Friday July 28, 2006

Investment strategy for rising energy prices

singaporepeakoil.wordpress.com -> pbs.org :

3. Have the students discuss what industries might be affected positively by rising energy prices and create strategies on how investors can take advantage of this trend. (In particular, look for Asian companies that could become "winners" from rising energy prices).

As a practicing Peak Oil Investor, I'll take up part 3 of this "assignment". I don't have the whole weekend and neither do I even have much of a lunch-time remaining, but I will let my JBoss deployment script run for a while and give this a try :

Companies that will benefit from rising energy prices include the obvious ones such as the oil majors (Exxon Mobil, Shell, etc), and also those in the so-called "oil-service" industry, which provide a variety of support services and products. The article has already mentioned Keppel and SembCorp, which are world leaders in building of oil rigs. In fact, on SGX, the Singapore stock exchange, investor interest has been strong in these two companies. Singapore also has our very own integrated oil company, SPC, though the recent reserve shortfall case has tarnished their reputation somewhat, but the stock has rebounded since, again indicating strong investor support.

Personally, I would put my own money into all 3 companies - Keppel, SembCorp and SPC, if not for the archaic stock trading system that is more suited for the 19th century than the 21st. This system stipulates a fixed "board lot" size of typically 1000 shares per lot - you cannot buy less than that, compared to overseas exchanges which let you trade down to 1 single share at a time - you could even frame that up. There are a few more oddities, but then I digress.

If you want to go into the energy sector, you have a choice of all kinds of companies from what is called "upstream" (drilling the oil) all the way down to "downstream" (pumping into your car at the petrol station). You have junior oil exploration companies, companies in production, you have companies which specialize in various techniques such as coal-bed methane, tar sands or shale gas. Those which build the oil rigs, of course - and how about those special diamond drill bits that go with those rigs? Then there are the companies which build and operate pipelines. Companies which build, and companies which own and operate the huge oil tankers plying the oceans. From here it starts going downstream, and costs start increasing - refineries, and the entire petrochemical complex which takes crude oil and natural gas and turns them into plastics, fertilizer. Finally, the petrol stations - in America there are companies which run a network of these. Singapore is following this trend - NTUC Fairprice, the national grocery chain, will be running Esso/Mobil stations, and 7-11 will be running Shell stations.

Besides the obvious, mammoth, all-in-one oil majors, there are hundreds of companies to choose from. But some of the biggest money has been, and will be, made at the upstream. Why has BP abandoned their petrol station network in Singapore and sold it to SPC? Because they are going upstream, where rising oil prices directly and rapidly benefit the companies which are involved there. Personally, I should know too. I have made some of the biggest gains in some of the smallest upstream companies - we're talking in terms of 100% or 200% share price increases here. And with rising oil prices, there is huge upside potential.

There is much more to talk about than I have time to write on - including the resurgence of nuclear power (search my blog - it works now!) which will benefit uranium mining companies, coal and various CTL, CTG schemes (coal-to-liquids, coal-to-gas), LNG, and I hear that a lot of "hot money" is waiting to go into alternative energy - wind, solar, and such. Then there is energy storage, such as ultra-capacitors, improved Li-Ion and Ni-MH batteries. There is also nanotechnology, with wide-ranging applications for lightweight, energy-saving materials and super-efficient surface coatings for solar panels, battery and capacitor internals.

The exact individual strategy will vary according to individual risk appetite, investment amount and so on, so I cannot say "buy this!", "buy that!". My personal strategy is, to put it mildly, to invest in the more volatile sub-sectors of the market.

For the majority who cannot stomach the extreme volatility at the "cutting edge" ("bleeding edge", more like) of the stock markets, a more conservative strategy of buying into an energy or resources mutual fund (unit trust) would be more advisable. Some of these might include the First State Global Resources Fund or the United Global Resources Fund (disclaimer: not an investment recommendation, etc). There are a few others available locally, check with your local bank, online fund distributor or personal investment advisor.

(2006-07-28 14:19:05 SGT) [Energy] Permalink

Most popular blog postings on lowem.log :

1. Singapore SIBOR interest rates fall to 1.5%, lowest since Dec 2004
2. 2009 Honda Global Small Hybrid details released : bigger than Jazz/Fit, smaller than Civic
3. Singapore : Inflation rate could push past 6% in Q1 2008
4. Singapore SIBOR rate fell to 1.25% in Apr 2008, lowest since Aug 2004
5. Fuel prices seen stoking Malaysia inflation in 2008
6. Singapore CPI inflation rate for May 2008 continues at 26-year high of 7.5%
7. Singapore CPI inflation hits 6.6% in Jan 2008 - a new 25-year record high
8. Singapore SIBOR rate falls to 1.31%, lowest since Nov 2004

Featured articles on lowem.log :

1. ABC Guide to Beating Inflation in Singapore and Elsewhere
2. Singapore inflation rate hits new 26-year high of 7.5% in Apr 2008
3. Hyper-inflation : early warning signs
4. Singapore hyperinflation warning signs #2 : Cooking oil price up 75%
5. Bread and inflation
6. Singapore M3 money supply growth vs STI stock index
7. Singapore SIBOR rate fell to 1.25% in Apr 2008, lowest since Aug 2004
8. Singapore : Inflation erodes away bank savings