carbonates

Fossil Fuels vs. Green Energy: What's a Better Investment?

I wrote a long comment, and then lost it to the vagaries of the log-in page. In summation, I do not believe that alternative energy stocks can do well UNTIL oil and gas stocks are doing well again. The warm fuzzy thinkers that love alternative energy for its political spin seldom stop to realize that the health of the alternative energy market is very much tied to the price of oil and gas. Until the oil and gas sector gets over the flu, alternative energy will continue to have pneumonia. The decision is if you want to invest in businesses that still show a profit, or businesses that were only profitable for a short period in the past.

The other comment I have is that while demand destruction was a significant factor early in the decline of energy prices, it is no longer an important factor. The new problem, and what will drive prices upward as the economy inches upward, will be supply destruction in oil and gas. The current low prices will destroy much of the planned supply additions (exploration projects) that were being put together over the past two years of rising prices. The next cycle in oil and gas is likely to be much more extreme, while it may be a recession away.

The plans of Obama to tax "windfall" profits of oil and gas producers in the US may be dashed, suggesting his proposed economic support for the alternative energy sector may also never come to pass. I don't expect profits of the oil and gas sector to remain high after the forward selling of oil and gas that many producers have utilized run out. By 1st Quarter '09 this profit will be gone. Natural gas producers in the US are going to be particularly hard hit, especially in the marginal resource plays, as production this year is up almost 10%, and if demand does not go up, they will be forced to either cut production or produce at lower margins. Not even T. Boone Pickens will be able to change this market, as his ideas, while excellent, depend on building infrastructure that will take years.