What Germany's Energy Problems Can Teach Us About Our Own
Marina and I will soon board a plane for another trip to Europe.
We are off to Frankfurt, where I have meetings on European natural gas import costs; meanwhile, my better half gets to spoil our grandchildren, who live just outside the city.
My responsibility is to address the energy balance problems emerging for the continent. The focus may be on Germany and the rest of Western Europe, but these problems are emerging elsewhere around the world.
With Berlin opting to phase out nuclear power, the continent's largest economy now has a daunting task to assemble an energy mix that meets expected demand.
This started as a political tradeoff, but it is likely to become the major concern in the broader national strategy to stave off recession. A similar tradeoff is developing in the United States.
A much-ballyhooed German venture into solar and wind has hit a brick wall. There is now a played-down move to import additional nuclear-generated power from neighbors, but now the country is doing the unthinkable to meet its energy demands.
This environmentally conscious country, with one of the strongest green political movements in Europe, is now importing more coal than at any point in the past decade.
The options are limited, along with the time to decide on how to implement all of it. That is likely to result in a political tradeoff distasteful to just about every political party and interest group in Germany.
However, the problems do not end there.
Why Japan's Desperately Seeking U.S. LNG
The Fukushima nuclear disaster has had a dramatic impact on the country's nuclear industry – and that's opened the door for major developments for liquefied natural gas (LNG).
You see, two years after the Fukushima nuclear disaster in Japan, only a few of its more than 50 nuclear power plants have been restarted.
The Best Way to Invest in the Natural Gas Rebound
Today, let's talk about how investors can make some money off this.
As gas prices inch toward $4 per 1,000 cubic feet (or million BTUs) on the NYMEX futures market, we need to remember that this is not going to be either an accelerated rise or one that will be without volatility.
For reasons mentioned on Friday, gas prices will likely cap out in the mid-$4 range by the time we reach midsummer.
That means there are not going to be any across-the-board influences raising the entire sector. This is going to require some patience and selective investing.
So how does one structure an approach to this?
Investing in Clean Energy Stocks Just Got More Risky
Despite its promising future, clean energy stocks have proved to be an investing minefield.
Even China-based clean energy stocks are no longer a safe haven. Yesterday (Monday) Suntech Power Holdings Co. Ltd. (NYSE ADR: STP) defaulted on its debt.
Heavy losses caused by plummeting prices for solar panels – which fell 73% from 2010 to 2012 – left Suntech unable to make the payment on a $541 million bond that was due Friday.
The news caused Suntech stock, already down 80% over the past year, to slip another 10%.
While numerous U.S. renewable energy companies have faltered, most notably the 2011 bankruptcy of solar panel maker Solyndra, Suntech is the first Chinese clean energy company that could go under.
What's new is a reluctance on the part of the Chinese government to keep pouring subsidies into money-losing companies.
Five Reasons Why Natural Gas Prices Will Continue to Rise
Not long ago, the market was laboring under expectations that the NYMEX futures contract for natural gas would remain at around $3 per 1,000 cubic feet (or million BTUs).
The pundits were proclaiming that a surplus of shale gas, over production, and historic storage surpluses translated into long-term discounts in natural gas prices.
Last year's historically warm winter over much of the U.S. had not helped the price either.
While this year the weather is more seasonal, there are other factors in the price rise. For the investor this means there will be plays developing in specific areas that were simply nonexistent six months ago.
Make no mistake, we are not about to go back up to the $12 plus levels experienced a few years ago. Those days may be gone forever – one of the tangible impacts of the unconventional gas revolution (shale, tight, coal bed methane). There will still be volatility in this sector as the ongoing balance between extraction potential and well counts works itself out.
But we are likely to move into a manageable pricing dynamic.
And that means for investing in gas – with apologies to Sherlock Holmes – the game's afoot!
Why This Chinese Company Is Investing in U.S. LNG
A private energy company based in China is reportedly investing in the construction of a network of liquefied natural gas (LNG) fueling stations in the United States.
According to a Reuters report, ENN Group Co. Ltd. is teaming with a small U.S.-based company, and the partnership plans to open 50 to 60 LNG fueling stations this year. LNG stations cost an average about $1 million each to build, industry experts say.
ENN has already built a number of natural gas fueling stations in China, which is much further along in use of LNG for heavy trucks than the United States.
LNG's been promoted by investors such as T. Boone Pickens and natural gas producers including Chesapeake Energy Corp. (NYSE: CHK) as a cheaper, cleaner fuel for long-haul trucks.
