Is coal going away? – NY Times
Happy new year everyone! Let’s get right down to business and discuss what I think will be one of the major themes of the year:
ENERGY
2011 will be the year of energy. In my opinion, with natural gas prices slumping in the US due to higher supplies, and with natural gas prices high in Europe due to the fact that one country supplies most of the continent’s needs, and with natural gas prices higher in certain Asian countries (like Japan) due to their lack of resources, 2011 will be a very interesting time to watch changes in the landscape. Changes in energy policy, technology, and needs has me looking at the following energy-related themes:
Will low natural gas prices cause users to switch more of their operations to gas power? (see NY Times article linked above regarding power cos’ shift to NG)
If oil prices continue to rise, will that slow the economy down too much? will companies attempt to get cheap north American gas to European or Asian markets?
Will nuclear energy emerge full speed?
Will geothermal energy get its recognition?
Will other types of energy enter into the mainstream conversation?
Is any of this an invest-able idea?
In recent years, new drilling technology called “fracking” (a play on fracturing) has enabled companies to drill sideways, horizontally through rock and layers to significantly increase gas extraction from existing fields. This has pushed the available supply in the US to such large numbers that the price of natural gas hovers at historically low levels, and some suppliers are capping their gas wells to focus on more profitable oil and natural gas liquids. Furthermore, the low price of natural gas in the US is encouraging utilities to switch from coal to natural has.
In other countries – the ones who import natural gas – are not getting many price breaks. Europe is getting no favors from Russia and Australians are happily making money. Will we develop exporting LNG (liquid natural gas) terminals to send our cheap gas to Korea, Japan, and Germany? Perhaps someone will develop a super long pipeline from Alaska to northern Japan:) (just kidding but who knows).
Uranium & Geothermal
Uranium has been ‘heating up’ since August and loan guarantees are coming back to help construct plants whose cost is mostly upfront (generating nuclear energy electricity is very low cost). Geothermal companies are racing against a 2013 deadline to get their tax credits for producing power. 4 geothermal developers plus industry leader Ormat are working hard to boost geothermal production and these companies have new power purchase agreements (PPA) signed with various utility companies. Speculation is that in order to offset carbon creation, larger firms will likely buy out the small geothermal companies. If they don’t, with the tax credits and assuming development runs fairly smoothly, these firms could be highly profitable.
Other Ideas
Talk of super storage energy batteries to supplement solar plants and the mysterious black box created by a California tech company are just 2 of the newer developments in the energy field. And yes I get the newsletters touting all kinds of secret power supplies and ideas that ” the government” doesn’t want me to know about. My focus is on the obvious stuff, right in front of us that people don’t care about: natural gas and on something people still don’t believe in: geothermal. Both of which would light up if oil demand continues to compound and heaven forbid if any energy-related diplomatic strife hits.
And as far as coal? Should we forget about it? Well-known economist Marc Faber warns us not to write off the dirty stuff – coal’s not going anywhere and especially in China where they’re buying all the coal they can get.
Bottom Line
My thinking is that for some people, energy investments could be a good addition to their portfolio. Global demand for energy is growing consistently – more drivers, more people heating their homes, more construction – and populations are up in countries that are going through growth in their standard of living – a double whammy for energy prices. If you are thinking along the same lines, perhaps you should discuss energy exposure with your investment advisor.
Thanks for reading!
Interesting discussion on natural gas technologies: Marc Gunther
Disclosure: I do not own stock of any companies mentioned in this article.
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