Quora Answer: Which Oil & Gas Firms Should I Invest In?

The following is my answer to a Quora question: “I want to invest some money in oil and gas firms.  What is some guidance on where to invest?”

There is no scenario where world energy generation can keep up with consumption.  There are multiple reports, but the best cited sources are found in the annual reports of companies such as BP themselves.  Even renewable energy still requires infrastructure provided by fossil fuels.  Whilst there is an impetus

When investing, it is important to look beyond the obvious such as profit, since that does not tell the entire story.  It would be helpful to consider monopolies and near monopolies.  For example, the report Examining Financial Holdings Companies: Should Banks Control Power Plants, Warehouses & Oil Refineries stated, “One of Morgan Stanley’s primary physical oil activities was to store vast quantities of oil in facilities located within the United States and abroad.  According to Morgan Stanley, in the New York-New Jersey-Connecticut area alone, by 2011, it had leases on oil storage facilities with a total capacity of 8.2 million barrels, increasing to 9.1 million barrels in 2012, and then decreasing to 7.7 million barrels in 2013.  Morgan Stanley also had storage facilities in Europe and Asia.  According to the Federal Reserve, by 2012, Morgan Stanley held ‘operating leases on over 100 oil storage tank fields with 58 million barrels of storage capacity globally.’”

We are considering energy companies, we should look beyond the obvious, and an investment bank is not what one would consider an energy company, and yet, it has the ability to manipulate the market, and control prices.  One of the points I make when giving financial advise is to tell my clients that during the California Gold Rush, the people who sold the shovels and the pans made the most money.

Whilst prices of coal, oil, and gas fluctuate wildly, the real money is found in storage and transportation.  There will always be demand, and that demand is limited by logistics capability.  These prices are protected by existing contracts, quantified demand, and future demand.  They are not going to crash.  This is in contrast to the prices of energy companies, with their currency and political exposure.  This is in contrast with the raw commodities, and the impact of futures markets.  As such, look for these logistics bottlenecks, and who controls them.  That is where you should put your money.