Forget about Oil, This Energy Solution Is What Investors Should Be Watching
In today’s Money Morning…talk of the town…new policies, new possibilities…a potential end to energy scarcity…and more…
Before we get into the main topic of today’s article, I just want to quickly share something new with you.
See, here at Money Morning, we’ve been working on a new project. It’s a new resource that we hope will complement a lot of the content we provide to people like you, our readers.
We’re calling it The Money Morning Podcast — an audible way to hear about our off-the-wall ideas rather than simply reading them.
But, to kick things off, I figured the first edition of this podcast should serve as a reminder as to what Money Morning stands for. It’s a bit of an introspective look at what we provide to investors like yourself.
So if you’re interested in listening to what we have to say, give it a shot by clicking here.
Now, onto the matters at hand…
Talk of the town
It’s no secret that oil is stealing a lot of the market spotlight right now.
As my colleague, Ryan Dinse, explained earlier in the week, oil appears to be ready for a breakout. A factor that, as he concluded, could be far direr for markets than many think:
‘You’re telling me that a global economy with record levels of debt — the US alone recently topped US$30 trillion in debt — can survive a world of increasing oil prices and increasing interest rates at the same time?
‘I’d suggest if this is the way it goes, we’ll see markets crashing sharply as consumers tighten their belts and confidence evaporates.
‘And then we know from the past 20 years that the Fed will change course very rapidly and turn the money printers back on.’
I can certainly see this scenario potentially panning out.
But I also wouldn’t be surprised if we see some bigger changes too. Because as I told readers of our Australian Small-Cap Investigator service, oil companies seem to realise this may be the last hurrah for the fossil fuel:
‘More importantly, as BP showed last week, greater demand for oil is simply feeding more investment into renewables.
‘A fact that may seem counterintuitive but is likely to become the norm of our transitioning energy economy.
“The oil firm revealed the four-fold profit increase to $12.8bn alongside a promise to spend more on low-carbon energy alternatives and invest more than £2 for every £1 it made in Britain this decade.
“Bernard Looney, BP’s chief executive, told investors that by 2025 the company plans to dedicate 40% of its spending budget to parts of the business which aid the energy transition, rising to 50% of the budget by the end of the decade.”
‘This, dear reader, is what we expect the future of energy to look like. One where oil, gas, and other fossil fuels still continue to play a key part, but with the addition of new renewable growth.’
New policies, new possibilities
Now, again, I want to clarify that I don’t think oil use will go away anytime soon. It is still an incredibly important commodity, particularly for vehicles, until electric alternatives reach a critical mass.
What I do find interesting, though, is this shift away from oil that even BP is undertaking. A fact that, to me at least, seems to mirror the agenda we’re seeing from politicians.
Society is pushing back against the dirtiest of fossil fuels and is hungry for alternatives. Renewables, of course, are a big part of the potential solution.
But they’re not the only solution…
Look at what is happening in Europe, for instance. With uncertainty over the future of crucial oil pipelines from Russia, it seems clear that the European Commission wants a new energy direction.
As a result, earlier this month, the commission proposed to list gas and nuclear power as ‘green energy investment’. It’s a label that opens the door for potential tax breaks and other financial incentives to those furthering these projects.
Unsurprisingly, this decision has been met with a lot of criticism, particularly of the inclusion of gas. After all, it really isn’t a ‘green’ energy solution. What it will be, though, is an important transitionary fuel source.
However, far more interesting is the inclusion of nuclear power.
Because while Europe is certainly the regional leader when it comes to nuclear (largely thanks to France), it still has a poor image. Something that Australians will know all too well.
You can hardly even talk about the idea of nuclear power in this country, let alone propose it as an energy alternative. It is viewed as something incredibly evil that would destroy us.
Despite that, though, we’re also one of the biggest miners of uranium — digging up the key material that is required to power nuclear fission reactors.
So, with that in mind, I think investors should seriously be looking into some of the uranium stocks across the ASX. Because if Europe really does commit to nuclear — which is estimated to require $790.6 billion in investment by 2050 — then local uranium miners could enjoy some big gains in years to come.
Keep in mind, though, this isn’t the only possible nuclear solution…
A potential end to energy scarcity
In my view, the real reason to be excited about nuclear energy is fusion technology.
Because unlike the many nuclear fission plants we currently have, fusion is a far better alternative.
By combining atoms, rather than splitting them, fusion energy does away with a lot of the drawbacks of typical nuclear power. There is no long-lived radioactive waste, for example. Instead, a fusion reactor would produce helium as its main byproduct, a commodity that the world is actually running out of…
Better yet, because a fusion reactor is essentially like building a star, it could harness near limitless energy. Imagine the potential of a man-made sun that could power the world for millennia without the need to burn carbon.
It would trivialise our energy needs for good.
Making cheap, freely available power a possibility for all.
But the reason it is not a reality yet is that we have yet to make it possible. Despite more than a century of research and investigation, fusion power is still not within our grasp.
We are getting closer, though…
One of the leading fusion research groups, the Joint European Torus (JET) lab, recently made some noteworthy progress. The scientists managed to generate 59 megajoules of sustained fusion energy late last year — more than doubling their previous record from 1997.
So while fusion technology still has a long way to go, it is not some unobtainable pipe dream.
And for investors looking to the long-term future, I think fusion has to be a consideration.
Who knows, fusion could finally bring an end to the endless debates about energy scarcity within our lifetime.
It’s a development that would truly be worth all the time and money it will take to make it happen…
Editor, Money Morning
Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.