It is evident alternative energy will play an increasingly important role in the future. We are entering the early phases of what appears to be the world's next flourishing industry.
The world has reached a point of oil consumption where we need to develop an alternative energy source for crude oil. Fossil fuels are becoming more difficult to find and extract from the ground. Combine a constant or lower oil supply with growing demand from China and India, and you have a recipe for much higher priced oil. It appears as though we have reached, or will shortly reach, "Peak Oil".
Peak oil is the point when world crude oil production has been maximized and is unable to maintain at such levels. After this timeframe, the rate of production will enter terminal decline. The world's addiction to cheap oil has left us in an untenable position.
Our modern economies are dependant on crude oil. If crude oil is too expensive, economies will inevitably slow, and as result have negative implications for future global growth.
In December 1998 crude oil prices were around $11 (US) per barrel. As of mid- November 2007, they reached a high of $98 (US) per barrel. If prices continue at half that rate, we will be looking at $400 oil by 2020. Personally I do not believe we will see $400 oil by 2020, but it does stress the importance of finding a viable alternative. Fortunately the rate of technological advancement is increasing and finding clean energy alternatives are becoming more attractive.
Investing in the Future
Renewable energy comes from inexhaustible sources like wind, water, and solar power. And unlike coal, oil and gas renewable energy sources do not run out. Renewable energy, often referred to as 'green energy' is far less polluting and harmful to the environment than current conventional fossil fuels. Major forms of renewable energy include: solar energy, wind energy, geothermal energy and waste by-products.
The number of publicly traded companies involved in alternative energy has exploded in recent years. Private equity firms and savvy investors are attempting to position themselves in what could be the next big investment sector. But similar to the dot.com days, there is plenty of hype mixed in with the substance. Because technology can be difficult to understand, the average investor should be cautious when picking individual alternative energy stocks. These stocks can be very volatile and suitable for more risk tolerant investors. A smarter, more diversified vehicle for investing in alternative energy does exist. Clean energy Exchange Traded Funds (ETF's) can provide investors exposure to green energy companies while maintaining a well diversified portfolio.
Justus Parmar is an Investment Advisor with Global Securities Corporation and can be reached at jparmar@globalsec.com or 1 800 455 5778 for investment ideas. The views expressed above are not necessarily those of Global. Global is a member of CIPF.
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