15 Reasons Why Investing In the Oil and Gas Industry Can Be a Good Investment

The oil and gas industry is one of the most coveted industries for investors. There are plenty of reasons why investing in the oil and gas energy sector and all related sectors is a good investment. Since the time, energy such as oil and gas were first discovered, there has always been demand for energy. Remember, energy is always demanded and the demand is only likely to grow as the population on earth continues to increase. Besides, more and more people are traveling than ever before, this is also boosting the demand for fossil fuels such as oil and gas. When you invest in the energy sector, it provides you with the opportunity to earn an income and shape the future at the same time. However, there are many reasons why investing in the oil and gas industry is always a good idea. This post looks at 15 reasons why it makes for a good investment.

  1. Sheer Size of the Market

The energy market is globally valued at over $7 trillion. This clearly shows that oil and gas are the most valuable market out there for investors. As the world’s population reaches over seven billion people, it is only obvious that so will the market for energy. Moreover, energy is considered responsible for about 10% of the global gross domestic product. If one looks at the top ten global companies who make the most annual revenue, it clearly reveals that about nine of the companies out of the ten operate in the oil and gas industry. The reason behind this is the fact that energy tends to be pervasive. Just about every single human activity requires energy, whether it is driving to work or cooking a meal. Since the energy industry generates the most revenue as compared to just about any other industry in the world, it is clear why investors stash their dollars away by investing in the oil and gas industry. Moreover, the sheer size of energy market is only expected to rise. By investing in the sector now, you will be able to reap high dividends in the future.

  1. Growth In the Future

The International Energy Agency had conducted a study to find out how global energy demands would change by 2035, and it was revealed that the demand for energy worldwide would rise by over 30 percent by the year 2035. The Middle East, India, and China would account for about two-thirds of this growth. It is expected that by 2035, the demand for oil globally would be anywhere around a hundred million barrels a day which is more than the existing demand of 89 million barrels a day. Moreover, it is predicted that the number of cars would increase to twofold meaning that there would be twice as many cars in 2035, then, there are today. This would fuel the demand for more energy. Furthermore, oil prices are also expected to increase to about $125 a barrel. As the world becomes more developed, and as developing countries such as Pakistan and Nigeria compete with other developing countries, the demand for electricity is also forecasted to rise two times as fast which would cause the price of energy to increase by 15 percent by the year 2035.

  1. Investment Projection

Countries around the world have to invest about $37 trillion to meet the rise of energy demands. The production as well as the supply infrastructure of the energy sector has to keep up with this increase demand for energy in the coming decades.

At least $17 trillion are required to be invested in the energy sector in order to upgrade renewable and natural gas generation. Moreover, the present distribution and transmission network has to be upgraded so as to maximize efficiency levels. Manage your personal finance and invest in the energy sector to enjoy a piece of the pie.

  1. Decent Returns

With demand and price for energy rising rapidly, the return on investments for the energy sector has been twice the average in the recent decade and is only expected to rise. For instance, if one looks at ExxonMobil alone, it can be seen that the returns have risen by about 140 percent in a decade by comparing the profit margin from 2003 to 2013. If we compare 2013 profit levels with 1993, it is clear that profits have risen by about 473 percent. It shows that investing in the oil and gas industry offers investors decent returns. Moreover, the profit levels are not only true for ExxonMobil, but also for most of the top energy companies in the world. They have managed to outpace other companies in different sectors on an average. If you are looking for decent returns, then there no better sector to invest in than the energy sector. Besides, it is easier than ever before to invest in the energy sector today than it ever was.

  1. Diverse Industry

The energy industry is extremely diverse and it is only likely to become more diverse in the future. Normally, people tend to think of the energy industry as just wind, solar power, electricity, and oil. However, the energy market is huge and it consists of a diverse range of markets. If you come to think of it, nuclear energy, coal, gas, and oil are just some of the offerings of the energy sector. The oil and gas industry refers to a broad range of market offerings. For instance, crops are needed for bio-fuels. Therefore, it can be seen that investing in energy can also be considered investing in agriculture. Furthermore, the majority of electricity plants, regardless of their energy source require water in order to be cooled. Hence, investing in energy is the same as investing in water and in industrial automation. The same holds true for clean technologies such as solar energy which can be considered as investment in technology. When you invest in the oil and gas industry, you actually diversify your investments portfolio which is crucial for stable returns.

