A Simple Overview of The Energy Industry

Welcome to the 82nd Pari Passu Newsletter.

Today, we are learning more about one of the most underrated industries of current times: energy. From its impact on everyday life to its relation to international conflicts, energy is one of the most influential and important industries of the broader economy. Interestingly enough, energy makes up no more than 7% of the US GDP and it is often overlooked by young professionals (myself included) who would rather spend their time on other verticals.

In today’s newsletter, we will be taking a closer look into the energy industry: its major players, historical market performance, future outlook, and much more.

Part 1: Industry Overview

The energy industry is a global industry responsible for discovering, extracting, and providing energy resources. These resources consist of non-renewable fossil fuels (oil, petroleum, gasoline, natural gas, etc.), nuclear energy, and renewable energy (hydropower, solar power, wind power, etc.). 

In 2022, approximately 79% of the US’s energy came from fossil fuels, 8% from nuclear, and 13% from renewables. More specifically, oil (petroleum) and natural gas made up 36% and 33% of U.S. energy consumption respectively. Within renewable energy consumption, the source with the highest percent consumption was biomass energy, at 37% [4].

The energy industry can be broadly divided into three main sectors: fossil fuels, renewable energy, and nuclear energy. Although companies in these three sectors are all considered energy companies, they differ in numerous ways given their specialization in different energy resources.

Fossil Fuels

Fossil fuels have long dominated the energy industry. With fossil fuels contributing nearly 80% of the U.S.’s energy supply and 77% of the world’s supply in 2022, human dependence on fossil fuels is undeniable. Within the fossil fuel industry, there are three primary classifications: oil, natural gas, and coal. Due to the high demand for oil and gas, fossil fuel companies have grown very large in recent decades. Top companies in the field by market cap include Exxon Mobil at $500bn, Chevron at $300bn, and ConocoPhillips at $130bn [7] [8]. 

However, no entity has more influence in the fossil fuel industry than the Organization of the Petroleum Exporting Countries (OPEC). OPEC is an international organization founded in 1960 by the key petroleum exporters meant to regulate the supply and price of oil. OPEC is effectively a cartel that controls the world’s oil supply, with virtually unchallenged control over the price of oil [9].

Fossil fuel’s dominance in the industry can be attributed to two reasons: accessibility and efficiency. Fossil fuels are, by far, the most easily accessible and abundant energy resource. For decades, humans have exploited the Earth’s huge fossil fuel reserves. Furthermore, fossil fuels are also energy-dense, meaning they are efficient for producing large amounts of energy. The oil and gas sector alone generated an astronomical $4.3tr in revenue in 2023 [10].

Renewable Energy

While renewable energy represents a significantly smaller portion of the energy industry, it is the fastest-growing sector. From an accessibility and efficiency standpoint, renewables are largely unable to compete with fossil fuels. Renewable infrastructure still needs years of development and current renewable technologies are not advanced enough to drive down the price of renewable energy. However, fossil fuels have two key flaws: 1) fossil fuel reserves are finite and will eventually run out, and 2) fossil fuels contribute massive amounts of carbon emissions into the atmosphere, which is unsustainable from an environmental perspective.

Since the COVID-19 pandemic, global renewable energy investment has seen a huge improvement. Global energy investment in clean energy has grown by a compounded annual growth rate of nearly 10% from $1.2tr in 2019 to $1.7tr in 2023. This growth is unique to the sector – fossil fuel investment saw a slight 1.5% decrease during the same period. Furthermore, since 2015, investment in renewables has grown by a CAGR of ~6% while investment in fossil fuels has fallen by a CAGR of ~3%. These trends in data indicate that major changes within the energy industry are imminent over the next few decades [11].

Within the renewable energy sector, the key classifications are the traditional three renewable energies – solar, wind, hydroelectric, and biomass energy. In 2022, 29% of renewable energy came from wind power, 18% from hydroelectric, 14% from solar, and 37% from biomass. The most promising sectors are solar and wind energy, given the sheer abundance of its resources. In fact, the Earth’s atmosphere receives enough solar energy in an hour to meet the annual electricity demand of every human being. The challenge, however, is harnessing that energy [12] [14].

Nuclear Energy

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