• Energy comes in many forms
  • A modern economy uses an energy “mix”
  • As the “mix” evolves there arise opportunities to profit

Human civilisation, and the evolution thereof, is highly dependent on energy. As we learn in school, to move beyond a basic hunter-gatherer level of social organisation we need a surplus of energy that can provide for the basic food, clothing and shelter for those who specialise in other activities.

Forestry and woodworking, quarrying and stonemasonry, mining and metalworking, tanning, weaving, boatbuilding… There can be no specialisation in such areas absent an energy surplus.

Obtaining a surplus is easier said than done. Ancient civilisations sprung up where they did for good reason: soil quality was generally high and there was a reliable supply of water, if with some seasonality.

But even under ideal conditions, generating a surplus of food was no mean feat. And so, enterprising farmers learned how to use animals as a source of power.

The domestication of the ox and the development of the yoke and plough are amongst the greatest technological achievements in history, in terms of their overall impact on the civilisations of their time. Ox-powered mechanical irrigation was also a big breakthrough. Babylon, Egypt, Assyria, Persia… They all arose in large part because of “oxpower”.

The domestication of the horse, donkey and other farm animals was also important. They all contributed to the net energy output of agriculture, thereby providing for a larger surplus.

As civilisation spread, the need to produce a surplus spread with it. But depending on local conditions, the methods needed modification.

Hilly terrain placed a greater burden on the ox or whichever beast was pulling the plough, but if the hills were near a small river flowing with some force, then a mill could grind the grain locally and efficiently. Alternatively, where the conditions were generally windy, such as on a hilltop, a windmill could be the source of such power.

Have you ever noticed that, in much of East Anglia, where soil quality is generally quite high, there are many old mills along the rivers and many old windmills on the hilltops? Consider this an old form of a diversified energy mix.

But there was also energy diversification amongst farm animals. In particular, between the horse and the ox.

Every power source has certain advantages. The ox provides for slow but steady, reliable power, over long periods of time. However, the ox doesn’t provide peak power, in that it can’t easily increase its work rate on demand for short bursts when needed.

The draft horse, by contrast, can provide slow and steady power but, when desired, for short bursts, the front-heavy horse can lean forward, lower its centre of gravity and, when it does so, provide greater effective pulling power than the ox.

This helps to explain why, in Europe in particular, where soil quality varies a great deal and the terrain is frequently hilly, the draft horse, rather than the ox, became the dominant source of animal power.

Hence when steam engine pioneer James Watt needed to come up with a way to rate the power of his machines, he did so with reference to a typical draft horse’s work rate: Horsepower.

Steam power had clear advantages over both ox and horse and, within about a century of further technological progress, steam engines were powering tractors, mills and most other agricultural machinery.

Steam locomotives and ships became commonplace for large-scale transport, although the horse and buggy would continue to dominate small-scale transport all the way into the 20th century.

The internal combustion engine (ICE) would change that, however.

In the late 19th century, two forms of ICE were developed, petrol and diesel, with different characteristics. Both engines could provide steady base power, if desired, but the petrol engine could be revved up on demand to provide greater peak power.

The diesel engine provided for less peak power on demand, but it was about three-times more efficient at providing base power.

In other words, the diesel engine shared the characteristics of the ox and the petrol engine those of the horse. Depending on what type of work you needed done, one engine was more suitable than the other.

To this day, we see these differences everywhere we look. Light and local transport is dominated by petrol. Heavy and long-distance is dominated by diesel.

To my knowledge, no one has ever bothered to build a diesel engine for a household lawn-mower. Nor has anyone suggested using a petrol powerplant for a bulk carrier or container ship.

While many of us may have more day-to-day experience of petrol motors, when looking at the global economy, it is estimated that some 94% of all heavy industry (eg. materials, mining, manufacturing) and global goods transport is powered by diesel.

That’s an astonishing figure, but it helps to justify the saying: “The world runs on diesel.”

But of course, the world doesn’t run on diesel alone. There is much more to the world of energy than heavy industry and transport. This includes lighting, heating, communications, data processing and other essentials.

Some of these require reliable base power, and some peak. In most cases, they require some combination of both. Diesel remains absolutely essential, to be sure, but for some things it is not ideal.

The modern, global economy is so complex it boggles the mind. But each and every aspect requires an energy source. The specific choice of what solution is most suitable, for whatever activity, in whatever place and at whatever time, is thus also complex.

Energy technology continues to advance. The global energy economy thus is a living, breathing, evolving thing. And it is one that throws up endless opportunities for investors to profit.

Here at Southbank Research, energy expert James Allen and technology expert Sam Volkering collaborate to bring their readers the best ideas in both areas, ones that frequently overlap in an investment “Venn-diagram” of sorts. If you’d like to learn more about what specifically they are recommending now, you can do so here.

Capital at risk.

Until next time,

John Butler,
Investment Director, Fortune & Freedom