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The five rules for successful stock investing Part 13

Although energy can be harvested from myriad sources - coal, nuclear, hydroelectric, wind, solar - nothing can come close to challenging the dominance of oil and gas as a source of energy | 2-5 Energy Although ENERGY CAN be harvested from myriad sources coal nuclear hydroelectric wind solar nothing can come close to challenging the dominance of oil and gas as a source of energy. Roughly two-thirds of the world s energy needs are supplied by oil and gas not only to propel our cars and heat our homes but also to fuel a large and growing number of electric power plants. It s no coincidence that the biggest companies in the energy sector are oil companies such as ExxonMobil and BP. From the Ground Most of the energy we use starts out under the ground locked up in the hydrocarbons of dead plants and animals. Finding and mining this oil and gas known as exploration and production is how energy companies create a great deal of value. In oil and gas a large percentage of the world s resources are under countries that are members of the Organization of Petroleum Exporting Countries OPEC cartel primarily in the Middle East. While this creates plenty of Paul Larson with Pat Dorsey. 332 ENERGY political issues OPEC s existence is also a large benefit to the companies digging up the oil. OPEC s goal is to maintain industrywide profitability by keeping commodity prices artificially high achieved by coordinating and limiting supply. Though OPEC s members often cheat on their quotas the cartel is extremely successful at manipulating commodity markets for the industry s benefit. While the BPs and ExxonMobils of the world the so-called major integrated energy companies are involved in pumping oil and gas from the ground some companies focus specifically on this activity which is usually called exploration and production or the upstream portion of the industry. Although OPEC s production limits help these firms as well they don t have the diverse assets of the major integrated firms. As a result the volatility of commodity prices against the backdrop of a largely fixed cost structure makes profits wildly variable from one year to the next for firms that focus on .