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By Dana Blankenhorn - Tickers: KIOR, SU
Dana is a member of The Motley Fool Blog Network -- entries represent the personal opinions of our bloggers and are not formally edited.
For most of the last decade, we've been obsessing about the problem called “peak oil.”
Oil is limited, we're running out, what's left has to be more valuable than what we've used already, energy prices are always going to rise, and the energy shortage is permanent.
Sound familiar? Well, the big news for 2013 is, forget it.
The big investment story of 2013 is that the energy “crisis” is over. I've been writing a version of this on my personal blog for five years now – the Sun shines, the wind blows, the tides roll, and we live on a molten rock. And throughout these five years, I've been hearing it from proponents of fracking, who claim that renewable energy is a crock, and the only way forward is with new fossil fuel technology.
The Administration bought both stories. They've subsidized developments in renewable energy, starting with the cheapest form of all – efficiency – and they've allowed fracking. This has pleased neither political extreme, but it has had a real economic impact.
Early in 2012, natural gas prices crashed. Wellhead prices went down by more than 50%, on average, during the year. Now there are indications oil prices are ready to follow.
At the same time, the costs of producing renewable energy continue to decline. Hawaii is moving to cut solar tax credits because it now costs less to produce electricity with panels than to buy it from the grid. KiOR (NASDAQ: KIOR), which makes fuel from wood pellets, has opened a plant in Mississippi that plans to deliver fuel which is cost-competitive with oil in the next few years, without subsidy.
The cheapest form of renewable energy, of course, is efficiency. CAFE standards mandate that car engines double their efficiency over the next 12 years. LED lighting dramatically lowers power bills. More efficient furnaces, greater use of insulation -- it all adds up. We're in the midst of a capital spending boom based on more efficient equipment. This drives the economy in the near term, and puts a thumb down on energy prices in the longer term.
So what does this tell investors? It means that when you're looking at any energy investment, don't just ask how much oil or gas there is in the reservoir. Ask how much it will cost to pull that energy out of the ground.
The first investors to feel this new heat will be those who have invested heavily in Canada's tar sands. You're going to see a roll-over in the price of companies like Suncor (NYSE: SU), heavily invested in Canadian tar sands, due to competition from cheaper North Dakota crude oil.
And this sort of trend will continue to roll. Don't ask how much energy. Ask what price.
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