Follow the smoke: oil and gas industry explained
Private oil and gas companies generate the majority of their revenue from the sale of the commodities they produce. Revenue and sales are impacted by various factors, which could negatively or positively influence the revenue earned by oil and gas companies. Oil and gas companies can conduct a review analysis to determine the factors that influence generation of revenue.
Oil and natural gas prices:
Energy prices are driven by the supply and demand for energy by consumers. Private oil and gas companies do very well in terms of generating revenue in times when gas and oil prices are high. Energy companies earn less in revenue when commodity prices are low. Oil refiners in particular benefit when the feedstock (raw materials used to produce petroleum products such as gasoline) costs fall as the crude price of oil drops. Energy prices are also sensitive to political events, which can cause volatility and fluctuations in the oil price.
To understand how oil and gas companies generate revenue, it is important to understand the types of companies that make up the energy sector:
• Oil and gas drilling production companies are responsible for drilling, pumping and producing oil and natural gas
• Pipeline and refining companies are companies responsible for the delivery of natural gas or oils from the production site to the refinery
• Coal companies are classified as energy since coal is used to power plants such as nuclear power plants
• Renewable energy such as wind and solar power companies
• Chemical energy companies specialize in refining oil and gas into specialty chemicals
Energy sector investments:
Investors of the energy sector have a wide variety of investments to choose from. These can be broken down into 4 types:
1) Equities of companies i.e. shares.
2) Mutual funds – this is a large portfolio of stocks and investments which are selected for the investor and managed by a portfolio manager.
3) ETF’s – Exchange traded funds, which are baskets of investments such as stocks.
4) Buying the actual commodities of the energy sector.
How investors choose to invest their money in the energy sector depends on their specific preferences and views of growth and earning prospects.
Many investors choose to invest in renewable energy companies such as hydropower and solar power. These two renewable energy companies have the ability to transform the energy sector as a whole and produce a more sustainable, clean energy. Renewable energy companies are focused on reducing the amount of greenhouse emissions, which cause climate change and global warming. Global warming is a controversial topic in the energy industry, with companies investing billions of dollars in producing more sustainable carbon-free energy options.
Nuclear power is also a clean air energy producer, as there are very little greenhouse emissions in the production of nuclear energy. Nuclear energy is also not dependent on factors such as sunshine and wind, and does not need large battery sources to power their plants. Nuclear power plants have the ability to supplement wind and solar power.