What is the Energy Sector and how can it be improved?
The energy industry is a class of stocks that relates to producing or providing energy. The energy industry is a group of companies involved in exploration and development for oil or gas reserves, drilling oil and gas wells, and refining. The energy industry also includes integrated power utility businesses such as renewable and coal.
Understanding the Energy Sector
Energy sector is a large term that covers a complex and interdependent network of companies, who are directly and in indirect involved in energy production and distribution. Diverse types of energy are the main activities of companies within the energy industry. Most companies in the energy sector are classified based upon how the energy they produce was sourced.
Non-renewable
- Petroleum products, oil
- Natural gas
- Gasoline
- Diesel fuel
- Heating oil
- Nuclear
- Coal
Renewable
- Hydropower
- Biofuels like ethanol
- Wind power
- Solar power
- Hydroelectric
Secondary sources of energy include electricity. The supply and demand for global energy drive energy prices and earnings performance of producers . Oil and gas producers perform better when prices are higher. However, oil and gas companies have lower earnings when energy commodities are more expensive. On the other hand, oil refiners can benefit from falling feedstock costs to produce petroleum products, such as gasoline, when crude oil prices drop. The energy sector is sensitive, and historically has been subject to volatility or wild fluctuations in crude oil prices.
Exxon Mobil XOM (CVX), and Chevron XXM (CVX), are the two largest U.S. companies in the energy sector. They both have large international integrated oil corporations. Peabody Energy was America’s largest coal producer, measured in tonnes of output in 2020.
Different types of companies from the energy sector
These are some of these companies that you might find in the oil and gas industry. Each of these companies has a role to play in bringing electricity to businesses and consumers.
Production and drilling of oil and gas
These are the companies who drill, pump, produce and transport oil and natural gases. Producing oil usually involves extracting oil from the ground.
Pipeline and refining
To make gasoline or oil, natural gas and oil need to be transported from the source to a refinery. Midstream providers are companies in this part of the energy sector.
Mining companies
Coal companies could be considered to be energy companies, since coal can be used to power power plants, such as nuclear.
Renewable energy
Clean energy is gaining popularity and investing dollars over the years. This sector will continue to grow. Solar and wind power are examples of renewable energy.
Chemicals
Although some companies concentrate on the refining and processing of oil and natural gas into specialty chemicals and others are oil producers larger than Exxon Mobil, integrated energy producers produce multiple types or energy and manage the entire process.
Example of Energy-Sector Investments
Investors have many options when it comes to the energy industry. These include mutual funds, ETFs and equity of energy companies. They also have the ability buy commodities.
ETFs, which are exchange-traded funds, are a portfolio of investments, such stocks, that tracks an underlying index. Mutual funds, on other hand, are a group of stocks or investments selected and managed in part by a portfolio manger.
There are many energy-related ETFs available to retail investors that provide exposure to the sector. With any number or funds, investors have the option to choose which part in the value chain they would like. Here are some examples.
The Energy Select Sector SPDR ETF ETF (XLE), which is broad-based, provides exposure to oil companies across the sector. Exxon Mobil Oil and Chevron are among the XLE. Technology suppliers such as Schlumberger (SLB), also make up the XLE.
The SPDR S&P Oil & Gas Exploration & Production ETF XOP gives investors exposure for oil and gaz exploration companies.
The Invesco solar ETF (TAN), offers investors access to alternative investment opportunities.
How investors invest in this sector will depend on what they like and how they feel about the growth and earnings potential of the companies. The energy industry is much larger and more diverse than only the oil-and-gas industry. Investors are convinced that renewable and alternate energy sources will play a major role in the future, as electric cars continue to increase in demand.
What Is the Energy Sector Responsible for
The energy sector plays a vital role in the economy. Not only do they power homes, transportation, factories and homes, but many of the products we use every day also depend on energy sources.
What are the Main Energy Sectors
Global Industry Classification Standard(GICS) divides the energy industry into two distinct industries: “energy equipment & services” (or “oil, gasoline and consumables). There are various sub-sectors.
- Exploration for oil and natural gas
- Oil and gas equipment and services
- Integrated oil/gas
- Exploration & production of oil & gas
- Marketing, oil and gas refining
- Storage and transport of oil and other gas
- Consumable fuels as well as coal
What is the Difference Between the Energy Sector And the Utility Sector
The companies that extract, refine, or produce energy are the mainstays of the sector. Utility companies are focused on providing electricity, water, and other utilities to customers. Both these sectors offer electricity in some form. However, they have different roles. These sectors are responsible for providing electricity to utility companies.
The bottom line
The energy sector has a large market. It includes many energy sources such as coal, natural gas, oil, and other renewable sources. This means that companies classified under the energy sector may have different prospects. They all share one thing in common: they have to bring some form of energy on the market.
