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The Coming Global Blackout

Andrew Gordon — Tue, 07 Jul 2009 15:55:15 +0000

Leave it to the government. It’s proposing a “tax and cap” regime for energy producers which will require fossil-fuel generating plants to pay extra.  The idea is to encourage clean fuels and discourage dirty ones. That’s fine in theory. But instead of helping our future energy situation, it’s going to make it a lot worse.The price of oil has already doubled in the past six months to over $60 per barrel. But it’s just the beginning of oil’s next gigantic price surge. If you thought that oil was ridiculously expensive last summer, you haven’t seen anything yet.

It doesn’t matter whether you believe in “Peak Oil” because this isn’t about Peak Oil coming to fruition. Peak Oil believes that oil discoveries have peaked leading to oil production’s inevitable decline.

This crisis will be strictly man-made. Governments and oil companies have already planted the seeds of the next great energy crisis. And there’s nothing anybody can do to prevent those seeds from sprouting.

The U.S. government got its religion late. But it’s now following the lead of European governments in limiting the use of fossil fuels through taxes and restrictive regulations.

That’s bad enough in itself. But then there’s the roller-coaster ride which oil prices have taken. The price of oil fell more than $100 from over $140 to under $40 (before going back up again). Oil companies everywhere had the same response. They all cut back on oil spending and production…

•    OPEC has cut back production by 2.2 billion barrels a day.
•    UAE has put off plans to expand oil production by 1 million barrels a day.
•    Saudi Arabia has delayed two $10-$20 billion refining projects (and may cancel them altogether).
•    Russia’s biggest oil company, Gazprom, has slashed production spending by 24 percent.
•    Venezuela, Nigeria, Malaysia and other national oil companies have cut back on their capital spending.
•    Statoil, EnCana, Petro-Canada, Suncor, Imperial Oil, and Royal Dutch Shell have all delayed or cancelled major projects in Canada’s vast but expensive-to-produce oil sands.

How bad are these cutbacks? Just ask the widely respected oil consulting agency, the International Energy Agency. It recently warned of a “second capacity crunch” causing widespread underinvestment in the oil industry.

Oil’s recent price rise could have loosened up oil producers’ purse strings. But oil companies are facing increasing disincentives from a government trying to replace fossil fuels with renewables.

If you want to know how the CEOs of Big Oil feel about the Obama administration’s energy policy, just ask Jim Mulva, head of ConocoPhillips.
This global oil company has operations in more than 30 countries. Mulva said last week that government intervention in the energy market “has an impact on the willingness of companies to pour billions into the development of new projects.”

In the meantime, the Obama administration is spending hundreds of millions of dollars on renewables, like the $467 million to encourage the development of geothermal and solar energy.|

The result? Geothermal and solar energy will have slightly bigger pieces of the energy pie. But oil priced at over $150 per barrel will kill the U.S. and global economic recovery in its infancy.

The cost of plastics and resins will go way up. Gas prices will surge over $5/ gallon. New highs in jet fuel will crash several airline companies. Actually, practically everything will cost more. I don’t think that’s what these governments have in mind.

And even with ample government support you shouldn’t invest in geothermal or solar companies. They will still depend on government subsidies to compete with the price of electricity generated by – take a guess – fossil fuels.

Instead you should invest in oil producers but not just any oil producer. Thanks to vast underinvestment and government policies, the price of oil will sky rocket. The only thing keeping the price of oil from going higher right now is that we’re still in the middle of the worst recession in seven decades.

But once demand returns, watch out.

Total’s CEO Christophe de Margerie says that a rise in demand while supply is constrained will unleash oil prices again.
And Mitsubishi warns that spare capacity will quickly disappear when oil demand picks back up.

But, as I said, most oil companies have cut back production and spending. That’s going to prevent them from getting windfall profits from soaring oil prices.

But four of the world’s major oil companies haven’t cut back on spending. Three of them are Exxon Mobil, Chevron and Thailand’s PTT Exploration & Production. But by far the best oil investment you could make is in a fourth big oil company.

Last year it spent 34 percent more on drilling for oil. And this year it’s spending 19 percent more. While the other oil majors are cutting back on spending and facing stagnant output, this company plans on raising production by 7-11 percent a year. I’m predicting its shares will go up at least 80 percent over the next three years, and the gains could be much bigger than that.

I’m sorry but I can’t give you the name of the company because it’s my latest recommendation to readers of my INCOME service. They deserve first crack at this company, especially since its price is so cheap at the moment. But if you’re interested in this company, just click here for more information, including how to sign up in order to get this company as your first recommendation.

