March 2011

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I am often asked about what I think the future holds in terms of the energy market. In many respects, the energy outlook for the U.S. is somewhat grim. Political stalemate has really gone a long way to keeping us from developing a good energy policy. In the meantime other nations of the world are scrambling like mad to build energy infrastructure. In 2009, China surpassed the United States as the largest worldwide consumer of energy. Forecasts for energy consumption by country are available from the EIA.

China is building power plants as fast as they can go. China is buying coal contracts wherever they can find them. We are seeing pressure on the prices in other industries dependent on coal, like steel. As the developing world’s population urbanizes and becomes wealthier, demand for energy is going to be ever more acute. There is no evidence to suggest that supply can keep pace with demand, at least not in anything that could be considered short-term. So, I think it is inevitable that energy prices of all kinds will rise and there is a lot of evidence to suggest that they will rise sharply.

Surging demand for traditional sources of energy coupled with artificial political pressures from regulation like the RPS standards adopted in many states in the U.S. as well as countries around the world are likely to cause a disproportionate focus on renewable power. Despite drawbacks that have kept renewables in the background as cheaper and more efficient fossil fuels dominated the energy market, renewables appear well-positioned for favor as energy issues gain prominence worldwide.

Opportunists will find a silver lining in the energy cloud however, as demand increases the pressure in the market. It could be a strong play to invest in countries with proven coal reserves (fossil fuel sources of energy, coal, natural gas and oil are likely to remain significant until supplies become constrained). Ancillary industries involved in carbon sequestration, transportation of energy products, or strong low-cost leaders in the green energy space could be wise investment opportunities.

For more information, I recommend former Energy Secretary Spencer Abraham’s latest book, Lights Out!: Ten Myths About (and Real Solutions to) America’s Energy Crisis