# trouble with energy investing



## willow1044 (Jan 30, 2012)

So I held off on buying HEE (Horizon enhanced energy ETF) as I don't see oil coming back, ever. Good choice as it's down 70%! from it's high back in 2011. This in spite of it's yield of almost 17%. Death spiral anyone?

But we'll always need energy and I believe that solar will win out so I took a look at Gugenheim's solar ETF (TAN) and it's down 90% since 2008. iShares clean energy ETF ICLN is down 80%. Both are getting worse by the day. I know it's impossible to time the market but will clean energy EVER make any money or should I just stay out of energy stocks entirely?

The reason I ask is that I want to up certain portions of my portfolio and am reluctant to catch a falling knife. Maybe I should put the money into health ETFs instead since I'm quite confident that demand for health care will continue to grow with an aging population.


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## humble_pie (Jun 7, 2009)

willow1044 said:


> ... I don't see oil coming back, ever ... Death spiral anyone?
> 
> ... [clean energy ETFs] ... are getting worse by the day. I know it's impossible to time the market but will clean energy EVER make any money or should I just stay out of energy stocks entirely?




there's no turning back now so the more we hear of this kind of talk, the faster things will be, if not all over, at least on the other side of jordan


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## willow1044 (Jan 30, 2012)

humble_pie said:


> there's no turning back now so the more we hear of this kind of talk, the faster things will be, if not all over, at least on the other side of jordan


I'm sorry but I don't follow your point...


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## cainvest (May 1, 2013)

willow1044 said:


> So I held off on buying HEE (Horizon enhanced energy ETF) as I don't see oil coming back, ever.


Why do you believe oil will never come back?


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## Rusty O'Toole (Feb 1, 2012)

The oil business isn't going anywhere. It will be one of the key industries for the rest of our lives or longer. So, buy oil stocks when they are cheap. How cheap is cheap? I don't know but you can't go too far wrong buying good stocks 30% or 40% off their highs.


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## Afp (Mar 19, 2013)

To me, the biggest trouble for these guys is they are being more of price takers.

When commodity price goes down, their profit margins get squeezed no matter how good company managements are.


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## willow1044 (Jan 30, 2012)

cainvest said:


> Why do you believe oil will never come back?


It's a long discussion but to put it simply (i can't remember where I heard this first): " A bet on commodities is a bet against human ingenuity". Humans and capitalism in particular are really good at making things better, cheaper and faster. From an investing point of view oil's value is based on it's scarcity and it's not that scarce any longer and the price of clean tek is quickly dropping to the point that in a few years time it will be on par with oil.

It's easy enough to google and, for example, here's an article from 2011 in Scientific America: http://blogs.scientificamerican.com...-faster-does-moores-law-apply-to-solar-cells/

Here's the opening quote:

"The sun strikes every square meter of our planet with more than 1,360 watts of power. Half of that energy is absorbed by the atmosphere or reflected back into space. 700 watts of power, on average, reaches Earth’s surface. Summed across the half of the Earth that the sun is shining on, that is 89 petawatts of power. By comparison, all of human civilization uses around 15 terawatts of power, or one six-thousandth as much. In 14 and a half seconds, the sun provides as much energy to Earth as humanity uses in a day."


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## fatcat (Nov 11, 2009)

i don't believe that the argument about long-term peak oil has been settled at all
certainly charlie munger is a believer among others
the fact that we are having a price swoon doesn't say where supply/demand will be at in 5 or 10 years time
you can subtract transportation usage and the demand for oil is still very high for all kinds of things like plastics for example


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## Westerncanada (Nov 11, 2013)

fatcat said:


> i don't believe that the argument about long-term peak oil has been settled at all
> certainly charlie munger is a believer among others
> the fact that we are having a price swoon doesn't say where supply/demand will be at in 5 or 10 years time
> you can subtract transportation usage and the demand for oil is still very high for all kinds of things like plastics for example


No matter how good Human Ingenuity is.. the capital structure cost to switch to "Green Energy" from our current Oil based Energy (IE: Powerplants, engines,cars in product,planes,heavy equipment,military equipment) will prevent it from occurring prior to Oil Supply going through several dips and peaks over the next 20 years. 

