The Morning After: An Energy Shakeout, Then a Move Higher
As I mentioned yesterday in Oil and Energy Investor ("Something Big Hits the Oil Markets… Starting Tomorrow"), the primary problems today are exactly the same ones we had before the election.
In fact, aside from the Dems picking up a few seats in the Senate, the composition remains the same – one party controlling the White House and the Senate; the other with a majority in the House.
For all the criticism of Congress kicking the can down the street, that's just what the nation as a whole did on Tuesday night.
There will be no possibility of expecting a recovery in an environment of uncertainty about rising taxes and meat cleaver program cuts.
I'm calling this the financial precipice these days because I am tired of saying "fiscal cliff." But it is one of two things that have pushed the energy markets down, along with markets across the board.
The Real Energy Opportunity After Hurricane Sandy Is Logistics
Since the storm last week, I've seen a recurring, disturbing bit of advice surface on those cable news investment shows.
The pundits are hard at work prognosticating on what is likely to spike in the aftermath of Hurricane Sandy. They are peddling a belief that this natural disaster will produce shortages – and that those shortages can be exploited for a short-term windfall.
But this is a mistake.
In fact, this is one of the most persistent errors made by investors during such a period.
In the medium-term, however, there is sometimes a consequence of a hurricane or other disaster that translates into genuine opportunity. There is certainly one this time. And I'll talk about how to position for that in a moment.
First, we need to explore what you as an investor should not do right now…
Energy Prices 2013: Renewable Power Could Cause Your Electric Bill to Plummet
As we come to the end of an election campaign cycle, something else will be ending as well.
A poster child for the ongoing debate over government support for renewable energy, the wind subsidy will expire at the end of 2012. Amidst the fog and din of a political war, Congress is not going to renew it.
The wind subsidy amounts to a tax credit of some $22 per megawatt hour. Critics note that the wholesale price of electricity in many parts of the U.S. costs $44. That means the credit accounts for 50% of the grid cost.
On the solar energy side, the primary federal subsidy provides a tax credit of 30% for the cost of installed equipment. That will drop to 10% at the end of 2016. Already, a separate cash grant for up to 30% for solar energy equipment expired at the end of 2011.
Of course, both approaches have generated a considerable amount of criticism from mainly conservative opponents.
These critics claim that the only reason wind and solar are even in the game is because of these subsidies. Without them, they argue these sources of energy are not cost effective otherwise.
Then, there are others who prioritize environmentally friendly energy sources. But the penchant against government involvement and the assumption that federal subsidies are always an inefficient usage of taxpayer funds are at the core of the argument.
So, who is correct?
To continue reading, please click here…
A Faltering Carbon Market Means a New Energy Crisis Looms For Europe
As we wait for a clear indication of what the European Central Bank (ECB) intends to do – or, perhaps more accurately, what European political realities allow it to do – yet another crisis has emerged.
This development strikes at the heart of an essential cog in the European energy strategy.
How this one plays out may actually tell us more about recovery prospects on the continent than any action from the EU in Brussels.
On Friday, the Danish Energy Agency released some of what analysts in the region had surmised for a while. The agency is a lobbying group emphasizing EU policies affecting both energy producers and consumers.
Its director of EU affairs, Ulrich Bang, declared in an email that the European Commission (EC, the administrative arm of the EU) had to take immediate action to protect the internal energy market within EU states.
At issue here is the carbon trading system, what most observers acknowledge is the "cornerstone" of the inside energy balance among the 27 EU countries.
Bang said that the system has "almost collapsed," a view widely shared by other European-based specialists.
The statement testified to a rising strain in the energy sector resulting from the push and pull of an ongoing credit crunch on the one hand and sluggish economic recovery prospects on the other.
Trouble in the World's Largest Cap-and-Trade Program
Carbon trading sits smack in the middle of this tug of war.
And its inability to generate adequate pricing may be the clearest indications yet that there are new problems forming.
This is the world's largest cap-and-trade program.
It has become a barometer for levels of investment in market production infrastructure and a projection of expected prospects for manufacturing and consumption.
