As virtually everyone has noticed by now, gas prices are back at a painful level: the national average in the US is around $3.67 per gallon of unleaded gasoline.
I agree with this assertion from Forbes noting that gas prices are not rising so much as the dollar is falling. A weak dollar, fueled by inflationary monetary policy as well as twin budget and trade deficits that have driven the dollar lower for the past 11 years, are sending the price of everything up -- including gasoline. Regardless of the cause, though, I don't think gas prices are going to come down any time soon. There is still the issue of peak oil, an issue that is only getting more severe as time passes. I believe it is time to seriously consider new means of transportation. And so, the main question: what displaces gasoline?
I believe there are two solutions: natural gas and electric vehicles.
First, a word on biofuels: from what I've seen, the industry is simply too young and the math in terms of its costs doesn't add up. Here's an analysis of fuel derived from algae that puts the cost at the equivalent of over $20 per gallon of gas. I do think there is some potential hope that the right business model and energy inputs can make biofuels economically viable, but at this point, I feel it's still too early of an investment opportunity.
As for natural gas, I don't think it is the ideal solution, mainly because it has other uses -- specifically in agriculture -- for which it is better suited. But given that the US is in the midst of a natural gas boom that has managed to send prices from over $11 to nearly one third of that, and that natural gas is already used as a fuel source in many public transportation systems, it is clear that there may be an opportunity here. The main issue with natural gas is the infrastructure needed to move the newly discovered abundance of supplies is not yet in place. Kinder Morgan (KMI) is an interesting opportunity, in my opinion, for those that want to invest in the new natural gas infrastructure -- an opportunity that may be especially worthwhile for those who believe natural gas will play a vital role in the future of transportation.
Still, though, in the long run, I believe the solution is electric vehicles. I believe the end of oil will result in a much greater shift towards electricity for all energy needs, and that this electricity will be created by nuclear power (NUCL) and fueled by uranium (URA). This is, in my opinion, the most viable solution in light of the time constraints and economic situation we are facing.
Of course, with respect to electric vehicles, there are still many obstacles -- most notably that they cost too much, need to be re-charged too often, and take too long to re-charge. The situation is a bit similar to smartphones, which are also plagued by battery life issues. But with big companies like Toyota (TM), Nissan (NSANY.PK), and General Motors (GM) all jumping into the electric vehicle opportunity, I think there is sufficient push factor for investors to come in and find trends to ride. Specifically, here are the opportunities I'm most interested in:
1. Uranium and nuclear power as the primary generator of all this electricity is the easiest bet, as I've noted many times.
2. Battery improvement is one of the biggest stumbling blocks electric vehicles face, and I believe vanadium will play a key role in the emerging value network for emerging vehicles because of the advantages it offers as a battery. Denison Mines (DNN) is a company I particularly appreciate in this regard, as it is both a producer of uranium and vanadium.
3. Perhaps the biggest obstacle to a proliferation of electric vehicles is the need for an infrastructure to match it. This means getting electricity into garages and parking lots, as well as having stations where people can re-charge. The First Trust Smart Grid Infrastructure ETF (GRID) may be a convenient way to play this.
For electric vehicles, an important consideration is who the initial customers will be. We see companies trying to market directly to consumers as an alternative to gas-fueled cars, although I'm more interested in customers for whom I think the limitations of electric cars do not possess significant problems. Specifically, customers who go on the same routes on a daily basis and do not go on long routes are the ones I think will be most inclined to view the electric vehicle as a solution whose benefits outweigh the limitations. Short-distance delivery vehicles, like restaurants, are a prime target here, in my opinion. A electric vehicle manufacturer that an successfully develop a customer base in such a segment can then use this base to swim upstream to bigger markets -- like the mainstream automobile market.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in DNN over the next 72 hours.