Now more natural gas companies are teaming up to provide LNG, which means more investment opportunities for energy investors.
Could "Fire Ice" Change Japan's Energy Landscape?
Japan just extracted offshore deposits of methane hydrate – sometimes called "fire ice" – and the country may be sitting on enough of it to supply its natural gas needs for a century.
That's the buzz among scientists after the announcement Tuesday that the methane hydrate had been found in the Nankai Trench, a deep-water feature that lies 50 miles south of the Atsumi Peninsula in central Japan.
This marks the first time gas from methane hydrate has been successfully retrieved from an offshore deposit, though researchers had extracted it from the permafrost of the Canadian Arctic.
For Japan, which relies on imports for most of its energy needs (and has severely cut back on nuclear energy usage after the Fukushima nuclear plant disaster), the implications of the find could be huge.
Here's the Cold Hard Truth About Solar Energy
Not long ago, I wrote about the German drive to replace nuclear energy with solar and wind power.
At the time, Berlin was touting this overture as the "next great push" into a new energy age.
Turns out, plans haven't gone as expected.
This winter has provided a good example of how things can go wrong. Solar has a major drawback in that all panels shut off at the same time. That requires massive reliance on other sources of energy.
Despite its avowed decision to relinquish nuclear power, Germany must now import nuclear-generated power from neighboring countries and resort to coal, despite an earlier move to the contrary, in the face of the highest energy costs in Europe. The government is even opening taboo fuel oil generators to make up the power slack.
A move against fracking has prevented the development of domestic unconventional gas, leaving the country dependent once again on importing volume, primarily from Russia. What had begun as a bold experiment in rebalancing energy sources has resulted in a developing pricing crisis.
The cost of German energy needs has begun stifling economic development. That is likely to become a more pressing issue moving forward. The solar energy industry in the country has been the recipient of massive subsidies, including what is known in the American market as "renewable energy portfolio standards."
These "standards" require utilities and distributors to purchase a certain percentage of their power from more expensive renewable energy sources, passing those added costs on to already besieged consumers.
Rates are now projected to go up as much as 60% in the wake of the nuclear shutdown.
And the problems for end users and renewable energy sources are going to get worse.
Conference Delivers Good News for Investing in Energy Stocks
The U.S. role in the energy industry was a focal point last week at a major conference of senior global energy decision-makers in Houston – and what came out of it was good news for those investing in energy stocks.
The 32nd annual IHS CERAWeek featured some 300 speakers, including senior industry executives and government officials, who provided fresh insight into energy's future.
Energy analyst, Pulitzer Prize-winning author and vice chairman at energy research firm IHS CERA Daniel Yergin, who presided over the conference, told Politico, "We've got to be aware of rosy scenarios, and I think experienced people … are cautious about rosy scenarios. But I would say … it's a mood of tempered optimism and confidence that technology will help solve our problem – continue to help us meet these big energy needs and these big environmental needs that we have."
IHS CERAWeek included discussions of new technologies, shifts in worldwide demand, regulatory concerns, and supply and demand.
Optimistic conference participants agreed the energy industry is being transformed and said the industry offers plenty of good opportunities for investing in energy stocks.
Chinese Firms Increase Stakes in U.S. Shale Oil Projects
According to Bloomberg News, Chinese energy companies, both state-run and private, are seeking to invest more than $40 billion in U.S. shale energy.
Readers may remember the Chinese oil and gas producer CNOOC Limited's (NYSE: CEO) $19 billion bid for U.S.-based refiner Unocal, which was rejected by federal regulators in 2005. (Unocal later merged with Chevron Corp.)
Although CNOOC was recently able to complete a $15.1 billion purchase of Nexen Inc., a Canadian oil and gas company with assets in the Gulf of Mexico, outright takeovers of U.S. energy assets by Chinese companies are probably still not welcome.
Chastened by its experience with Unocal, CNOOC has not attempted to buy any U.S. company outright.
However, after developing a relationship with Chesapeake Energy Corp, (NYSE: CHK), CNOOC has purchased stakes in specific Chesapeake projects in Colorado and Wyoming.
"They didn't come over here and try to buy Chesapeake," Chesapeake CEO Aubrey McClendon told The Wall Street Journal. "They came over here to buy a minority, non-operating interest in an asset and not take the oil and gas home."
So why do the Chinese want to invest billions of dollars to fund shale oil and shale gas projects in the United States when it won't be able to export the energy products back to China?