An Inconvenient Truth: Changing Our State of Energy

In his State of the Union Address, President Bush outlined his policy initiatives on energy.

Briefly:

Reduction in gas usage/increase in fuel economy.

Increase in strategic oil reserves.

Increase in domestic oil production.

Increase in renewable and alternative fuels.

Time frames although expressed, will be massaged by politics and popular/consumer opinion.

After many years of rhetoric and the formation of altruistic goals, can we proceed substantially in reducing our dependence on foreign oil? If so, what trends will the market embrace?

1. Solar and wind energy, in a viable quantity, require huge installations. Efforts to grow this area will be hindered by environmentalists and the not in my backyard mentality.

2. Biodiesel is in its infancy and has sprouted up as a cottage industry. Many concerns have been expressed about its cost and suitability with current diesel engines.

3. Ethanol is costly to produce and must pass on the cost to the consumer. It competes with a food source for humans and livestock. Current corn prices have provided an incentive to store corn as a hedge giving rise to artificial shortages. Other cellulosic sources such as wood pulp, weeds, and grasses need many more years of technological advances to become viable.

4. Fuel economy is an area we can make huge strides in quickly. Fuel cells put but a tiny dent in the overall picture. We need manufacturers to redefine their mission statement to include economy and drivers to drive less.

5. Coal provides 40% of our electric distribution. We have as much coal as Saudi Arabia has oil. Clean coal technology as well as Coal to Liquid processes are nearing viability.

6. Domestic oil production has stepped up the pace and we will feel the online relief in the near term.

The market will tend to treat such companies as Evergreen Solar (ESLR), Suntech Power (STP), Pacific Ethanol (PEIX), VeraSun (VSE), Aventine (AVN), and not to mention the fuel cell companies, as risky. If one is inclined to invest in this area, a better choice may be PowerShares Wilderhill Clean Energy ETF (PBW). These stocks will rise and fall on rhetoric. Large corporations such as General Electric (GE) or Archer Daniels Midland (ADM) are steady growers with a stake in alternative energy, but little will be added to the bottom line.

The better trend to bet on is coal and domestic oil. Peabody Energy (BTU) and Headwaters (HW) in the coal sector. Most large integrated oil produces and oil service companies in the oil and gas sector. A good play on oil services is the Oil Services ETF (OIH).

The more things change, the more they stay the same. We will lessen our dependence on foreign oil, although at a slower pace than hoped, with a viable alternative. That alternative is our domestic coal and oil.

Comments

[ysisgarner:]

Having once sold msft at $1, (it was a short term high);

I suggest buy whichever Altrnative Engery stodks you like.

Then in the gloom of 20 oil, cars that go 100 MPG; you add to your position at 36% of the price of your first position.

Believe me, it works Jon Parris

2007 Jan 25 12:16 PM

[Iscaethebear:]

Bush also mentioned nuclear power as a way do decrease oil consumption. Jeffery must have forgot that part.

Bruce Brocker

2007 Jan 25 01:22 PM

[Jeffrey Todd_:]

If we look at the next twenty years, our dependence on oil will undermine our foreign policy and force us to view large emerging countries as competitors. Is the answer alternative energy to help us achieve energy independence? To help us improve foreign policy and ultimately secure our nations safety? Let me quote.

Council On Foreign Relations Oct 2006 Topic: Nat'l Security Consequences Of US Oil Dependency

"The voices that espouse "energy independence" are doing the nation a disservice by focusing on a goal that is unachievable over the foreseeable future." Even with massive injections of ethanol, wind power, and other alternative fuels. Summation

James Schlesenger mentions that the foreseeable future is the next twenty years. These voices are diverting the attention that is crucial to our nation. One can take a micro view or macro. I choose the macro. Oil is HERE to stay. Ergo our problem.

Alternative energy is a must! But for the next twenty years we need to also address a more important issue of oil dependence. That should be the focus while we tinker and build other sources.

2007 Jan 25 04:36 PM

[walt sherwood:]

Nukes are so slow to build as the labor wastes 50 % build time as a Quality item. And with a rush to build new plants the skilled labor pool will dry up. It will take 8 to 10 years for new nuke plants to come on line, versis 3 to 4 for the same size coal plants, and 1.5 to 2.5 for nat gas units equivalent. The build costs make the Nat gas look excellent. Look at the Henry Hub pricing as a guide. I got in at $1.75...lol

I am in USA oil/gas energy trusts and enjoy the high dividends plus the stock gain, and the fed tax breaks.

LNG from Saudi and the Far East will just be a stopgap promise over the next 2 years. A good play is the energy tankers stocks to look at.
Jim

2007 Apr 28 05:07 AM