I think our grandchildren will grow to see the end or minimal amount of use from Oil Energy, but certainly not in the next 20-30 years.


When you are betting against Oil's rebound you are betting against history.. and although this can sometimes paying off History tends to repeat itself 9/10 in this segment. 

Same argument for Gold.. if you really believe it's not going to go up back to it's peak or down to the floor before your time on earth is done you are going against 100 Years of Data.


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## 1980z28 (Mar 4, 2010)

I remember the gas shortage back in the early 70`s

So hoping gas will be .50 a liter and there will be no need for ????

Oil will bounce back supply and demand


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## doctrine (Sep 30, 2011)

The thing to remember is that oil demand continues to rise. It's a supply side problem only. The supply side is also wrecking havoc on more costly energy sources, such as solar, but also more costly fuel efficient vehicles such as hybrid cars. I wouldn't bet against oil forever. Demand is insatiable. But that is meaningless if you own shares in an oil company that is going bankrupt.


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## willow1044 (Jan 30, 2012)

interesting points:
1. betting against history
This could just be a case of recency bias: because it has been this way in the past it will continue to go this way in the future. I don't know if this is the inflextion point BUT we didn't have EVs or retail level solar before so I'm not sure the past is a good guide to the future.

2. Switching over our infrastructure is too expensive
Could be but we can already sell retail generated solar power back into the grid and the grid runs on electricity so I'm not sure this will be a constraint. Gas stations and the like will have to upgrade but I'm already seeing EV charging stations around town and this will only continue. 

I'm not saying that we're going to wake up tomorrow and oil will be worthless but rather that we're fading it out as a society and phasing in solar. Sure, it may take 20 years but that's actually not that long and do we really see oil playing a bigger part in our society?

I could be completely wrong but I'm (almost) willing to put my money where my mouth is. Which brings me back to the main point of this thread: is clean tech a good investment or a falling knife? 20 years (potentially) is a long time to wait for an investment to pay off...


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## Westerncanada (Nov 11, 2013)

willow1044 said:


> interesting points:
> 1. betting against history
> This could just be a case of recency bias: because it has been this way in the past it will continue to go this way in the future. I don't know if this is the inflextion point BUT we didn't have EVs or retail level solar before so I'm not sure the past is a good guide to the future.
> 
> ...


I definitely think Solar will continue to penetrate Electricity based Consumer Goods and potential Home Electricity in the next 5-15 Years (as an example, you can buy Solar Lights now from Costco for $29/10 Pack etc for the garden) which will ultimately hurt electricity providers but this is a very different situation then clean energy hurting the Oil Based side of consumer consumption as it requires far more power then what Solar can give at an affordable price (Current day). 


The challenge with clean energy from an investment standpoint is there is a wide variety of players and nobody has really distinguished themselves as having a game changing approach that can be patented as such (yet). Lots of interesting Solar plays out there but I think one of these companies needs to provide a game changer before I'd consider entering this segment.

It is definitely an interesting space to be in (Clean Energy) and I think it will have a bigger part of our future but there is far better places to be in right now from an ROI standpoint.

All the best!

WC


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## Karlhungus (Oct 4, 2013)

willow1044 said:


> It's a long discussion but to put it simply (i can't remember where I heard this first): " A bet on commodities is a bet against human ingenuity". Humans and capitalism in particular are really good at making things better, cheaper and faster. From an investing point of view oil's value is based on it's scarcity and it's not that scarce any longer and the price of clean tek is quickly dropping to the point that in a few years time it will be on par with oil.
> 
> It's easy enough to google and, for example, here's an article from 2011 in Scientific America: http://blogs.scientificamerican.com...-faster-does-moores-law-apply-to-solar-cells/
> 
> ...


Okay... What do you think solar panels are made out of?


