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Peak Oil and the Investment Landscape: A Look at the Potential Winners and Losers

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.

Full article at: http://www.oilprice.com/article-peak-oil-and-the-investment-landscape-a-look-at-the-potential-winners-and-losers.html



Disclosure: No positions