U.S. Energy Policy Deters Investors

Stock prices above the 200-day averages for our buy-recommendations among Canadian, Chinese, Russian, Brazilian and European stocks, including Canadian Oil Sands Trust (COSWF.PK), PetroChina (PTR), Lukoil (LUKOY.PK), Petrobras (PBR) and StatoilHydro (STO), may be reflecting investor misgivings about developing U.S. energy policy. The trend for non-U.S. producers contrasts with stock prices hanging below the 200-day averages for the largest U.S. oil companies, including buy recommendations ExxonMobil (XOM) and ConocoPhillips (COP). Though the debate continues, our political leaders appear to be gutless on coal, silent on natural gas, prejudiced against oil, and falsely promoting clean energy. The tendency for such attitudes may also contribute to weak expectations for U.S. economic activity and the dollar. Ironically, U.S. political bias against oil has probably helped drive up the long-term oil price in our weekly tabulation to more than $80 a barrel for the first time in the new cycle.

Gutless on Coal
Representatives Waxman and Markey have released a draft bill to reduce carbon dioxide, a perceived pollutant created in large quantities from coal burned by electric utilities. The bill would require permits to emit the colorless, odorless, tasteless and mostly benign gas blamed for contributing to a global warming trend. Yet, the bill proposes to give away free permits to coal burners thereby undoing almost all but the symbolic impact of the action.

Silent on Natural Gas
Logically, our political leaders should be rejoicing that natural gas prices are low and that when they go up again the higher price will bring forth more supply than previously expected. Natural gas is our cleanest energy source and we already have the electrical generating capacity in place to use more. It has also long been used as a transportation fuel, mostly in other countries. Natural gas could represent a cost-effective economic solution for the majority of Americans who live outside the densely populated Northeast and want to drive something larger and safer than a golf cart. It is mystifying why our political leaders are largely silent on the most logical alternative energy source.

Prejudiced against Oil
The Waxman-Markey bill would give away free permits to almost all except the oil refiners. In its extreme, oil refiners could be forced to pay exorbitant prices to buy unneeded permits given freely to others. In any case the costs would be passed on to consumers, mostly automobile owners who buy gasoline. In the worst case, the bill to save the “climate” becomes nothing more than a gasoline tax, that decades-old, worn out, discredited idea. The misrepresented concept seems periodically regurgitated primarily by persons in the Northeast, which has public transit, and little oil industry, who would tax differentially the rest of the country, which has little or no public transit and some oil industry. A gasoline tax is nothing more than self-destructive political divisiveness, in our opinion.

Falsely Promoting Clean Energy
In our mind, the probabilities of unfavorable consequences of global warming are not high enough to justify taking too much of an economic penalty. Experts at our beloved research institutions have been wrong before. Our experience with butter comes to mind. Having grown up in an agricultural community, I told my spouse in the early days of our marriage that we would have no substitutes for butter in our house. Within a few years we were partly persuaded by nutritional research that margarine was good and butter was bad. Hedging those apparent findings, we changed our spread to a combination of butter and margarine. Now decades later, the top nutritional research apparently concludes that margarine is bad and delicious butter is neutral unless it leads to too many calories.

As a result, we think the draft legislation is right not to penalize most carbon emitters too heavily. Yet, to require oil to pay heavy penalties exposes the use of a false premise of protecting the climate to attack oil and those who depend on the automobile for their livelihood.

Meanwhile, coal is still the largest polluter without considering carbon dioxide. Coal burning is primitive and should be subject to stricter environmental requirements in a balanced tradeoff of economics and health. As long as the world burns coal, we can’t get too excited about less significant pollution from increasingly refined oil. Substituting natural gas for coal is a giant step forward environmentally wherever it can be done.

Nor are wind and solar likely to be more than niche fuels for a long time without giant subsidies. Subsidizing research makes sense, but not mass consumption, as we see it.

Originally published on June 9, 2009.

Comments

[A Barrel Full:]

...... A gasoline tax is nothing more than self-destructive political divisiveness, in our opinion......

Its a far better option than CAFE.

I actually think that the US economy would benefit massively from a gasoline tax (provided it was matched with tax cuts elsewhere). Oil consumption would fall and oil prices would be kept in check. Anyone who wanted to reduce their tax bill could simply buy a more efficient car.

I agree that the whole cap & trade system is awful.

