Energy is vital for the well-being of the global population and a necessity for economic and social progress. It is also essential to our daily lives. We’re reliant on energy to power our cars and trucks, heat and cool our homes and offices, wash our clothes, manufacture goods, etc.

As the global population continues to grow, so will the demand for energy. Which is why investing in the energy sector could be an important move for your portfolio in years to come.

What is the Energy Market?

The energy market is composed of a large group of companies that produce or supply energy. It includes drillers, refiners, producers, companies providing equipment & services, and exploration companies in the oil & gas sector. The sector also includes integrated power utility companies such as renewable energy.

Investing in non-renewable energy provides exposure to natural gas, petroleum, and coal. Uses included heating and electricity generation, fuel for transportation, feedstocks for chemicals/plastics/synthetic materials. The major advantages of non-renewable energy are its reliability and ease of extraction, given that it is not weather-dependent, and can be accessed through drilling (onshore and offshore), mining, and fracking (hydraulic fracturing). Currently, about 85 percent of the world’s energy comes from nonrenewable fossil fuels—oil, natural gas, coal.

Renewable energy offers exposure to solar, wind, biofuels, geothermal, and hydropower. In the United States, renewable energy sources currently provide for 12% of total U.S. energy consumption and about 20% of electricity generation. These percentages are expected to grow significantly as public and private sectors shift away from fossil fuels.

Why Invest In Energy?

Presently there are 7.9 billion people inhabiting the world and it’s projected that number will reach 9 billion by 2037. Which is why it’s no surprise that in 2018 the U.S. Energy Information Administration (EIA) released a report that projected that global energy consumption will grow by nearly 50% by 2050.
The EIA also predicts that the share of renewables in the U.S. electricity generation mix will increase from 21% in 2020 to 42% in 2050. Solar and wind generation are responsible for most of that growth. Solar power is forecast to account for almost 80% of the increase in the US’s renewable electricity generation through 2050. And according to Global Market Insights, the global wind energy market should grow by more than 69% from 2021-2027.

You might think that because of these impressive growth forecasts for renewable energy that the non-renewable energy market will begin to shrink but that’s not the case. The transition away from non-renewable energy will not happen overnight, and will be measured in decades, not years. This is attributed to technological advancements that make oil and natural gas cost-competitive to extract, a lack of infrastructure to support complete green energy deployment, and the fact that a significant portion of end-use demand for oil has limited alternatives. The EIA is forecasting oil prices to be 25% higher by 2030 and 86% higher by 2040. They also predict that the natural gas share of the U.S. electricity generation mix will remain at about one-third of total generation from 2020 to 2050.

How To Participate In Energy Investing?

Picking individual stocks in the energy sector can be tempting with the potential for high returns for early investors. However, diversification is the superior strategy, as not all energy stocks will be winners. Therefore, the best solution is gaining exposure to the sector through energy-focused ETFs and mutual funds. A simple search on Magnifi indicates numerous ways for investors to access tech funds with low fees.

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The information and data are as of the October 13, 2020 (publish date) unless otherwise noted and subject to change. This blog is sponsored by Magnifi. 

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