Dave Gilbert here, Editor of Smart Money.
The massive legislation all over the news lately is called the Inflation Reduction Act, but it also happens to be the biggest climate bill in U.S. history. An estimated $370 billion will go to trying to combat climate change and boosting overall energy production.
You can bet this has investing implications, both monetarily and thematically.
Because so much of the focus is on climate change, it is easy to miss that the bill aims to also increase production of fossil fuels like oil and natural gas. This bill makes that easier through increased drilling on federally owned land and upgrading coal and gas facilities.
A Reuters headline summed up the whole idea…
U.S. climate deal has money for EVs, clean energy and even Big Oil
Simply put, the U.S. needs more energy, and the world needs more energy. Of all types.
That makes the energy investment theme a “both/and” rather than an “either/or”…
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Zooming Out to the Bigger Picture
Human nature seems more inclined to either/or analysis and decision-making.
Sometimes it’s for the best. You should probably order either a Big Mac or a Quarter Pounder. Not both.
On the other hand, if you’re trying to lose weight, you want to both exercise more and eat fewer calories. (Maybe start by not ordering a Big Mac or a Quarter Pounder.)
For years, as alternative energy sources have grown in effectiveness and use – admittedly somewhat slowly – the thinking has often been to invest either in next-generation energy sources… or stick with traditional but dirtier sources.
But Eric Fry will tell you the transition from old energy to new energy can be bullish for both.
He has been educating his readers on this since last year. He sees opportunity in the old and the new for a few main reasons…
- The world simply needs more energy – of all (Russia’s invasion of Ukraine after Eric started talking about this theme complicated energy supply that much more.)
- Oil and natural gas demand will continue to rise for years and possibly even decades, even as energy producers invest less in production. Hence demand outpacing supply.
- Renewable energy is not oil-free energy. For example, producing an electric vehicle requires about twice as much energy as producing an internal combustion engine vehicle. The battery itself requires a lot of energy to extract and refine the metals that go into it.
Eric talked about this at length during recent meetings at our InvestorPlace headquarters, and I wanted to share some of his insight with you…
We continue to see strong demand growth for oil and gas, and now Russian supply is coming off the market after the invasion of Ukraine. The U.S., OPEC, and others are trying boost production to make up that shortfall.
Now, that doesn’t mean I think oil is going to shoot to $200 a barrel. Rather, I think we are in a “new normal” for the foreseeable future with sustained higher prices for crude and natural gas. That’s an environment where good companies operating in the industry can do very, very well.
What will be different going forward is that it won’t be the only industry doing well, like we’ve seen the last several months. Oil-related investments have been a good call and we’ve done well there, but I think the “oil only” trade is fading.
To be clear, I’m still very bullish on oil, but not at the exclusion of other industries.
It’s interesting because a lot of people ask about investing in crude oil versus something else – solar, wind, anything renewable. It becomes a very binary discussion.
But I don’t think it should be. Look at the big picture and see the massive energy transition from old to new. In addition to oil and gas, I’ve recommended alternative energy stocks for a very long time. I am extremely bullish on energy storage and all renewable power industries.
At the same time, crude oil supply and demand and natural gas supply and demand tell us they are not going away. They are still very much a part of this transition and the world’s energy supply.
In other words, I’m bullish on the entire energy panoply.
Higher oil and natural gas prices are obviously good for companies in those industries, but they are also good for renewable energy. The competition with traditional energy sources becomes easier. With sky high prices for oil and gas, the difference in the cost of production shrinks.
The clean energy industry will grow more quickly because we have $100 oil.
As you make energy investments in your own portfolio, you might want to consider Eric’s analysis and look to both traditional and renewable energy sources. Both offer opportunities right now, but this sweet spot won’t last forever.
Renewable energy will eventually rule the day, but it will take a long time to get there, so might as well make money on both sides of the trade. Why make it an either/or when you don’t have to?
P.S. Eric is gearing up to release his latest Investment Report issue, and he devotes quite a bit of it to this very subject. He also recommends two new energy-related investments to help his readers take advantage. Click here to learn more.