Jun 30 06:39 AM

[Tree Huggin3:]

The Waxman-Markey bill is only gonna drive up gas and oil prices leaving commuters, who have to worry about getting places other than using the public transportation system, out on a limb. Supposedly the Obama administration wanted to find a way to domesticate oil but now this is going to make us even more reliable than we already are on imported oil. If people would look into this bill and realize that it might help the environment just a little bit but everything that is around you is made even in the least bit by petroleum.

Jun 30 09:00 AM

[AlexS:]

The simplest explanation for Waxman-Malarkey is that the Democrat politicians hate the oil companies because oil company executives and employees give much more campaign money to the Republicans. So the self-serving politicos are out to hurt the oil industry even if it drives the economy further into the recession/depression.

Jun 30 12:54 PM

[Mad Hedge F...:]

What policy? If the 2009 Clean Energy Bill passes, it is going to pave the wayfor major structural changes to the US economy, which few of thenon-engineering types voting for it in Congress understand. The billencourages electric power utilities to switch to renewables, upgradethe electric power grid, and put in place a cap and trade system whichplaces an enormous burden on the power industry to go green (see www.madhedgefundtrader... bill is expected to sail through the House, but faces a major fightin the Senate, where the administration is going to have to get all oftheir ducks in a row for it to pass. The bill provides the legalstructure to spend that $100 billion for alternative energy alreadypassed in the stimulus bill. In his cheerleading press conference forthe bill, Obama correctly declared that dependence on hydrocarbons wasjeopardizing our national security. He also cleverly described this asa massive creator of high tech jobs that can’t be exported. I’m nothighlighting this because I live in California, wear sandals all year,drive a Prius, or have a refrigerator stuffed as if a giant gerbil doesmy shopping. Since this economic crisis started, the key has been tobuy whatever the government is buying, and since they are going intoalternatives in a big way, you want to be right ahead of them (see mysolar piece at www.madhedgefundtrader... to add more alternative energy names to your list to buy on dips.Look at American Superconductor (AMSC), which is involved in advancedwind turbine designs and electric power grid upgrades. Also take a peekat Covanta (CVA), an established business that profitably burns trashto create electricity.

Jun 30 01:21 PM

[user396040:]

You make some good points. On a couple of issues: coal - it is true the Waxman Markey gives a lot of allowances to electric utilities that burn coal now, but because the allowances are tradeable and the ultilities will be able to sell them if they don't need them because they are burning less coal, there is still an incentive to switch from coal to another fuel - especially, natural gas; natural gas - I agree completely that this has been the neglected fuel - in the days of well head price regulation, regulatory policy actively deterred its production and use - I think natural gas would benefit enormously from Waxman Markey because it generates only half the greenhouse gas emissions of coal and WM does create strong incentives to reduce greenhouse gas emissions. Oil is about halfway in between coal and gas as to greenhouse gas emissions per btu. Oil does not really compete very much with these other fuels any more because it has become a transportation specialty fuel. WM would create strong incentives to reduce oil consumption - but I do not think WM discriminates against oil, it simply requires allowances in line with greenhouse gas emissions for oil as it does for coal and natural gas. In the long run, I think we may move to plug in hybrid cars so that whatever turns out to be the optimal source of electricity can be harnessed to the transportation system. WM is bullish for natural gas, nuclear and alternatives - it is also bullish for carbon capture and storage if that can be made to work.

Jun 30 01:28 PM

[Davewmart:]

I was previously mildly sceptical of global warming, but in my view this is conclusive:
sciencedaily.com/r...
Correlation does not prove causation, of course, but a one-for-one correlation between CO2 levels and temperature over hundreds of thousands of years mean that you would have to make some pretty spectacular assumptions to get to a conclusion that temperatures are unlikely to rise this time is step with CO2 concentrations.
Least hypothesis is that temperatures will rise to the same level as they were before with similar levels of CO2.
Hanging on to the proposition that they won't is now simply perverse.
You are correct from what I know about it that it is a bad bill though.
Fortunately there are good alternatives for other ways to generate nuclear power on a basis with small units factory produced - they discontinued the research in the 60's as it is lousy at producing weapon's grade materials and doesn't need the fuel rods manufactured which makes a lot of the money for reactor builders.
www.energyfromthorium.com/

Jun 30 02:05 PM

[31October:]

Re:A Barrel Full wrote:
>" Its a far better option than CAFE."

You're absolutely correct. But few understand CAFE, especially the morons who passed it.
The Congressional dungpiles who attacked Detroit executives for producing vehicles that got the most out of CAFE would be the same Congressional dungpiles to eliminate CAFE. They do not have it in them to fix anything.

