Energy Stocks Investment Watch: Opportunities and Choices in the Crisis

In the current reshaping of the global economic landscape, the energy sector is undergoing profound transformation. The 2022 European measure to impose a maximum 25% profit tax on energy companies reflects the strategic importance of energy in social and economic development. The intertwining of pandemic effects, trade frictions, and geopolitical conflicts has driven re-pricing in energy markets, offering investors new avenues for reflection.

The current energy sector faces multiple factors such as supply-demand imbalances and price volatility, which are creating new growth opportunities for energy stocks. For investors seeking to grasp the energy cycle, understanding market patterns and selecting companies with competitive barriers are crucial.

The Three Drivers of Energy Demand Structure

The deep reasons behind the upward trend of energy stocks extending from 2021 to today are worth analyzing:

Large-scale fiscal stimulus measures by governments post-pandemic have promoted economic recovery but also triggered inflationary pressures and material shortages, thereby pushing up energy demand and prices. This is the first driver on the demand side.

Geopolitical risks continue to increase in importance within energy markets. Take the Russia-Ukraine conflict as an example: Europe’s dependence on Russian natural gas was forcibly interrupted, leading to shortages and soaring prices in Europe. This shockwave further spread to the global liquefied natural gas (LNG) market, reshaping the global energy pricing system.

The role of the US in the global energy landscape determines the long-term direction of energy stocks. The US is not only the world’s largest energy consumer but has also significantly increased energy self-sufficiency through shale oil and gas development, influencing the global energy pattern via sanctions and trade measures. The US dollar, as the settlement currency for oil, further consolidates America’s control over global energy pricing.

The Geographical Dimension of Crude Oil Investment

In crude oil investment, US crude and Brent crude differ in standards—the former representing the Western Hemisphere, the latter serving as the OPEC benchmark, indicating supplies from Africa, Europe, and the Middle East.

The logic favoring US crude over Brent is twofold: First, after global inflation and geopolitical conflicts, the US economy’s recovery capacity and manufacturing appeal have clearly surpassed Europe, with a strong economic foundation driving greater energy demand and pricing power; second, since 2021, US energy supply to Europe has exceeded that of Brent crude, increasing US crude’s global penetration and influence, while Brent’s influence weakens.

Within energy stocks, the growth potential of US crude is relatively broader.

Key Players in Energy Transmission and Supply

American Electric Power (AEP.US) is the largest integrated power company in the US, combining generation, transmission, and gas. The company has 42 GW of installed capacity, 38,000 miles of transmission lines, 186,000 miles of distribution lines, reserves of 128 billion cubic meters of natural gas, and owns 6,300 miles of natural gas pipelines with a complete logistics system. Its service area covers seven states in the Northeast and four in the South, serving over 5 million customers.

The 2021 Texas cold wave power crisis provides a reverse case—when natural gas supplies cannot meet demand, traditional power companies may face bankruptcy. The reason why US power companies are noteworthy is their ample fossil fuel supply, limited profit squeeze from external energy price hikes, and strong cost control. This advantage is especially important amid the US manufacturing revival, where stable power supply is fundamental for high-end manufacturing.

Absolute Leader in the Global Oil Industry

ExxonMobil (XOM.US) is one of the largest oil companies in the US and globally. The company boasts top-tier resource reserves, operates in over 30 countries, with annual crude oil and natural gas production exceeding 128 million tons, and annual sales of petroleum products reaching 265 million tons. Its petrochemical division is also the largest worldwide, with annual sales over 17 million tons of chemicals. The company owns over 7,500 MW of cogeneration capacity, operates the world’s largest export coal mine in Colombia, and holds copper mining and smelting assets in Chile.

ExxonMobil’s traditional fossil fuel leadership position remains unshaken, making it a prime choice for energy stock investment.

Regional Power and Energy Transmission Key Players

Duke Energy (DUK.US) founded in 1899, has grown through over a century of mergers and acquisitions. It has nearly 20 GW of annual generation capacity, controls 12,000 miles of interstate pipelines, and serves over 11 million people across five states.

The company’s highlights are not only its position in the power industry but also its LNG supply business, investments in Australian and Latin American power plants, and ongoing European energy projects. Domestic investments in renewable energy are also steadily increasing, providing diversified support for future revenue growth.

The Integrator in Clean Energy Industry

NextEra Energy (NEE.US) is a leading player in the new energy era, with four major segments: wind, solar, nuclear, and natural gas sales. Its subsidiary FPL leverages Florida’s abundant wind resources (average wind speeds of 7 m/sec), serving 11 million people and contributing one-seventh of the group’s revenue. The wind and solar-focused NEECH was spun off in 2018, becoming the world’s largest wind and solar power producer, accounting for seven-tenths of revenue.

The bullish outlook for this company is based on two dimensions: First, the global acceleration into new energy, with the EU setting a goal to ban the sale of fuel vehicles within 35 years, and ongoing geopolitical conflicts driving countries to seek energy independence, making clean energy substitution inevitable. Wind and solar have become the fastest-growing power sources in 2021, accounting for a record 10% of global power generation, with clean energy generation accounting for 38%; second, frequent extreme weather events reinforce the necessity of renewables, and NextEra’s early advantages in wind and solar continue to unlock upside potential.

Of course, rising raw material costs such as polysilicon pose challenges, but global capacity expansion competition is expected to constrain prices, with global polysilicon capacity projected to reach 536 GW by the end of 2023.

Emerging Power in Lithium Resources

Lithium Americas (LAC.US), though focused on lithium resource extraction, is undoubtedly a key player in the energy stock category because lithium salts are strategic energy-related resources now and in the future. Headquartered in Canada, it operates two brine projects in northwest Argentina and a clay resource project in Nevada, USA, planning to integrate these three sources to supply the lithium chemical market.

While its business data are relatively weak, its development potential offers considerable explosive growth space. As US new energy vehicles replace traditional fuel vehicles, the scarcity and prices of lithium resources will be re-evaluated, and the company’s performance and valuation are expected to benefit from a “Davis Double Play.”

Another Leader in Oil and Gas Production

Occidental Petroleum (OXY.US) founded in 1920 and headquartered in Los Angeles, is the fourth-largest oil and natural gas company in the US. Its operations cover the US, Middle East, North Africa, and South America. In 2019, it acquired Anadarko Petroleum for $38 billion, further expanding its footprint. Warren Buffett has repeatedly increased holdings in the company, reflecting its long-term investment value.

Risks in Energy Stock Investment

Although demand for oil and natural gas remains strong and they have infrastructure advantages over renewables, risks in energy stock investments should not be overlooked.

Cyclical Risks: The oil and gas industry exhibits clear cyclical characteristics; investors should be prepared for alternating periods of boom and bust.

Price Volatility: Oil and gas prices are far beyond company control. For example, the March 2020 Saudi-Russia oil price war caused a global crash, dragging energy stocks down; conversely, after the Russia-Ukraine conflict in 2022, prices surged, and energy stocks soared.

Exploration Uncertainty: Oil and gas exploration inherently involves unpredictability. Failures at any stage—from acquiring exploration rights, testing, to production—can lead to huge investment losses.

Environmental Pressure: Fossil fuel production, transportation, and combustion generate greenhouse gases, with increasing government regulation. Future demand may be limited over the coming decades.

Overall, larger-scale companies within energy stocks tend to have relatively lower risks. The seven companies above encompass traditional fossil fuel giants, clean energy pioneers, and emerging energy enterprises, making them key focuses for investors in the medium and short term. Traditional energy stocks, with mature technology and clear markets, are easier to capitalize on current opportunities; emerging energy stocks, however, require longer-term patience and investment insight.