The energy sector on U.S. stock markets is huge. Driven primarily by oil, the sector has 10 companies with market caps greater than $90 billion at today's prices - including Exxon Mobil (XOM), arguably the most valuable company in the world with its market cap currently in excess of $380 billion.
However, oil's time as the premiere fossil fuel that powers our world is coming to an end, as the supply of oil that is extractable at economically favorable terms is low. Even for those who argue that oil is abiotic (and thus there is no scarcity threat), the concern over pollution/emissions is also growing. Moreover, the global demand for energy is only going to grow - significantly, as the spread of the Internet fuels the need for greater energy, specifically in the form of electricity.
When I ask myself how this situation is going to get resolved, I have come to the conclusion that the expansion of energy will come from the technology sector. Specifically, cloud computing will allow for the creation of processes that enable energy to be more efficiently transported and allocated. Companies like Amazon (AMZN) and Google (GOOG), the two which I think are most likely to go head-to-head in a battle for the flow out of oil and into New Energy, as they both possess the necessary competences via their cloud computing businesses to apply smart logic to energy distribution. And they both face significant energy costs, which will pressure them to seek cost-reducing innovations.
Google's latest disclosure on its energy usage reveals the company is using 1% of the world's energy supply - more than the entire nation of Laos. And just as cloud computing has already disrupted the traditional data center model of hosting, enabling them to develop a cost-efficient model of hosting that pushed prices down and made starting a robust Internet project cost-efficient to a whole new market of start-ups, cloud computing firms are now positioned to play a greater role in providing the energy infrastructure for clients. Indeed, a study from Pike Research forecasts that the cloud computing industry has grown and will continue to do so, even in the midst of a weak global economy, due to its ability to reduce costs via its energy efficiency.
Ultimately, though, I think any company that possesses a competence in smart processing/distribution systems will be capable of disrupting the energy market, and whoever delivers this solution is positioned to get a major piece of the market capitalization of the oil-based incumbents in the energy sector. While my favorite pick for actualizing this opportunity is Amazon, I think a wide variety of companies are also well-positioned. A firm like UPS (UPS), for instance, could also succeed if they engage in strategic acquisitions and execute successfully.
In sum, the shift away from oil is going to create the opportunity for entirely new value networks to emerge in the energy sector. Cloud computing firms, physical distribution businesses, and businesses rooted in the production of emission-free energy - such as geo-thermal, renewables and nuclear - are well-positioned to be a part of the new value network that displaces the incumbent oil firms in the energy sector.