>"I actually think that the US economy would benefit massively from a gasoline tax (provided it was matched with tax cuts elsewhere)."

There are no tax cuts or swaps - they are always hidden tax increases, made in such a way that the public does not rebel.

But that's where cap & trade comes in...

Jun 30 02:24 PM

[Tree Huggin3:]

FYI.... We are about 10 years away from getting a good, reliable alternative energy. So why punish the companies that have to pay so much to find the energy we need NOW. This just doesnt make since. You pass a bill like this and all this is going to do is drive the gas, you and I use, even higher.


On Jun 30 01:21 PM Mad Hedge Fund Trader wrote:

> What policy? If the 2009 Clean Energy Bill passes, it is going to
> pave the wayfor major structural changes to the US economy, which
> few of thenon-engineering types voting for it in Congress understand.
> The billencourages electric power utilities to switch to renewables,
> upgradethe electric power grid, and put in place a cap and trade
> system whichplaces an enormous burden on the power industry to go
> green (see www.madhedgefundtrader...
> bill is expected to sail through the House, but faces a major fightin
> the Senate, where the administration is going to have to get all
> oftheir ducks in a row for it to pass. The bill provides the legalstructure
> to spend that $100 billion for alternative energy alreadypassed in
> the stimulus bill. In his cheerleading press conference forthe bill,
> Obama correctly declared that dependence on hydrocarbons wasjeopardizing
> our national security. He also cleverly described this asa massive
> creator of high tech jobs that can’t be exported. I’m nothighlighting
> this because I live in California, wear sandals all year,drive a
> Prius, or have a refrigerator stuffed as if a giant gerbil doesmy
> shopping. Since this economic crisis started, the key has been tobuy
> whatever the government is buying, and since they are going intoalternatives
> in a big way, you want to be right ahead of them (see mysolar piece
> at www.madhedgefundtrader... to
> add more alternative energy names to your list to buy on dips.Look
> at American Superconductor (seekingalpha.com/symbo...),
> which is involved in advancedwind turbine designs and electric power
> grid upgrades. Also take a peekat Covanta (seekingalpha.com/symbo...),
> an established business that profitably burns trashto create electricity.

Jun 30 02:45 PM

[WayneS:]

On Jun 30 02:05 PM Davewmart wrote:

> I was previously mildly sceptical of global warming, but in my view
> this is conclusive:
> sciencedaily.com/r...
> Correlation does not prove causation, of course, but a one-for-one
> correlation between CO2 levels and temperature over hundreds of thousands
> of years mean that you would have to make some pretty spectacular
> assumptions to get to a conclusion that temperatures are unlikely
> to rise this time is step with CO2 concentrations.

But, what is causing the rise of CO2?
Cutting down the rain forest, etc.
Volcanic activity
Burning of fossil fuels
Burning of biofuels
Normal cycle
It's not.
All of the above
What is the cause of "bad" global warming?
CO2
Hole in the ozone
Sunspots (all of the other planets are also heating up)
Cleaning up smog in the 70's
It's not
All of the above.

Jun 30 04:39 PM

[Ryu Mei Co:]

You are so right on Coal and NG and it really sickens me to see gasoline prices going up everyday while friends and relatives losing jobs. Those politicians who are silent right now are the worst. We called it "Saitei" = "Worst Kind" in Japanese.....

Jul 01 06:00 AM

[cyberclark:]

On natural gas: There are new docking of LNG (liquid natural gas) on the east shore of the US. This is huge and understated. LNG tankers can lay into any coastal port. In doing so they will render some pipelines obsolete!

There is a vast cheap source of natural gas in Indonesia on its way to the US and probably Canada. Russia is looking for new customers since the European community has started to wean them off in favor of China.

Gas is going nowhere on the midterm. It has tanked and will get worse.

Jul 01 12:57 PM

[WayneS:]

I noticed I got three thumbs down for asking questions. I made no comments, no implications. I have never been skeptical of global warming, even when it was the consenses in the 70's that we were headed into the next ice age. Even the evil Exxon in the 80's said that there was global warming (I collect old maps and touring literature, etc. There I found Exxon's statements on need to reduce GHGs). Our government may be the skeptical ones as they have changed "global warming" to "climate change" since we are in a ten year cooling cycle. They need to cover all bases so as to stay in office.
My only opinion on this article is that the US should raise taxes on gasoline to match the other civilized countries. If nothing else, we would save lives and billions of dollars in preventable medical treatment.

Jul 01 02:49 PM