, its technology still has to prove whether it can actually deliver the NEGs (Net Energy Gains—the energy produced minus energy expended to develop/manufacture the technology) and EROIs (Energy Return On [Energy] Investment factors) that its manufacturers and proponents promise. Even if it does, research and development of alternative energy technology and construction of the plants will require extra energy in the short run.

Take wind power, for example, which has been hyped the most lately. Aside from the energy it takes to manufacture the materials needed to build the turbines, there is also transport, including trucking of the raw materials to the material suppliers' processing plant, to the turbine manufacturer for manufacture of the windmill components and to the destination of the turbine. Assembly and erection requires further energy. In short, as with conventional types of power plants, a wind farm starts way in the negative before it generates its first watt.

Solar power—the other predominantly advocated alternative energy source—has some similar problems. The manufacture of the solar panels made up of photovoltaic cells, which, in turn, are made of semiconducting materials like silicon, is energy-intensive—and creates toxic waste.

Finally, there is nuclear power. Sometimes promoted as a "clean" energy; it is not a renewable energy and not entirely clean, as the fuel rods have a limited lifetime, and then become radioactive waste.

I believe that oil (and probably also gas) will continue to be a primary source of energy for years to come. Don't buy too much into today's alternative energy hype; cash in in the future, when public perception of this overhyped field has been corrected.

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