Source: The Coming Global Blackout

Trina Solar (TSL), In Play

Alexander Green — Tue, 17 Feb 2009 17:33:06 +0000

Trina Solar is recognized as a solar pioneer since it was founded in 1997. Their products provide reliable and environmentally-friendly electric power and their fourth quater revenues are about to beat expectations.

This from the editors at Investment U:

In the news this morning, Trina Solar (NYSE: TSL) announced that fourth quarter revenues would beat expectations.

It’s an unexpected bit of data when many were starting to count the solar sector out – and not for good reason. After our last energy crisis, many alternative energy producers, like solar, were simply forgotten about when gas prices came back down.

With the average price per gallon at around $1.96, who could blame them if they expected the same thing to happen? But the interesting thing is that it hasn’t.

Trinity Solar follows news from Suntech Power (NYSE: STP), the world’s largest solar module producer, that it expects production to increase – almost 60%. That’s quite the opposite of a drop-off.

Granted, there are just as many solar losers, as winners. Canadian Solar (Nasdaq: CSIQ) reported negative numbers along with a number of others, from Applied Materials (Nasdaq: AMAT), JA Solar Holdings (Nasdaq: JASO) and GT Solar International (Nasdaq: SOLR).

But the fact that we are seeing resilience form the solar sector and companies holding their own, means that this time around might be a little different than last. And that’s a good signal for us to keep our eyes on solar.

Because any strength in this market is impressive, regardless of where it is.

Source: Sun Still Shines on Trina Solar (TSL)

The Industrials Show Us the Effects of Rising Energy Costs in the Real Economy

Dan Denning — Mon, 19 May 2008 13:33:44 +0000

Congratulations Aussie dollar. You’ve made a 24-year high. The terms of trade is throwing you a party later this year. Will you be brining parity with you?

Also, welcome back 6,000. Won’t you stay awhile this time? There were quite a few new 52-week highs set last week, including BHP Billiton, Coal and Allied, Oil Search, Fleix Resources, Macarthur Coal, Australian Worldwide Exploration, Western Areas, and Steamships Trading Company.

Do you notice a trend there?

The All Ordinaries finished last week at 6,006. That’s a 16% rally from the March 18th lowly low of 5,163. It erases most of the 20% year-to-date deficit. But it’s still down 12% from last year’s all-time high at 6,835 (on November 1st) and 6.46% for the year.

Does the index even matter? If you own a share portfolio that passively tracks the performance of the All Ords, we suppose it does. But you have to wonder if the All Ords are doomed to indirection, like Siamese twins trying to run in opposite directions at the same time. For investors, maybe the smartest thing to do is cut them apart and let them go their own way.

By “them” we mean the resource, energy, and basic material stocks in the one camp, and the consumer discretionary, listed property trusts, and financial stocks in the other camp. The energy sector is up on the year by nearly 20%. Materials are up about 14%. Meanwhile, consumer discretionary stocks are down by 26%, financials down by 17.4%, and listed property trusts (now called A-REITS) down 19.4%. Industrials are down 17.3% as well.

You don’t need to be DaVinci to decode this performance do you? Resource and energy producers are up with higher oil and bulk commodity prices (and probably some hot foreign money). Financials are down as investors wonder how banks will grow earnings in 2008. The consumer discretionary sector is the market shrieking in horror at the effect of all the interest rate rises on the Aussie consumer (not to mention food and fuel inflation).

The two sectors with the most questions are the A-REITS and industrials. Bottom-fishing contrarians would be attracted by the dismal performance of each. But let’s not forget the two big issues that hover over the property market: valuations and leverage. If property prices slump or simply grow less fast, this hurts the A-REITs. And leverage? You’ve seen what happens when it works in reverse.

The industrials—more than any other sector—show us the effects of rising energy costs in the real economy. These companies are unable to pass on the rising costs to customers. Margins are crunched. A fall in the oil price that lasted for a quarter or so might lead to a nice recovery in these stocks—or at least a tradeable move.

“Hey Gabriel?”

“Oui?”

“If you had to make one long and one short trade on ASX sectors today, what would they be?”

“May I have a moment to look at the charts?”

“Bien sur.”

After a few moments, he replied.

“ LONG on the Industrials sector. The Index has lost 32% between November and March, found a good support and rebounded on the previous low that was posted before the strong rise between August and November 2007. Here’s the chart:

“The decrease of 32% occurred in a bearish channel. The price action cleared this channel on the upside recently, which argues for a further momentum up. The 14-day RSI is well-oriented, therefore more upside to come before a potential overbought situation. 5,650 pts then 6,000 pts the next targets (23.6% and 38.2% retracement levels).

And short?

“The Utilities sector. The Index has rebounded 23% in 2 months, now the momentum is slowing and a few indicators argue for a shift in the price action in the near-term. Look at the chart.”