econintersect.com
       
  

FREE NEWSLETTER: Econintersect sends a nightly newsletter highlighting news events of the day, and providing a summary of new articles posted on the website. Econintersect will not sell or pass your email address to others per our privacy policy. You can cancel this subscription at any time by selecting the unsubscribing link in the footer of each email.



posted on 28 October 2015

Why We Need To Rethink Energy Parity

by Kent Moors, Money Morning

Special Report from Money Morning

Over the past two days, I've been wrestling with a problem. That made the 19 hours it took me to drive down to our residence in Florida a bit easier. Nothing like a little exercise for the mind when the rest of you is being held hostage by an automobile.

And the problem I've been thinking about is the shortcoming in the way the values of energy sources are currently measured.

Finding a new way to measure energy has not been a primary concern until recently because the standard method required little more than measuring the consumption of it.

And then a very new way of regarding energy parity emerged.

We've discussed the concept of parity in Oil & Energy Investor before. Basically, it refers to the compared costs of producing energy.

These days, "parity" has become quite the buzzword among energy analysts. As crude oil continues to hover around $45 a barrel in the United States, more interest is being shown in determining the net effective value of other energy sources.

But is there any real way to expand this notion of parity to identify incremental values between energy types?

Thanks to my long drive, I'm on the verge of creating a new yardstick to do just this.

And for investors, this new way of comparing energy will make a world of difference...

Comparing BTUs Isn't Adequate

energy parity

From the standpoint of the investor, the reason for creating a new method is rather straightforward. The net comparative advantage of one energy stock over another is difficult to determine unless a real difference in value can be calculated for the energy being produced, transmitted, or consumed.

Simply put, unless there is a common way of gauging what the common denominator is, it ends up looking more like apples and oranges.

Traditionally, energy parity was determined by calculating an exchange value using British thermal units (BTUs). A BTU is the amount of heat required to raise one pound of water one degree Fahrenheit. The use of BTU levels for each energy (or application of energy) could be compared and a rough distinction made.

This was always a very static view of energy - essentially comparing types by equating what happened when you actually (or in some surrogate fashion) "burned" them.

The problem, of course, arises when you acknowledge that heat is not the only factor influencing the selection of an energy source. Two sources could generate the same "heat" but still not be considered interchangeable.

BTU comparisons also assumed that the energies being compared were used in the same way. Both power generation and transport require energy, but the usages are not interchangeable (although these two examples might converge in the current world with the advent of electric cars and the infrastructure needed to support them).

The problem with the BTU approach is that it focuses on the exchange of energy into heat rather than the wider implications of what position energy actually holds in an economy.

What may appear as parity from the perspective of generating the same energy product (electricity, for example) - while of some value in determining the efficiency of a process - tells us next to nothing about the broader investment picture.

>>>>> Scroll down to view and make comments <<<<<<

Click here for Historical Opinion Post Listing










Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, using Livefyre just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



You can also comment using Facebook directly using he comment block below.





Econintersect Opinion


search_box

Print this page or create a PDF file of this page
Print Friendly and PDF


The growing use of ad blocking software is creating a shortfall in covering our fixed expenses. Please consider a donation to Econintersect to allow continuing output of quality and balanced financial and economic news and analysis.


Take a look at what is going on inside of Econintersect.com
Main Home
Analysis Blog
The Surprising Pevalence of Surprises in Export Specialisation
The Destruction of the Existing Workforce
News Blog
Most Read Articles Last Week Ending 21 January
Why Hospitals Have Got It Wrong When It Comes To Antibiotic Resistance
The Rise Of Music Streaming Continues
60% Of Primate Species Now Threatened With Extinction, Says Major New Study
Most Attendees At Davos 2017 Come From The U.S.
What We Read Today 22 January 2017
Redneck Inventions
How Repealing Portions Of The Affordable Care Act Would Affect Health Insurance Coverage And Premiums
Grassroots Terrorism In 2017: A Small But Stubborn Threat
Earthquake Risk: Spotlight On Canada
Federal Income Taxes By Income Bracket
Infographic Of The Day: Guide To Caring For Your First Dog
Early Headlines: Migrants Incr. 41 Pct This Century, Women's March Largest Ever?, GOP ACA Disarray, Trump Hit With Ethics Complaint, Trump Back To '29?, May And Nieto To Visit Trump And More
Investing Blog
Stock Market Bubble Now Second Largest Of Past 100 Years
Inflation: The Good And The Bad
Opinion Blog
Retailing In America: Bricks And Torture
Economics, Society, And The Environment: What's Wrong With This Picture?
Precious Metals Blog
Four Catalysts Drive Gold And Silver For 2017
Live Markets
20Jan2017 Market Close: U.S. Stocks Were Up But Off Their Highs Of The Session, Crude Prices Continue To Climb, Next Week May Be Volatile
Amazon Books & More






.... and keep up with economic news using our dynamic economic newspapers with the largest international coverage on the internet
Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government































 navigate econintersect.com

Blogs

Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day
Weather

Newspapers

Asia / Pacific
Europe
Middle East / Africa
Americas
USA Government
     

RSS Feeds / Social Media

Combined Econintersect Feed
Google+
Facebook
Twitter
Digg

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution

Contact

About

  Top Economics Site

Investing.com Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2017 Econintersect LLC - all rights reserved