One hopeful sign of the oil bulls is their claim of resiliency, the idea that they can continue making money at today's prices.
But the Baker Hughes Rig Count, which measures U.S. drilling activity, finally rolled over in the last month, falling by 80 to 1,840 from 1,920 as recently as December 5. The biggest contributor was a drop of 18, from 335 to 317, in District 8, which covers the Permian Basin in Texas. Rig counts in North Dakota, where the Bakken formation is located, fell over 5% to 169 from 180. Counts in District 2, where the Eagle Ford play is centered, have been stable this month.
Not many have been noticing it but prices of natural gas, a primary fuel for the generation of electricity, have also recently collapsed. Spot prices at Henry Hub were as high as $4.30/mcf as recently as December 1. The price on December 22 was $3.05/mcf.
The growing glut has a cause, the growth of renewable power. About 70% of new electrical generation capacity placed online in November consisted of solar and wind power, according to the Federal Energy Regulatory Commission. More residential solar came online in that month, according to Clean Technica, than natural gas capacity. Wind now represents 5.4% of total U.S. electricity generation capacity, according to the agency's monthly infrastructure report. Both gas and renewables have been taking share from coal, which now represents just 28.1% of generating capacity, according to the report.
It should be acknowledged that no energy stocks are doing well in the current market. Over the last three months, as the oil and gas glut has accelerated, EOG Resources (NYSE:EOG), which pumps oil and gas mainly in the Permian Basin, is down 23%. That's close to the loss in Sunpower (NASDAQ:SPWR), which is down 24%. Whiting Petroleum (NYSE:WLL), now the leader in the Bakken play, is down a whopping 56% during that time.
What matters for investors going forward, of course, isn't what stocks have done in the past but what they might be expected to do in the future. So consider this. SolarCity (SCTY), which specializes in the financing and construction of residential solar projects, is down only 9% over the last three months. Vestas Wind (OTCPK:VWDRY), a good proxy for the wind energy industry, is down just 5.4% in that time.
Oil or gas brought to market is something like a corn crop. You might store it for a while, but at some point you have to sell it, even at a loss, and storage costs money. Wind and solar are more like industrial machines. You buy them once, and they keep working for years. Market share lost to wind and solar by oil and gas is lost permanently. Market share gained by oil and gas is temporary, subject to loss based on spot prices for other capacity.
The marketplace has decided where the better prospects lie. They lie with the industrial machinery model, the capital goods model, and the buy it once to use for a lifetime model. They lie with renewable energy.
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