Energy

Europe, Delaware, California and some of the states in the Midwest are making major moves into wind power, which will slow the growth in demand for coal, oil, natural gas, nuclear power and rail road cars needed to haul coal.  Demand for all kinds of energy and the infrastructure required to bring energy to market will continue to grow, but stock pickers who read Wind Power Politics in today’s New York Times Magazine will quickly realize that they need to rethink their basic assumptions about the energy markets.  If wind power supplies up to 20% of America’s electricity by 2030, how much more coal, natural gas and nuclear power will we need?  If the country is sold on wind power, what will that do to its interest in clean coal technology, more coal-fired power plants, new nuclear plants and drilling for oil in Alaska?  How fast can wind power win political support, which requires public support, and how long will it be before wind power affects demand for other forms of energy?  Which companies will profit from a wind power build out and when will that show up on their bottom lines? It makes no sense to buy a concept until it’s reflected in stock prices.  Click on the links in my previous post, which is here, to see some investing options related to wind power.

The Commodity Futures Trading Commission today proved that it intends to protect pension funds, endowments, mutual funds and other commodity futures index speculators and their Wall Street brokers from advocates of strong limitations on their ability to distort the oil, corn, wheat, soybean and other futures markets.  In a long awaited 71-page report to Congress, the CFTC basically asked for more staff to study the problem of institutional speculation in the futures markets. The report is here. The CFTC’s report shows 

Tom Konrad explains how investors can speculate on wind power here. On Monday and Tuesday, we drove I-90 across Wisconsin and Minnesota. We saw hundreds of wind mills in MN, many more than we saw in Colorado, Nebraska, Iowa, Illinois, Indiana and Michigan a couple of weeks ago. I don’t recall seeing windmills in Wyoming or South Dakota, be we sure saw a lot of coal trains in Wyoming.  Charts for stocks mentioned are here. Three more are here. Click on a chart for weekly and point and figure charts.  ITC Holding (ITC) has the best charts of the bunch. Most look pretty bearish to me.  Each windmill costs about $1 million per megawatt, and most windmills produce 2.5 megawatts and cost about $2.5 million, not including related infratructure costs. Most are owned by power companies around the country as well as by joint ventures between the power companies and the wind mill makers and by farm cooperatives formed to put up wind mills.  I don’t own any of these stocks For educational purposes only. Investigate before you speculate.

It’s looking increasingly likely that Congress will lift the ban on drilling for oil off shore and on Federal lands.  The sharp drop in oil prices last week may have been caused by the growing realization that public pressure on Congress to lift the bans is fierce.  What are the chances that the Democrats will decide that the environmental and global warming alarmists are losing their grip on public opinion and decide that they need to allow new drilling or lose Congress and the White House this fall?  Speculators have begun selling a number of energy stocks, some of which fell as much as 15% last week. The market is signaling nervousness about what Congress might do. It seems to be saying that the chances that Congress will lift the oil drilling ban are increasing.  The GOP seems to be making energy a big issue, but Sen. John McCain has been captured by the Al Gore global warming alarmists. He’s for offshore drilling, but not for drilling in Alaska. He needs to do some major flip flopping to help depress oil prices and get legislation through Congress before it adjourns for the fall campaign in September.  If Congress lifted the ban on off shore drilling and some of the more onerous environmental restrictions and protected drillers against nuisance legal actions, American producers could bring new petroleum supplies to market in only two years, according to the July 21 edition of Investor’s Business Daily.  Since I can’t link to the IBD story, yet, I’ll try to summarize it.  • California’s 10 billion barrels in offshore crude could be brought to market in as little as a year • 97% of U.S. offshore areas and 94% of federal lands are off limits for drilling. • The regulatory process takes years; it could be streamlined significantly • Lawsuits are the big problem, not bureaucracy • Estimates of U.S. crude reserves have been increased to 350 billion barrels from 22 billion, not counting “massive shale and oil sand deposits.” • Enacting enabling legislation would send oil back below $100 a barrel. • Cambridge Energy Research Associates estimates speculative buying adds about 20% to the price of oil • If the U.S. moves to produce more oil, other big producers like Saudi Arabia, would increase production to maintain its market share The point is that if Speaker of the House Nancy Pelosi, a diehard opponent of offshore drilling and a proponent of higher gas prices, which she believes would promote oil conservation, were to allow the House to vote on and pass a bill that substantially reduces restrictions on drilling for oil, you can bet that oil futures prices would plunge a good 30% to 40% in less than a month.  IBD is available on news stands, and this story is worth a read. An IBD editorial on the topic is here.  USAToday reported on President Bush’s lifting of an executive order that bans oil drilling here. But that’s not enough. Congress must act, too.  A CNN poll found 73% of Americans strongly favor lifting the banks on drilling for oil, so maybe Pelosi and the Democrats will change their minds. That would require another flip flop from Barack Obama who opposes drilling.

T. Boone Pickens, the famous oil man, is becoming the famous wind power and natural gas speculator.  He’s getting a lot of free media time this week from the adoring TV interviewers, but hard questions will be asked before politicians or investors buy into his plan to make the U.S. less dependent on foreign oil producers and make him even more wealthy.  Whether his initial burst of publicity will help him get presidential and Congressional backing for the subsidies he’ll need to build his wind farms and sell his natural gas or not remains to be seen.  Before the government puts more money behind wind power, which Pickens claims would reduce oil imports by up to a third, environmentalists and bird lovers will want to know how you can build a wind farm that doesn’t kill thousands of birds a year. The not in my back yard factor is huge.  Politicians and investors will want to know whether Pickens’ wind farm will be built in a major flyway, and how much energy will be consumed building and equipping the wind farm and the transmission lines that will deliver power from the farm to utilities and other commercial customers. And how much energy would be used building the infrastructure needed to make natural gas a workable alternative to gasoline and diesel fuel?  Ah, details. Those questions will be asked. Indeed, if you search the web, they’ve probably been answered.  ABC News reports on Pickens’ $10 million advertising campaign and web site here. His web site is here. Pickens is predicting that oil will go to $200 a barrel and never come down. At this point, I don’t believe it.  Then the question becomes, what is the breakeven price for wind power producers in terms of the price of oil?  And how much does Pickens want the government to spend to make his wind power and natural gas schemes competitive with oil and gasoline?  On the surface, he appears to have a good “plan,” but it has to be good enough to attract private investors, not government subsidies. Otherwise, it won’t be economically viable or worth doing unless the country just decides that reducing our dependence on other countries for oil justifies making Pickens and other entrepreneurs richer regardless of the price.