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INVESTMENT: Investing in Energy - A Brief Insight into Future Moneymaking Opportunities
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Most mutual fund managers out there claim that a moderate exposure to the energy sector is essential for any well balanced investment portfolio. Whether it is oil, gas, nuclear or renewable energy firms that you put your money into, the strategy for many people has been to use equities and commodities futures as a hedge against financial meltdowns and tech bubbles. After all, the logic is fairly straightforward: regardless of the financial health of the global economy, people still need energy. Moreever it's no myth that whilst global demand for traditional energy sources, namely oil and natural gas is growing year on year, the world’s reserves are depleting by the day. 
So, if demand for these commodities is increasing but supply is decreasing, doesn’t that mean higher prices and excellent returns for investors? The truth is that whilst the opportunities for huge returns are out there, making big money from energy stocks is certainly not a one way bet and much will depend on long-term stomach rather than brains. Let’s look at some of the key areas for investment within the energy sector:
Arguably the most valuable commodity on the planet, crude oil and the petroleum products that derive from it look set to remain as the world’s number one source of fuel. There are many factors which influence oil prices in the short term, including supply shocks, wars, political unrest and decisions made by OPEC (the Organisation of Petroleum Exporting Countries). In the long term however, optimism amongst investors for solid profitability in oil firms is rife. As Puru Saxena, CEO of Hong Kong based Saxena Wealth Management, points out, “the theory that the world is running out of crude oil is not really theory- but a geological fact”. His advice is that investors should take advantage of the inevitable long term aggregate supply problems over the coming decades. Similarly, legendary commodities investor and author Jim Rogers argues that “the surprise with oil in the next few years is not going to be that prices go higher but how much higher they will go”!
Editor’s pick: With its incredible reserves, relative political stability and great international trade relations, Canada is probably the most enticing long term setting for growth in oil stocks. Canadian Oil Sands is currently trading at a very reasonable price- especially given its attractive 5-6% dividend yield and the enormous upside potential in its share price.
Natural Gas
For years investment experts have claimed that natural gas is grossly undervalued as a commodity. With supplies being relatively healthy around the globe, energy strategists, certain politicians and power providers are generally supportive of using natural gases as an alternative fossil fuel to crude oil. Industrial price levels are currently attractive for energy providers and will likely continue to entice for many years to come. A recent report by the International Energy Agency suggested that global demand for natural gas is expected to grow by almost 20% from now until 2017. Therefore, there is certainly an opportunity for investors to benefit long term.
Editor’s pick: In many parts of the world, natural gas is a relatively ‘local’ commodity, i.e. local suppliers sell to local consumers- particularly in the US. Therefore, investors should look for opportunities with the most exposure to growing global demand. The iShares Natural Gas Commodity ETF, which has lost an incredible 94% of its value over the last five years, could earn investors big money if gas prices go through the roof.
Prior to the Fukushima disaster in 2011, investors around the globe were fairly bullish on nuclear energy related companies- particularly uranium miners. Since then nuclear energy has fallen out of favour with speculators and as a result, share prices and investment fund holdings have sharply declined from their historic highs. Could this present excellent buying opportunities? Many analysts say yes, with Microsoft boss Bill Gates even going as far as to tell the Wall Street Journal that because of “the ‘zero CO2’ policies of governments around the world and the overall economics of it, nuclear energy will be the future of energy generation”.
Editor’s pick: The appetite for nuclear energy in Europe is somewhat mixed right now; likewise in Asia. French nuclear specialists Areva are incredibly well positioned within the current global nuclear energy market. Not only do they have a significant position within France’s nuclear dependent energy sector, their services are also in high demand from the Chinese who, given their relative lack of oil and gas reserves, will undoubtedly need to utilise nuclear energy on a mass scale in the future. Their current share price is very enticing for value investors.
Renewable Energy and other sources
Green and renewable energy is constantly being discussed by investors, politicians and media agencies. It seems like everyone is jumping on the green energy bandwagon to some extent. Therefore, whilst the price competitiveness of renewable sources lags behind fossil fuels on today’s valuations, there is no doubt that the world will increasingly move towards solar, wind, hydro and geothermal power in the long term. Whichever candidates win governmental elections in the western world in years to come, investors can rest assured that they will pump money into developing renewable energy sources. Many speculators are betting that in the near future, increased spending in green energy and the decreasing availability of oil and other resources will send share prices in the renewable energy sector much higher.
Editor’s pick: Alternative energy could be one of the big money making sectors going forward, but it will certainly take time for the huge gains to come. Solar firms look unbelievably cheap at the moment. The world’s biggest manufacturer of solar panels, Suntech Power Holdings Ltd. is just one example of a promising company with a rock bottom share price, and there are many similar opportunities in wind and other renewable energy sectors.
As a final thought, coal is also worth a mention. Not only is coal, in its raw form, being tipped as a potential hot commodity going forward, particularly in Asia, it is also at the centre of groundbreaking new energy production methods such as ‘underground coal gasification’. For less risk-averse investors, Wild Horse Energy is currently leading the research in this field within the European markets. If the company’s colossal Hungarian projects get off the ground within the next couple of years, its share price, which is currently close to being free, should skyrocket and generate massive returns. 

By Josh Cooper
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