  1. Growth and Income

By investing in the oil and gas industry, you get to pursue a broad range of investment goals besides just investment in diversified companies. The energy industry offers tremendous opportunities such as the chance to invest in unique start-ups that are changing the world, exploration companies, and the like. This brings new income opportunities for you. However, to invest appropriately, you need to understand the economic situation. It will allow you to develop an effective strategy that maximizes your return on investment. But once you have determined an appropriate strategy, investment in the oil and gas industry will help you achieve this.

If you look at the different companies operating in the industry, you will better understand the type of strategy that suits your needs. For instance, master limited partnerships and pipeline operators offer stable income payments, on the other hand, integrated gas and oil corporations offer decent dividends and value, and gas explorers or immature oil corporations could even deliver high returns if you are willing to bet on some extra risk. It is up to the investor regarding what he or she seeks.

  1. Offer Insights

Chances are that there is always going to someone whom you meet or know, who would ask you about why oil and gas prices. When you invest in the oil and gas industry, you are more likely to follow the industry more closely. This will allow you to know when gas prices would rise and what one should expect from the industry as a whole. For instance, you would know before gas prices rise or when refiners tend to switch off from the summer blend. By investing in the energy sector, you will also invest your time to the sector. This will allow you to pay attention and notice the industry on a deeper level than usual.

  1. Conscience

Investing in the energy sector can be effective if you follow a set of principles when investing your money. Climate change and global warming are changing the world that we live in. It has lead to many investors seeking out investments which are not just considered good for their portfolio, but also our planet. If you have a higher conscience, then you can invest in companies which produce electricity and have fewer emissions, or those that are energy-efficient. Moreover, you can invest in smart-grid companies, bio-fuel, wind, and solar companies to ensure that investments are made towards changing the world.

  1. DIY

Ever since exchange-traded funds (ETFs) have been introduced, most investment strategies are made available to retail investors. With ETFs, it is possible to use one fund to buy into an entire sector, employ leverage, and profit off from the commodity prices. For instance, for broad exposure into the coal market, one can purchase a coal ETF without having to bet on just one company. You can even purchase a leveraged fund which offers returns of more than twice or thrice the daily price for a specific commodity.

  1. Energy Is Required By Everything

Just about everything requires energy. Think about flying somewhere without energy, or creating a car, switching on the computer, or just about anything. If you think about it, everything requires energy. Nothing can be done without energy. Energy is continuously demanded around the world. Thus, when you invest in the oil and gas industry, you invest in an industry that is highly demanded.

  1. Safe Investment

Considering the above reason why one should invest in the oil and gas industry, it is obvious that the energy sector offers investors the opportunity to invest in a safe market. Due to the fact that energy is demanded constantly, you can expect to make profits without having to worry about instability.

Although the energy industry is not immune from recessions and swings, it is definitely a safe place to invest your money.

  1. Offers Widespread Liquidity

There are major property auctions for oil and gas. In the past, it used to be difficult to invest in the oil and gas industry.

There used to be only a few major auction companies like the Oil and Gas Journal Exchange. With the advent of technology, exchange auctions are attended by investors online. Hence, widespread liquidity is offered.

  1. Political and Physical Safety

The reason why the oil and gas industry is highly coveted is because of the fact that natural gas and oil reserves offer physical invulnerability. The reserves are imbedded thousands of feet below the surface and have been buried for millions of years. Thus, they do not deteriorate and nor can they be stolen easily. Moreover, bombs cannot destroy them either. Onshore or even offshore oil and gas reserves are both politically and physically safe.

  1. Tax Benefits

There are many tax benefits offered to owners of natural gas and oil properties. About 60 percent to even 75 percent of the investment made in gas and oil drilling or a recompletion project can be deducted from the other income of investors in the current tax year. This can offer great tax incentives to investors who are looking for the profit maximization options. When it comes to tax related issues, investing in the oil and gas industry offers great economic opportunity. Although the tax deduction is a one-time deduction, it could easily decrease your tax liability significantly.

  1. Inflation Hedge

There is a reason why oil is considered black gold. Investing in the oil and gas industry is considered to be a great way to hedge from inflation. Even if there is a depression, you can still expect to make return on your investment when you invest in the energy industry. It does not matter how the economy moves, because your investment will always be protected. Since gas and oil are considered to be a basic commodity, you can be rest assured knowing that investment in the industry allows you to hedge from the risk of inflation.