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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

Deep, Wet and Brazilian

Byron King — Fri, 26 Jun 2009 14:00:31 +0000

Offshore areas of the world — especially in deep water — are the key to the world’s energy future. Far out and deep down. That’s where the last great hydrocarbon discoveries remain to be made.

That’s why, in my investment letter, Outstanding Investments, I’ve constructed a kind of end-to-end offshore energy mutual fund – from prospect to pipeline. Each company has a broad skill set. None is just a one-trick pony. Some of the companies overlap in skill sets, and even compete with each other.

A few of my favorite names include Norway’s offshore powerhouse StatoilHydro (STO: NYSE), as well as subsea equipment provider FMC Technologies (FTI: NYSE). Then there’s platform and pipeline builder McDermott Intl. (MDR: NYSE), as well as offshore services provider Superior Energy Services (SPN: NYSE).

Going forward, I’m be looking to recommend other deepwater plays…at the right price, of course. I’m looking for companies that can grab hold of key parts of the growing offshore business, and produce great profits in the coming years. I think you’re going to be astonished at what unfolds.

I recently attended the annual convention of the American Association of Petroleum Geologists (AAPG). (Some guys go to classic car shows; I go to geologist conventions). I’ve been a member of AAPG for 30 years, and it’s always fascinating to spend some time there. The meeting rooms and poster sessions feature reports from the front lines of the search for petroleum, natural gas and other energy resources.

One theme emerged loud and clear from this year’s conference: Deepwater. Most of the major oil discoveries that remain to be found in the world will be offshore, in deep water.

The always-ebullient Brazilian geochemist, Marcio Mello — CEO of Brazil’s HRT Petroleum Co. — wowed the crowd with a discussion of the oil potential of the South Atlantic. “Six of the last ten giant oil discoveries in the world were offshore Brazil,” he pointed out. And then Marcio moved the discussion to the other side of the South Atlantic and gave an eye-popping description of the oil potential of the offshore regions of Namibia.

“The Namibian offshore is analogous to that of Brazil,” Marcio stated, with slides and hard data to back it up. Then he showed his proprietary research into natural offshore oil seeps off Namibia, and the geochemistry that demonstrates immense hydrocarbon potential. “But Namibia,” said Marcio, “is way underexplored. So you can put down a little money for the concessions and get very rich.”

The point for investors is how much of future world energy development will involve subsea systems.

For additional perspective, let’s examine the current structure of the American energy supply. Right now, most of the U.S. energy mix comes from burning coal, natural gas and oil. In fact, according to the U.S. Department of Energy, the U.S. gets 87% of its total energy mix from burning fossil fuels. Another 7% of U.S. energy supply comes from nuclear power. The total is 94%.

That leaves about 6% of the U.S. energy mix to come from so-called “renewable” and alternative sources. And 3% of that 6% is renewable hydropower from unique sources like the Hoover, Grand Coulee and other dams. And we’re not building any more big dams.

Thus, only about 3% of U.S. total energy comes from things that grow, blow or shine. Of that 3%, about half (1.5%) is from “biofuels,” and that’s if you count a company like Weyerhaeuser (WY: NYSE) burning sawdust to run the sawmills.

Finally, there’s a very minor part of the total U.S. energy mix — about 1.5% — that comes from windmills, solar and geothermal. For as much visibility as these things get in the media and pop culture, their energy output is tiny — slightly above statistical noise in the overall national mix.

So just follow the numbers. The “alternative” energy sources are a miniscule component of the current energy mix. That’s after a few good years of significant investment, with lots of political support and plenty of tax breaks.

It will take many years (many decades!) for these energy sources to expand and meet the energy needs of the U.S. And that’s despite whatever the politicians and policymakers wish for in their dreams.

That’s why the U.S. must continue exploring for oil and gas. I cringe when I look at the falling rig counts in the U.S. and around the world. Every well that’s NOT drilled is one less source of hydrocarbon in the years to come, as depletion causes output from current wells to decline…which brings us back to the South Atlantic, one of the world’s greatest petroleum provinces.

Some experts think that the hydrocarbon resources in the pre-salt formations off the Brazilian coast may rival those of Saudi Arabia in magnitude. We’ll see about that. But it’s beyond dispute that Brazil and its energy resources are a complete game-changer for that nation, and the rest of the energy-consuming world. It goes back to basic geology and the history of plate tectonics.

