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Jul 12, 2021

How the Energy Sector Powers Cars, Businesses, and Homes

By Team Stash

This sector of the economy includes producers of nonrenewable and renewable energy.

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What is the energy sector? 

The energy sector makes it possible for you to drive your car, turn on your air conditioner, and so much more.

This sector includes companies that generate power, from sources as varied as petroleum, natural gas, coal, renewable fuels, and electricity from wind, solar, hydropower, geothermal, and nuclear power. Providing power to factories, businesses, cars, trucks, planes, trains, homes, and more, the energy sector is critical to the functioning of every sector of the economy. 

The companies in this industry, which have a combined market value of approximately $700 billion, harvest natural resources, through oil drilling, coal mining, wind farms and hydroelectric plants. They’re then responsible for turning natural resources into energy, which can be used by consumers and companies alike.

Some of the most profitable companies in the world—including Exxon, Chevron, China National Petroleum, Royal Dutch Shell, Saudi Aramco, and more—are part of the energy sector. Still, these companies are also linked to the worsening climate crisis. The burning of fossil fuels such as coal and oil has caused the earth’s temperature to increase over time, intensifying natural disasters like hurricanes and droughts. But as energy companies grapple with their role in the changing climate, the sector has become an area of innovation in renewable energy sources like wind, solar, and hydro power.

Know your Btus

When you think about energy, it’s helpful to know how it’s measured. Energy is commonly measured in something called British thermal units (Btu). (Another method is called the kilowatt-hour.) Energy is bought and sold according to these units. A Btu is the quantity of heat required to raise the temperature of one pound of liquid water by 1℉ at the temperature that water has its greatest density, according to the U.S. Energy Information Association. In 2020 alone, the U.S. consumed 92.94 quadrillion Btu of energy. The industrial sector, which is made up of agriculture, manufacturing, mining, and construction businesses uses the most energy, 33% of the total consumption. This sector is followed by transportation (26%), residential use (22%), and commercial use (18%). 

The most-consumed source of energy is petroleum, making up 32.23 quadrillion Btu. Petroleum is followed by natural gas (31.54 quadrillion Btu), renewables (11.59 quadrillion Btu), coal (9.18 quadrillion Btu), and nuclear (8.25 quadrillion Btu). 

In 2018, the U.S. spent $1.3 trillion on energy, in transportation, residential, commercial, and industrial uses. The energy sector reportedly contributes to 6.2% of the Gross Domestic Product (GDP) of the U.S. As of 2019, the energy sector employs 6.7 million people in the U.S, accounting for 4.6% of American employment. Employees in this sector work in electric power generation and fuel, transmission distribution and storage, energy efficiency, and motor vehicles. 

Here are some of the biggest companies in the U.S. energy sector, by energy source: 

Oil and natural gas companies, by market capitalization: 

  • Exxon Mobil Corporation, based in Texas, has a market cap of $145.2 billion. 
  • California-based Chevron Corporation has a market cap of $134.4 billion.
  • ConocoPhillips, also based in Texas, has a market cap of $35.2 billion. 

Coal mining companies, by production: 

  • Based in Missouri, Peabody Energy Corporation produces 138.7 million short tons per year.
  • Also based in Missouri, Arch Coal Inc. mines 87.9 million short tons of coal annually.
  • Navajo Nation, which is based in New Mexico, puts out 47.1 million short tons of coal each year.

Nuclear energy plants by output: 

  • Palo Verde Generating Station in Arizona, which generates 3.93 Gigawatts of energy.
  • Based in Alabama, the Browns Ferry Nuclear Plant puts out 3.4 Gigawatts of energy.
  • Peach Bottom Atomic Power Station, based in Pennsylvania, generates 2.77 Gigawatts.

Renewable energy, by market cap: 

  • NextEra Energy in Florida, with a market cap of $147.8 billion.
  • Based in Arizona, First Solar has a market cap of $8.6 billion.
  • Renewable Energy Group is based in Iowa, with a market cap of $2.9 billion.

The progression toward renewable energy

Climate change, or the warming of the planet over time because of greenhouse gas emissions from fossil fuels, has led to an increased emphasis on renewable energy. The summer of 2021 has seen record temperatures in the U.S., with places like the Pacific Northwest and the Southwest experiencing severe heat waves. Currently, the planet is on track to get hotter by 7℉ by 2100. The Paris Agreement, which is an international treaty made in 2015 between 196 parties, aims to limit global warming to less than 2℃ by 2050. 

2020 was the biggest year for renewable energy consumption to date, with renewable energy sources accounting for 12% of the energy consumption in the U.S., or 11.59 quadrillion BTU. From the late 19th century onward, the biggest sources of energy have been nonrenewable fossil fuels such as coal, natural gas, and petroleum. 

And until the 1990s, the most common sources of renewable energy were hydropower and wood. In recent years, the focus has shifted to other sources of energy such as biofuels, geothermal energy, solar energy, and wind energy. 

Investing in the energy sector

While the energy industry is changing, energy is always necessary to power industries, homes, and the economy. If you want to invest in the sector, you can do so with Stash by investing in shares or fractional shares of companies that produce and provide energy from nonrenewable sources such as oil and gas, or renewable sources like wind, water, and solar power.1 

Keep in mind that while energy is vital to the economy, the sector can also be volatile, depending on supply and demand of the commodities that power the sector, such as oil and gas. For example, when the Covid-19 pandemic reduced demand for oil and gas, the S&P 500’s Energy sector dropped 36.2% while the overall S&P 500, which fell about 7%. 

The best way to combat volatility in investing is by following the Stash Way®, which recommends investing small amounts of money regularly in a diversified portfolio. One way to diversify your portfolio is by investing across different sectors such as technology, materials, and utilities. Doing this can help balance your portfolio and protect you from taking on too much risk.

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Written by

Team Stash

1 Investment advisory services offered by Stash Investments LLC, an SEC registered investment adviser. Investing involves risk and investments may lose value.

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