Alternative Energy Got You Down?
If there's one big goal in the political, social, and economic realm over the past decade, it's this: develop alternative energies. Our historical reliance on oil -- that is both from the Middle East, and in a finite supply -- serves as excellent motivation to make changes.
There are several avenues by which we can harness the power of the earth, but today, I'm going to focus on two of them: natural gas and biofuels. I'll help put them in the context of our overall energy situation and explain why they're recently out of favor in the marketplace. At the end, I'll offer a special free report on a way to profit from the energy field.
We are energy... exporters?
As fellow Fool Morgan Housel has been trying to point out for some time, Americans don't have a very good grasp on what our energy situation looks like today. We tend to stick to the narrative that "all of our energy comes from the Middle East," even when the picture has been rapidly changing.
In fact, just 9.2% of our oil comes from the Middle East. "The U.S. imports more than twice as much petroleum from Canada and Mexico than it does from the Middle East. Add in the share produced domestically, and the majority of petroleum consumed in the U.S. comes from North America." It hasn't always been this way, and there are important shifts taking place. For the first time in more than a half-century, American is now a net exporter of fuel products.
But just as our prospects for energy independence are improving, some believe that forces are working to counter the trend. For instance, the once highly touted Natural Gas Act has failed to make much progress in Congress. Passage would have offered financial incentives to companies that purchased natural gas vehicles and funding to help build out infrastructure.
Though passage certainly wouldn't have hurt the natural gas movement, I don't think it's going to be abandoned anytime soon. Even without financial incentives from the government, there are plenty of reasons for companies to consider a transition to natural gas.
Shares of companies that are involved in the extraction process have been hit hard. Chesapeake Energy (NYS: CHK) , the nation's top natural gas extractor, is down 40% over the past year, and the company has announced intentions to cut back on production. Heckmann (NYS: HEK) , a company making a play to be the leader in disposing of wastewater created by fracking, is down 36% during the same time frame.
But if you take a systems-thinking approach to the situation, you'll see long-term relief is on the way. As the price of natural gas has plummeted, industry has added motivation to transition to the fuel. So while those involved in the production of natural gas have suffered, those who consume it have benefited.
Westport Innovations (NAS: WPRT) , creators of a natural gas engine for cars, trucks, and semis, is up 44% over the past year. And Clean Energy Fuels (NAS: CLNE) , which hopes to build out the nation's first "natural gas highway," is up more than 50% just this year.
The bigger point here is that though companies on each side of the equation are experiencing different movements in their stocks, they are vitally important to one another. Over the long run, companies such as Chesapeake and Heckmann will be buoyed by the demand created from Westport and Clean Energy.
Back on April 3, Solazyme (NAS: SZYM) , which can produce oils from patented micro-algae, got a boost because of a joint venture announcement that promised to boost production. But since then, shares of the company -- along with competitor Amyris -- are down more than 20%.
But instead of overproduction or low prices, the reason for the downfall is uncertainty regarding government subsidies. Because the production of biofuels is in the early stages, the costs at this point are very high, and the benefits are still fairly low. Many experts question whether the country will come anywhere close to the congressionally mandated 36 billion gallons of biofuel production by 2022.
The decision to back ethanol subsidies, which many consider a failure, has left a bad taste in the mouths of many politicians. And when you consider the fact that we are becoming less reliant on foreign oil every day -- thanks, in part, to natural gas -- and the political will to keep funding biofuels seems to be eroding.
I will be the first to admit that the case for biofuel stocks is far riskier than natural gas plays. But I think the government would be doing a great disservice by not developing a mix of viable energy alternatives. The future is unknown, and the more options we have, the better.
Is any of this actionable?
As far as investing goes, I think it's worth weighing your own appetite for volatility when it comes to investing. Personally, I've backed my belief in Westport and Solazyme with my own money -- but neither holds a position of more than 3.5% of my overall portfolio.
As exciting as these developments are, one thing's for sure: Our reliance on oil isn't going anywhere soon. If you'd like to learn how to profit from prices rising at the gas pump, I suggest you check out our special free report: "3 Stocks for $100 Oil." You can get the report today, for a limited time, absolutely free!
At the time this article was published Fool contributor Brian Stoffel owns shares of Westport and Solazyme. You can follow him on Twitter, where he goes by TMFStoffel.The Motley Fool owns shares of Heckmann, Solazyme, and Westport Innovations. Motley Fool newsletter services have recommended buying shares of Westport Innovations, Clean Energy Fuels, and Chesapeake Energy. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.