2013 Natural Gas Prices: Now is the Time To Be Bullish
Forget the Farmer's Almanac.
As we move into the winter season, two things are becoming clear. First, this one will be colder than last year, nationwide. Second, natural gas prices are moving up.
A colder season ahead is an almost statistical certainty. The likelihood of having a repeat of last year's mild winter is quite low. And my second assertion is now supported by several factors.
Until very recently, the changing of seasons was a determining factor in gas prices.
The warm winter throughout much of the U.S. last year certainly contributed to the dive that saw gas prices plummet to near $2 per 1,000 cubic feet (or million BTUs), the NYMEX futures contract unit.
The bigger issue, however, has been the game-changing entrance of unconventional natural gas supply in North America. Both the surplus of in-market stored gas and the ready availability of expanding reserves have been driving factors in lowering prices.
The amount of available gas is staggering.
Known reserves of shale and tight gas, coal bed methane, and remaining free standing volume now allow up to a 25% increase in supply per year into the foreseeable future.
Now, nobody would actually drill that much, because they would destroy the market (the classic example of "drilling" oneself in the foot).
But the ready availability was restraining pricing. That resulted in a period in which gas rig utilization has fallen each month – to its lowest level in over a decade. The industry has been slowing the introduction of accelerating volume into what had been an oversaturated market.
The hottest summer on record also contributed to a steady improvement in price. As the power-generating sector moves quickly toward low-priced gas as the fuel of choice, rising temperatures also increase the need for gas.
But now, at last, the balance is forming.
The inventory is now the smallest in the last two years, as demand picks up in petrochemicals, industrial usage, and even vehicle fuel prospects.
The major thrust is beginning.
This will not be a straight line for natural gas prices. Volatility cuts in both directions.
But one thing is clear.
The gas market is about to get a whole lot stronger…
Coal Stocks See Better Days Ahead If Romney Wins Election 2012
If Mitt Romney wins Election 2012, it'll be a rare piece of positive news for the coal industry, and a boost for beaten down coal stocks.
During last week's presidential debate, Romney called attention to the stark differences between himself and U.S. President Barack Obama on coal policy.
"By the way, I like coal," Romney said. "I'm going to make sure we can continue to burn clean coal. People in the coal industry feel like it's getting crushed by your policies."
That was enough to grab the attention of investors. Just about every coal stock went up at least 4% the day after the debate, and several were up more than 5%.
It was a much needed shot in the arm for a sector that had been down 29% on the year.
"It's amazing what 15 words about coal in a presidential debate can do for the stocks," Michael Dudas of Sterne Agee told Reuters. "These stocks have been volatile, but you can't discount what a man running for president said about coal. Call it the Romney rally."
Coal stocks reacted strongly to Romney's industry-friendly comments because President Obama's energy policies have been tough on a sector already under pressure from cheap natural gas prices.
That's why Romney, in his campaign speeches, frequently refers to these policies as a "war on coal."
Nuclear Fusion Milestone Could Provide Power For Thousands of Years
For decades, researchers have toiled away in the quest to provide nuclear power that is cheap, safe, and stable.
And for just as long, skeptics have said their work will never pay off.
But a team from Sandia National Labs has just hit a new milestone that is paving the way for a viable nuclear-fusion concept at last.
This breakthrough is crucial for two reasons.
First, U.S. environmental groups still largely oppose our current type of nuclear power. It's based on nuclear fission – in which one atom inside a reactor gets split into two. Nuclear power plants use the resulting release of energy to warm water and produce steam to drive turbines.
But the nuclear accident in Japan after the earthquake and tsunami last year gave fresh ammo to global foes of fission-based power, who say it is patently unsafe.
Indeed, two weeks ago, Japan said it would close all nuclear plants by the 2030s. Not only that, but here in the U.S., we face a lot of trouble getting rid of spent nuclear rods without hurting the environment.
Then there's the terrorist threat. Some security experts warn that we can't be certain terrorists will never take over a nuclear-power plant. If they did that, they could possibly destroy the plant or steal enough nuclear fuel to make a bomb.
