There’s no denying it: the world has an energy addiction. As population growth accelerates we're simply demanding more energy to power our increasingly wired lives – and that's not just in the developed world. Energy use by in the emerging world is surging by leaps and bounds.

In order to meet rising demand the energy industry has gone to great lengths to find new sources, usually at much higher costs.

But investors need not fret; those higher costs can lead to some pretty hefty profits for their portfolios. And with the long term demand trend firmly in place, the time to ride the energy bull market is at hand.

Quadrillions of BTUs & Trillions of Dollars

Projections for earth's future energy bill are staggering. According to the Energy Information Administration’s (EIA) latest predictions, the world will consume around 820 quadrillion BTUs worth of energy a year by 2040. One quadrillion BTUs is roughly equal to 172 million barrels of crude oil and is nearly 56% higher than what the world consumed in 2010.

Demand in countries outside the Organization for Economic Cooperation and Development (OECD) – those with developing economies – will increase by 9% over the next few decades. Economic growth in China and India will account for much of that demand.

And while renewables will meet some of that growth, traditional fossil fuels will still sate the world’s appetite for energy. Overall, oil, natural gas and coal will still supply over 80% of the world’s energy through 2040. Natural gas use will see the biggest leap of any fossil fuel, increasing about 64% in that time frame. (For related reading, see China's $700 Billion Clean Energy Plan and How To Ride The Natural Gas Boom.)

In order to meet this rising demand, the world is going to have to spend some serious bucks, and that's where investors will see many good opportunities. (For more information, see Unearth Profits In Oil Exploration and Production.)

The EIA’s international counterpart – the International Energy Agency – predicts that the world needs to spend around $48 trillion (or about $2 trillion a year) on investment in the energy sector in order to meet this growing demand. That bulk of that spending will need to go towards finding new energy sources and the infrastructure upgrades to exploit them, such as pipelines.

All in all, higher demand and higher costs mean higher prices for consumers and end-users of energy. It also could mean some serious coin for the oil & gas producers by way of energy services stocks, specifically drilling stocks.

Playing The Long Term Energy Bull

Given the rising demand and needed spending hikes to meet it, investors should focus a portion of their portfolios toward the energy sector. A good starting point is the new Fidelity MSCI Energy Index ETF (FENY).

FENY offers investors exposure to the benchmark MSCI energy index and tracks 165 different U.S.-based energy firms. That includes industry stalwarts like Exxon Mobil Corp. (XOM) to Appalachian Basin natural gas producer EQT Corp. (EQT). The key for the new ETF is that it's the cheapest option for investors in terms of fees at just 0.12%. Over time, high fees can put a big dent into returns. Another broad and cheap pick is the Vanguard Energy Index ETF (VDE).

Tapping new sources of oil & natural gas requires some major technological expertise as well as some big bucks. Providing that knowledge as well as profiting from the spending is the oil services industry. Oil service stocks including Halliburton Co. (HAL) and driller Helmerich & Payne Inc. (HP) continue to see increased demand. Similarly, such in-demand services bode well for the broad SPDR S&P Oil & Gas Equipment & Services ETF (XES). The fund tracks 52 firms that provide drilling technology and other equipment to producers. XES has maintained an 18% annual return over the last five years.

Finally, the trend to rising prices should benefit futures traders. The PowerShares DB Energy Trust (DBE) tracks a basket of five futures contracts – WTI crude oil, heating oil, Brent crude oil, RBOB gasoline and natural gas – and uses an “Optimum Yield” strategy to help eliminate the effects of contango. Another broad option, which removes DBE's schedule K-1 tax headache, is the iPath Dow Jones-UBS Energy Total Return Sub-Index ETN (JJE).

The Bottom Line

The world's energy demands will keep rising as supplies become harder find and exploit. Ultimately, these factors will propel a energy stock bull market for some time to come.

Related Articles
  1. Chart Advisor

    Time For Oil's Summer Bump?

    With the summer months approaching and motorists preparing to take to the roads and sky for summer vacations, now could be the time to invest in oil.
  2. Investing News

    Preparing Your Portfolio For Climate Change

    A recent White House's report paints an alarming picture of coming climate change. How will you adjust your portfolio to protect your assets?
  3. Chart Advisor

    How To Ride The Natural Gas Boom

    Natural gas has reigned as king of the energy markets for almost a year and a half, its price rising over 48% – widely outpacing West Texas intermediate crude oil (8.60%), heating oil (-3.95%) ...
  4. Investing Basics

    Oil: A Big Investment With Big Tax Breaks

    Oil and gas investments can provide unmatched deduction potential for accredited investors.
  5. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
  6. Markets

    What Drives Oil Prices?

    Have you ever wondered why oil’s price fluctuates more than the value of other investments?
  7. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  8. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  9. Investing News

    Obama Floats $10 a Barrel Oil Tax

    President Obama intends to propose a $10 a barrel tax on oil; consumers might have to cough up 25 cents more per gallon.
  10. Fundamental Analysis

    4 Predictions for Oil in 2016

    Learn four predictions for oil markets in 2016 including where prices are heading and the key fundamental factors driving the market.
  1. Is Norway a developed country?

    Norway is a highly developed country, and typically has a world GDP ranking in the top 30, with a 2014 GDP at $500 million ... Read Full Answer >>
  2. Is Qatar a developed country?

    Qatar is a developing country, according to the United Nations. However, as the country with the highest gross domestic product ... Read Full Answer >>
  3. Why do some oil refineries get tax exemptions?

    Oil refineries normally receive tax exemptions due to tax loopholes. The extracted fuel exemption, for example, one of the ... Read Full Answer >>
  4. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  5. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  6. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
Trading Center