The energy sector is ripe for disruption.
The days when mining for coal and oil are the best and most popular ways to provide an energy source to our cities and homes are gone!
This is set to leave companies like Santos Ltd (ASX: STO), WHITEHAVEN COAL LIMITED (ASX: WHC), AGL Energy Ltd (ASX: AGL) and Origin Energy Ltd (ASX: ORG) in serious trouble!
Disruption: A Cause for Concern
It's been happening forever but it seems like investors are only now really taking seriously the risk of disruption to long-standing industry titans. In this case we're not talking about a fall in profit due to a sliding oil, gas or iron ore price, rather we're looking at if profit can ever return to previous levels as global attitude to energy sources and renewables shift a gear.
Disruption in the last 20 years has been generally limited to massive efficiency improvements through the use of robotics and the internet- think the change in assembly line production, the ability to easily outsource menial tasks, and the way that our phones have replaced so many other parts of our lives (diaries, roadmaps, etc).
In my opinion, the next wave is ENERGY.
Santos = Trouble
Last week in Paris the 2015 United Nations Climate Change Conference concluded when members agreed to reduce their carbon output "as soon as possible" and to do their best to keep global warming "to well below 2 degrees C".
While the outcome was less-than-satisfactory, the message is real – the world is serious about reducing its reliance on fossil fuels. This spells trouble for Santos and Woodside Petroleum Limited (ASX: WPL)!
What do we do?
Follow the technology. The Tesla Powerwall could be a massive game changer.
Some will remember the rush that occurred when the government introduced solar power rebates and tariffs. Purchasing solar panels made sense with a two to four-year payoff period, however the industry is suffering of late as the payback period extends to as long as 10 years without the subsidies.
Battery technology will change the game. If Australian houses can absorb energy during the day and use it to power the air conditioner at night, peak electricity demand will plummet! AGL Energy Ltd and Origin Energy Ltd will have to move quick to be a key part of the value chain when the Powerwall takes off in Australia or they'll be doomed.
Will the Santos Ltd share price ever recover?
Who knows? The oil price is incredibly low, competition is increasing, and disruptive technology stands between it and serious profitability in the future. I'd be searching for greener pastures right now.