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## RCB (Jan 11, 2014)

Solar and wind have storage problems.


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## treva84 (Dec 9, 2014)

I think oil is going to bounce back, probably sooner than expected.

Basically the whole problem is that OPEC is flooding the market trying to bankrupt American producers as the US is becoming independent and buying less OPEC oil. So, they turned on the taps in November and the price fell. However they are not succeeding at bankrupting America; if anything America is screwing them right back as they get better and better at producing their own oil and their oil inventories keep rising (price driven down further).

While countries like Saudi Arabia may be able to weather the storm, I think other oil dependent economies in OPEC who need the money (Iran, Algeria, Venezuela) are going to lobby the bigger countries to turn off the taps in an effort to drive prices up. I think this lobbying is already happening and OPEC will stop flooding the market by Christmas. Once this happens prices will slowly climb as inventories slowly decrease, and by this time next year we'll be at something like $70 / barrel. 

(No, you cannot see my crystal ball - it's mine only!)


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## willow1044 (Jan 30, 2012)

Karlhungus said:


> Okay... What do you think solar panels are made out of?


silicon


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## willow1044 (Jan 30, 2012)

ok, no love for clean tek here. Or maybe I should just not have mentioned whether or not I think oil is coming back. Prolly deserves its own thread. Think I'm gonna hold off on clean tek for now.


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## janus10 (Nov 7, 2013)

I think if one looks at Natural Gas, one can see that oil may follow a similar path. Once fracking was established as a method to unlock additional reserves, we have not seen Natural Gas come close to the prices it used to command. With greater efficiencies came lower drilling and operational costs.

The next move to save Natural Gas in North America is exporting Liquid Natural Gas to countries which are paying 2-3x the cost paid in North America.

It would not surprise me that oil does recover, but never achieves the lofty heights it once did because I see parallels between NG's history and what is occurring now. There are certainly other factors in play with oil that NG doesn't see and politics will certainly be another item that can change the current landscape.

$100 oil again? Sure. $140 oil? I doubt it.


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## cainvest (May 1, 2013)

willow1044 said:


> ok, no love for clean tek here. Or maybe I should just not have mentioned whether or not I think oil is coming back. Prolly deserves its own thread. Think I'm gonna hold off on clean tek for now.


Solar still has many issues, $ per Kwh are still high and then there is the storage problem. I run a small solar setup for emergency power loss situations and am always looking at powering some constant daytime use items off grid. At a minimum and without increasing costs, if solar panels doubled their output power (in the same size) and batteries doubled their capacity it would start to look attractive. In other words, both solar panel and battery tech need significant breakthroughs to become widely used. Some areas with no power at all or high Kwh prices may find solar more attractive.

Oil on the other hand has lots of demand and infrastructure built on it's continued supply, even beyond basic fuel needs. Technology is improving with synthetic fuels (and oils) as well but costs currently keep those alternatives on the sidelines.


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## tygrus (Mar 13, 2012)

Oil will come back but into the $75 range, never $100 again. Some industries will always need oil, others will move to solar. Your sedan driving around can use solar. Your house can use solar. Your farm and manufacturing business need oil or NG. I think the harder play is determining where oil will come back and to me, thats not Canadian oil sands. 

Solar is about 40% efficient now, up from about 12% a decade ago. Once it gets to 60-70% its game over and that is predicted to happen within the next decade. Long term, its going to be too cheap to meter and essentially free.


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## Rusty O'Toole (Feb 1, 2012)

1) There is no good, cheap, plentiful substitute for oil. There are substitutes but none can take the place of oil.

2) The cheap, easy to get at oil is gone. There are unexploited oil fields in the high arctic, shale oil in Australia, and oil fields off the coast of China but they are not cheap or easy to get at.

3) Demand for oil will continue for our lifetimes and probably longer.

4) Supply will continue for our lifetimes and probably longer.

5) Oil may be scarcer and more expensive, on the other hand it may be cheaper and more abundant than we expect but the oil companies will continue in business and continue to make profits.

