Last month, I explained in an article how and why the world is approaching a worldwide peak in oil production sometime in the next decade. Although there are large implications throughout the economy, I want to say upfront that I do not think this will bring on Armageddon. Oil prices that are significantly higher than earlier in our lifetimes will bring about great change, yet I firmly believe that our economy has the ability to successfully adapt. Despite the strong headwind oil scarcity will create, I am still an optimist.
I have structured this article by segmenting the "winners" and the "losers." These monikers may be a bit strong, and it is worth noting that even a company that might have a slower growth rate than before because of peak oil can still be a good investment. In other words, I'm not running out to buy the peak-oil benefactors, nor am I dumping the peak-oil losers. Rather, increased oil scarcity is but one of many factors Morningstar's analysts and I consider when projecting future cash flows and business positions. With that, let's jump right to it.
Loser: Existing Petro Infrastructure
With lower production of oil, there will be less of a need for the energy infrastructure needed to support the processing and transportation of liquid petroleum. All else being equal, this will mean low-to-negative growth, slack capacity utilization, and lower profitability for refineries as well as certain pipelines and energy storage assets. In terms of companies held in StockInvestor's model portfolios, ExxonMobil (NYSE:XOM), Kinder Morgan (NYSE:KMR), and Magellan Midstream (NYSE:MMP) have a significant portion of their assets that are in the bull's-eye here.
Disclosure: No positions