The Next Big Boom in Energy Isn't What You Think

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As the ongoing debate between renewables and fossil fuels continues, there is a wrong-headed presumption that there will only be one clear victor.

But recent trends in the wind and solar age tell us that this conclusion just isn't so.

The truth is both types of energy will be required to work in tandem in order to achieve our energy goals in the future.

And – as these developments accelerate – it is in this "new" energy balance that individual investors will find the next big boom.

These days, with oil-rich countries like Saudi Arabia and the United Arab Emirates unveiling huge renewable energy projects, even some analysts are drawing the wrong conclusions.

But I have to stress, renewable development is not a signal these countries are running out of crude oil anytime soon.

Quite the contrary, countries like Saudi Arabia realize that one side of this energy equation will require the help of the other.

The same holds true in North America, where the surplus of unconventional natural gas has led some to the erroneous conclusion that wind and solar – still requiring significant government subsidies – have been dealt a fatal blow.

Wrong again. This is not a winner-take-all battle. There will be no silver bullet that delivers the next "new age of energy"

Rather, it will be in the integration of all the available energy sources that will lead to the next big development. And that is going to require sourcing from genuinely distinct and dissimilar energy categories-including wind and solar.

In fact, three recent events provide clear indications that this "energy integration boom" is already well underway.

One of these was in the San Francisco area, where gas turbines were cranking out electricity at near capacity on one end of the bay, while a huge wind farm was almost dormant on the other due to a lack of wind.

A second occurred in Southeast Asia. There a new battery of photovoltaic cells offset a bottleneck in the delivery of coal and natural gas to power plants.

The third was the usage of wind power in the Baltic to offset an unexpected interruption in gas deliveries on a recently completed onshore distribution spur from the new Nord Stream gas line moving under the Baltic from Russia to Germany.

Now these were three completely different events, but they certainly do not reflect a sudden change in either global energy problems or planning. What each has proven is that new trends in energy grid optimization have been accelerating over the past decade.

And this continuing trend will be the main driver in how we power our lives moving forward.

The Impact of Renewables Remains Limited

Here is the argument in a nutshell.

So long as we remain dependent on single energy sources for needed sectors, alternative possibilities will have little impact except on the margins. That means we require distinctly different energies that are capable of being mutually exchangeable as required.

Even if solar, wind, and geothermal will someday comprise the primary sourcing of electricity in certain regions, fossil fuels will still be required as backup. Similarly, where oil, gas, and coal remain as the essential power sources, renewables will serve in a similar secondary role.

Here is what is going to happen when this balance takes place. For the first time, the complete spectrum of energy needs will be able to factor in availability, efficiency, production/generation cost, and end-user price whenever an energy selection is made.

Availability, efficiency, cost, and price are the essential ingredients in determining the real impact energy has on economic development (or recovery). The overall scheme of energy application still places primacy on preferred energies either by region or by use. Coal is still the source of choice in Appalachia and China; meanwhile, oil still runs our vehicles.

Therefore, having a number of sources is not enough. Integrating sources is only half of the problem. We need to be able to exchange them in market use. There, transportation is still the primary shortcoming.

Natural gas is making a move to reduce dependence on gasoline and diesel. The persistence of the electric car, the end use integration created by the hybrid, the rise of biofuels, and even gasification, are all movements afoot on the vehicle fuel side.

There is still much that needs to be done for the integration to work.

But it has started.

On the power generation side, however, the expected grid moving forward will continue significant revisions already underway. The network we obtain electricity from will undergo changes that are more dramatic over the next two decades than in the previous three or four generations.

Several of the major ingredients are already in operation. With nuclear, geothermal, and even weave power thrown in for good measure, the balance prospects are encouraging.

The key in all of this remains integrating sources in an ongoing energy balance – requiring a number of different sources, exchangeable as to use and selectable as to availability, efficiency, cost, and price.

Of course, it is not simply the identification and operationalizing of the sources. We also require a multifaceted infrastructure to produce, distribute, store, and transport. This is likely to be the most expensive component of the mix.

We are witnessing the rise of new "midstream" components in many energy sectors paralleling the advent of limited partnerships in gas and oil. Each new demand of this expanding and revising energy infrastructure will also create opportunities for companies to explore new niches in the production-to-use sequence – creating new profit centers for investors along with them.

The market needs to understand that the expansion of wind farms and photoelectric fields is not a sign that oil and gas are dead. Nor is a booming shale gas basin a reason to short solar stocks.

The coming integration will establish a new way we power our lives, but it is one on which there will be ample room for sources mutually to benefit.

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About the Author

Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle

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  1. Publius | December 19, 2012

    Nobody reads these, do they?

  2. Peter Troy | December 19, 2012

    Good article, underlines the point that "renewables" will always need a fossil or nuclear fuelled backup on line at low or no load. A cost factor which does not seem to be factored into the calculation of real "renewable" costs!!

  3. Lois Hinners | December 21, 2012

    Hi!

    Good story! You're correct that we will diversify in energy sources. I have also been watching "NENE", New Technologies per their clear window paint that creates electricity and also, energy extracted from the slowing of vehicles, on the road. Quite innovative. Just last week they finally obtained their final patents, so I guess we now see them obtaining contracts for work. Wonderful! Take care, Lois Hinners

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