So, if you believe in the "buy low - sell high" theory of investing, and oil stocks are "low" maybe it is time to consider buying.


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## fatcat (Nov 11, 2009)

Rusty O'Toole said:


> 1) There is no good, cheap, plentiful substitute for oil. There are substitutes but none can take the place of oil.
> 
> 2) The cheap, easy to get at oil is gone. There are unexploited oil fields in the high arctic, shale oil in Australia, and oil fields off the coast of China but they are not cheap or easy to get at.
> 
> ...


+1 from me 

the list of things oil is used for is long

history channel did a series on a world without oil and it was frightening

even factoring the inevitable innovation and creation, oil is too useful

also, both india and china are just at the very beginning of become modern first world states and they will both need a lot of oil


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## AltaRed (Jun 8, 2009)

Regardless of what one believes for highly urbanized areas, the more remote and underdeveloped areas of the globe will need oil for a very long time, perhaps centuries at least for transportation. Then there are the air fleets of the world and much of our marine transportation. Add in chemicals needed for everyday life (almost every non-metallic product we touch has an oil derivative in it) and we are beholden to petroleum indefinitely. Fossil fuel free by 2100 is an absurd concept in its totality, albeit much can be done to eliminate most fossil fuelled electrical generation and urban transportation.


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## lightcycle (Mar 24, 2012)

treva84 said:


> While countries like Saudi Arabia may be able to weather the storm, I think other oil dependent economies in OPEC who need the money (Iran, Algeria, Venezuela) are going to lobby the bigger countries to turn off the taps in an effort to drive prices up. I think this lobbying is already happening and OPEC will stop flooding the market by Christmas. Once this happens prices will slowly climb as inventories slowly decrease, and by this time next year we'll be at something like $70 / barrel.


I think you're over-estimating Saudi Arabia's current position as the global swing producer of oil. I think that role is now in the hands of the US shale industry and they have no cartel such as OPEC to dictate the supply side and thus the price of oil. These companies only have a profit margin to protect and the only time they will stop and start fracking is when the cost to pull the oil out of the ground exceeds the sale price. 

If anything, I see the poorer member countries of OPEC getting fed up of SA's decree and perhaps withdrawing from the cartel if the benefits of membership are no longer present (price stability, economic growth). And they in turn will flood the market once free of the constraints of OPEC.

I don't see a change to this oversupply problem in the future. Sure demand *might* pick up, but not to the extent that readily-available oil won't be quick enough to mobilize and (over)-fulfill that demand. And I certainly don't understand the thinking that "well oil is 70% off it's peak, now is the time to buy" or "Oil is cyclical" rationale if you don't see any scenario where supply and demand will equalize itself to historical ratios. 

tldr: In the past SA controlled the cyclical price of oil. They can't do that now and the US shale industry won't. Why are you buying oil?


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## james4beach (Nov 15, 2012)

I think you have to consider that oil prices may be crashing because the global economy is crashing. As all industry grinds to a halt (e.g. China grinds to a halt), there is very little demand for oil and the _forward-looking expectations_ are even weaker.

The commodity market isn't that dumb. Commodities started declining well in advance of this current slowdown. It turns out commodities were the smart money, and stocks are only catching up now.

If a global recession or depression continues for 5 or 10 years, there is no reason to think that oil prices would rebound any time soon.


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## londoncalling (Sep 17, 2011)

lightcycle said:


> Why are you buying oil?


A few reasons

1. Because I keep hearing this time it is different. I talked to someone who was in the Canadian oil patch during NEP. He said it is no different. People then said oil will never return to its historic highs. Boy were they wrong. 
2. I got 25 or more years of accumulation. Oil will still be needed in 25 yrs. Maybe not to the extent it is currently but it will still exist. Pretty sure the same was said of coal once upon a time.
3. Reversion to the mean.

I may have bought too soon on the way down but I know I will be buying more oil stocks before the end of the year.

GLTA

Cheers


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