Peak Oil: Who Wins, Who Loses?
What increased oil scarcity means for E&P companies, alternative energy, transportation, utilities, labor, and even Coke and Pepsi.
Last month, I explained in an article how and why the world is approaching a worldwide peak in oil production sometime in the next decade. Although there are large implications throughout the economy, I want to say upfront that I do not think this will bring on Armageddon. Oil prices that are significantly higher than earlier in our lifetimes will bring about great change, yet I firmly believe that our economy has the ability to successfully adapt. Despite the strong headwind oil scarcity will create, I am still an optimist.
I have structured this article by segmenting the "winners" and the "losers." These monikers may be a bit strong, and it is worth noting that even a company that might have a slower growth rate than before because of peak oil can still be a good investment. In other words, I'm not running out to buy the peak-oil benefactors, nor am I dumping the peak-oil losers. Rather, increased oil scarcity is but one of many factors Morningstar's analysts and I consider when projecting future cash flows and business positions. With that, let's jump right to it.
Loser: Existing Petro Infrastructure
With lower production of oil, there will be less of a need for the energy infrastructure needed to support the processing and transportation of liquid petroleum. All else equal, this will mean low-to-negative growth, slack capacity utilization, and lower profitability for refineries as well as certain pipelines and energy storage assets. In terms of companies held in StockInvestor's model portfolios, ExxonMobil (XOM), Kinder Morgan (KMR), and Magellan Midstream (MMP) have a significant portion of their assets that are in the bull's-eye here.
Paul Larson has a position in the following securities mentioned above: BRK.B, ISCA, KMR, KMX, MMP, PAYX, XOM. Find out about Morningstar’s editorial policies.