Those two reasons alone have many scientists still hoping for a breakthrough that will make nuclear fusion work.
You see, in a fusion reactor, there's no possibility of some catastrophic accident releasing destructive amounts of radioactivity.
That's because nuclear fusion can only take place in precisely controlled limits of temperature, pressure, and magnetic field. If the reactor sustained damage, those parameters would be disrupted, and it would immediately shut down.
And it gets better.
Natural Gas Companies: The Latest Must-Know News
Natural gas companies watched their stocks tumble earlier this year with the price of nat gas, but some share prices have successfully reversed course.
Now natural gas prices, which have recently bounced around the $2.80 level after hitting a ten-year low in April, may be ready for another move up.
The fall in prices – from a high of $10.38 per million British thermal units (BTUs) in July 2008 to just $1.83 in April of this year – was primarily the result of a decade-long increase in U.S. gas production, which climbed by 21.6% from 2002 to 2011.
Now inventories are growing much slower and demand is increasing as electric utilities switch to natural gas from the more expensive coal. Other potential catalysts such as the weather, e.g. Hurricanes Debby and Isaac, could also send prices higher.
Natural gas prices rose more than 6% in the past week to $2.85 per million BTUs.
A rise in prices though doesn't guarantee a rise in all natural gas stocks, as there's a lot more than a price reversal happening in the industry.
For investors interested in natural gas companies, here's this week's wrap-up of what you need to know:
Oil Prices are Higher, But It Won't Be Much Help for Alternative Energy
Well, not this time.
During the run up to mid-$4 gas and $147 a barrel oil in 2008, many assumed these costs would continue to advance. That made alternative sources – especially renewables such as solar, wind, biofuels, and geothermal – more attractive to investors, politicians, and energy enthusiasts.
Alternative sources are more expensive than conventional oil, gas, or coal. They are, however, more environmentally friendly. Paying those higher costs was regarded as a tradeoff for cleaner energy sources and a reduction in emissions.
Today, that view has changed.
U.S. Oil and Gas Squeezes Alternative Energy Prospects
It's part of the reason why I've recently avoided alternative energy companies like First Solar (Nasdaq: FSLR), Canadian Solar (Nasdaq: CSIQ) or SunPower Corporation (Nasdaq: SPWR) in my Energy Advantage portfolio.
The economic downturn has made reliance on more expensive energy sources a difficult proposition to accept. Renewables are hardly a convincing argument anymore, especially during a sluggish economic recovery.
Yes, increasing oil and gas prices should reduce the spread between conventional and renewable, thereby providing stronger arguments for change. And proponents argue that alternatives provide an enhanced advantage given that they can also be domestically produced.
Just don't bet on these arguments holding up this time. Here's why.
As Prices Rise, Here's How to Play Natural Gas Companies
The price of natural gas hit a 10-year low in April, sinking to $1.91 per MMBtu on April 19. Since then, natural gas prices are on the rise. In fact, prices have surged nearly 50%, to around $2.75 per MMBtu over the past four months.
One, the sector came out of a very mild winter that saw very poor demand for natural gas.
Two, the onset of summer – and a particularly hot one, at that – has had the exact opposite effect.
This summer's record-setting heat has wreaked serious havoc on the economy. The price of everything we consume has been to some degree impacted by the heat, and natural gas is no exception. As temperatures have risen, utility companies have had to rely more and more on natural gas to generate electricity.
What's more, due to strengthened environmental regulations, coal-fired power plants are coming off-line, and their capacity is being replaced by natural gas.
On the supply side, prices were also juiced by last week's Energy Information Administration report that supplies increased by 24 billion cubic feet, missing expectations of a rise between 27 million bcf and 31 million bcf.
While prices are up, they're still hovering below $3. Since much of the country is still in the throes one of the hottest summers on record, there's still some money to be made.
What's more, analysts are predicting a colder winter than last year, which should bring some stability to prices when the heat wave subsides.