Mad Hedge Fund Trader

John Licata: Playing the Energy Sector in 2009

There's also coal. I wanted to get the low down on clean coal, a political hot potato in the energy sector, so I visited some friends at Lawrence Livermore National Laboratory. The modern day descendent of the Atomic Energy Commission, where I had a student job in the seventies, the leading researcher on laser induced nuclear fission, and administrator of our atomic weapons stockpile, I figured they’d know. Dirty coal currently supplies us with 50% of our electricity, and total electricity demand is expected to go up by 30% by 2030. The industry is spewing out 32 billion tons of carbon dioxide (CO2) a year and the global warming it is causing will lead us to an environmental disaster within decades. Carbon Capture and Storage technology (CCS) locks up these emissions deep underground forever. The problem is that there is only one of these plants in operation in North Dakota, a legacy of the Carter administration, and they cost $4 billion each. The low estimate to replace the 250 existing coal plants in the US is $1 trillion, and this will produce electricity that costs 50% more than we now pay. And while we can build a wall to keep out immigrants, it won’t keep out CO2. This is a big problem as China is currently completing one new coal fire plant a week. In fact, the Middle Kingdom is rushing to perfect cheaper CCS technologies not only for their own use, but also to sell to us. Since it appears that Obama is not willing to wait on anything, expect to hear a lot of sturm und drang about CCS this year. For proof of this look at the chart of coal prices below. While competing crude has had a good year so far, coal has been dead as a doorknob.