When South America started to pull away from Africa about 140 million years ago, an isolated seaway formed — a proto-Atlantic Ocean — that filled again and again with sequences of limestone, thin shales and, finally, massive salt beds. The processes of petroleum geology worked as advertised in the region. And these processes left utterly eye-popping volumes of petroleum locked in high-quality reservoirs covering vast areas.

The big downside (and it’s big and down, to be sure!) is that all that oil is under a mile or two of South Atlantic seawater, covered by three or four miles of rock and salt beds — it depends where you’re located on the continental shelf and slope.

But that’s why it takes companies with phenomenal technical and managerial skills, plus deep pockets, to play in this great game. The bottom line is that with the right companies working at it, there’s enough oil down there to produce a very big payday, not just for Brazil, but for many of the companies that contribute to the effort.

I’ll discuss at length the new developments offshore Brazil during my talk in Vancouver at the upcoming Investor Symposium, July 21-24. The title of my talk will be Is God Brazilian? So that ought to give you a clue about what I think lies under all that water column and rock down there.

Source: Deep, Wet and Brazilian

Brazilian Oil Find to Cost $240bn to Develop

Contrarian Profits — Thu, 05 Jun 2008 18:17:11 +0000

Oil exploration experts have predicted that Brazilian oil find – the Tupi deposit and possible offshore fields nearby – may cost up to $240 billion to exploit.

But if the prospects turn out to hold $6 trillion of petroleum, they’ll kick the emerging market into the premier league, making it one of the world’s ten largest oil producers.

“There are those who will tell you that oil is a cyclical business and a global fungible commodity,” says Christian DeHaemer in Taipan Daily.

It rises and falls with the business phase. If you look at a hundred-year chart, it is as obvious as a sidewinder on a sand dune. A sine wave through time — up and down in seven-year cycles.

But there are others who believe in the “Peak Oil” argument, the ultimate end-game, like a Suburban crushing a Subaru at the end of a long hill. Peak Oil enthusiasts will point to long lists of numbers, detailed maps of known reserves, past prognosticators of genius, and declare with tinfoil-hat fervor that “we are running out of oil.”

I’ve read these books and listened to the speeches. The idea that there is a finite amount of oil on the planet, and we are near the point where we will extract less in the next hundred years than we did in the past. Makes sense to me, as does the business cycle. I don’t know if the hundred-year history of the oil cycle is over. There is always a “this time it’s different” ideology at the peak. But then again, sometimes, it is different.

What we do know — what isn’t in dispute — is that oil is expensive, and that by all accounts the easy oil has already been found and is being extracted at a furious pace.

And this has led the industrial countries on a desperate search for this ever-scarcer commodity.

Russia, China, India, Brazil, Canada, Europe and the U.S. are fighting an anxious and diminishing struggle for the last of the world’s hydrocarbons. Russia is sending submarines to plant national flags at the bottom of the Arctic Ocean. China has moved aggressively to acquire oil holdings from Kazakhstan to Somalia. India has gotten in bed with the genocidal regime of the Sudan to the tune a $45 billion natural gas pipeline. The U.S. is spending trillions in treasury and thousands in lives to make sure the oil flows from the Middle East.

The Guardian of UK fame recently reported that “money is no object as the big players grab what is left of a diminishing resource.” (This was after China’s Sinopec paid $1 billion for the right to explore for oil in deep water off Angola.) Just a few years ago, such a deal would have sold for a mere $35 million. But competition is fierce over the last remaining frontiers where vast quantities of oil might be found.

Martin Spring in Money Morning UK reports on another Brazilian energy find:

The newly-discovered Sugar Loaf field under the Atlantic off Brazil, claimed to be one of the world’s biggest, is primarily a natural gas resource. The Shtokman development in the Barents Sea off Russia’s Arctic coast, and several projects off the coast of north-west Australia, focus on production of gas, not oil.

There is also increasing interest in exploiting hard-rock resources that have been neglected in the past because it’s difficult to tap their gas. On the western slopes of the US Rockies, Exxon Mobil is starting to employ an explosive fracturing technique three times more effective than conventional technology to unlock the riches of the Piceance Basin.