This from Andrew:

Two weeks ago I sold the Virginia-based utility company Dominion Resources (D).  I got out at a double-digit profit.

Of all the utilities in the S&P 500, Dominion had the best earnings growth (38.5%) last quarter. So why did I get rid of the stock?

When I recommended it in mid-2005, electricity consumption was still rising and regulated rates were providing cover for rising energy costs. Dominion also had productive gas fields in Texas and expanding Liquified Natural Gas (LNG) ports.

But now the sector is heading in the wrong direction.

In the last week alone the utility sector lost 8.2 percent. Only the financial, conglomerates and industrial goods sectors have done worse – recording bigger losses over the past week and last three months.

I got out just in time. Since I exited my position in Dominion, it has lost 9.1 percent. But as you can see, Dominion has lots of company…

As recently as last quarter, utilities were holding up fine. Their profits had risen an average of 5.3 percent (unweighted) and 0.9 percent (weighted). Along with health care and consumer staples, utilities formed a strong line of defense against the encroaching recession.

So what the heck happened?

Listen, utilities have certain advantages, like fixed prices, monopoly-like markets, and a consistent revenue stream.

But that revenue stream has sprung a few leaks. Listen to CEO Lewis Hay of Florida Power & Light (FPL)…

“A lot of people think demand for electricity is inelastic. It’s not. Our customers are cutting back, and they’re not paying their bills, either.”

I wrote to my readers last week that “I’m not quite ready to put utilities in the same category as banks…”

But utilities are sounding more and more like banks. Here’s another utility CEO, Michael Morris of American Electric Power (AEP), sounding off…

“Clearly, industrial sales will be off,” he said, “we’re selling less electricity to neighboring utilities as their needs drop.”

The recession has finally caught up to the utilities. As a result, utilities are husbanding their cash along with all the other companies…

APE is cutting back spending from $2.5 billion to $1.25 billion. FPL is and Georgia Power is also cutting back.

And in the strongest sign yet that the utility sector is no refuge for investors, two utilities cut their dividend last week: Ameren (AEE) and Constellation Energy (CEG).

Investors made a lot of money shorting banks. I’m not ready to put utilities in the same camp as the banking sector, but the weaker companies in the utility sector definitely represent shorting opportunities. My Red Flag portfolio used to be full of banks and financials. My bets that their shares would sink made mostly triple-digit gains.

Last week I added a couple of utilities to the portfolio. The utility sector is catching up to the rest of the economy – and not in a good way.

Source: Why Utilities Are No Longer a Refuge for Safe Investors

They know something about sailing and working at sea. And the Norwegians have been drilling in the North Sea for 60 years or so.

In the image above, note how subsea systems have evolved — 1970’s massive oil platforms have given way to subsea well completions…

Now the Norwegians are ready to take it to the world. And the world is going to buy Norwegian goods, because some of that stuff is just too good not to own. Here is an example…

Norway’s StatoilHydro

Norway has many outstanding firms that set world standards in the offshore business. One company is StatoilHydro, a recent merger of the state oil company Statoil and Norsk Hydro. At the recent Offshore Technology Conference in Houston, StatoilHydro received an award for its work in developing a massive gas field in the North Sea, called Ormen Lange.

Ormen Lange lies under waters between 2,500-4,000 feet deep. Statoil drilled 24 wells to recover 70 million cubic meters of natural gas per day and pipe it all dozens of miles ashore to a facility in Norway. Then the gas gets piped through a 48-inch pipeline under 725 miles of North Sea to Britain. Easy, right? Ummm. No.

Think of it in terms of building the Alaska Pipeline — underwater.

Everything about Ormen Lange is big and impressive. The water is deep. The drilling is difficult under the furious North Sea. The bedrock geology is tricky. Producing gas requires complex machinery be installed on the seafloor. There are long pipe runs, with some pipe lying on the seabed at 35 degree angles.

Moving the natural gas to England is a world-class feat in and of itself, through the longest subsea pipeline in the world.

Still, in the global scheme of things, Ormen Lange is just one project in this world. And there are dozens more like it in the offshore realm. The capital expenses for new energy projects are gigantic. Everything costs big bucks now. Prices are rising for steel, cement, equipment, machinery, cost of capital, labor (if you can find trained labor). The numbers are mind-boggling. How mind-boggling? In one talk, our buddy Matt Simmons mentioned it will cost $100 trillion over the next seven years to fund the energy projects the world needs.

Until we meet again,

Byron King

Note: Byron King is a frequent contributor to the free e-letter Whiskey & Gunpowder. To receive daily insights into energy, oil, commodities and other natural resources sign up here!

Source: Just Like Building the Alaska Pipeline, Underwater