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Michael Fitzsimmons
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Michael Fitzsimmons focuses on investments in the oil & gas sector with an eye for dividend income and long-term capital appreciation. Fitzsimmons is an engineer, not a CFA. The information and data presented in his articles are obtained from company documents and/or sources believed to be... More
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  • Why Obama Hates Natural Gas Transportation
    Natural gas transportation is such an obvious way to solve the economic, environmental, and national security issues arising from U.S. addiction to foreign oil, it is hard to understand why President Obama and Energy Secretary Chu are not pounding the table for its adoption. Americans could be refueling NGVs in their garages while they sleep with domestically produced natural gas for $10/tank. Yet, we continue to drive to filling stations for the privilege of filling up our tanks with foreign oil (65% of it anyway) for $35/tank. Environmentally, NGVs emit 30% less CO2 than do gasoline powered cars and trucks, and 100% of the toxic particulates from gasoline that cause smog and air pollution not to mention respiratory illness. Relying on domestically produced natural gas as opposed to foreign oil would create millions of good jobs in the U.S., keep our wealth inside the country going to farmers and landowners as royalty payments, save families hundreds if not thousands of dollars in fuel bills, and reindustrialize the country. Further, the U.S. would not have to fight immoral oil wars or deploy troops and ships and resources to secure oil and its shipment to America, if we did not rely on it for a "functioning" economy. It is clear natural gas transportation can solve these economic, environmental, and national security problems. So, why are we not doing it? Why is HR1835 dying a slow death in Congress? Why does Obama not support it and why do we have an energy secretary in Chu that appears to be clueless about America's most abundant, clean, and cheap fuel (natural gas)?

    First of all, Obama and Chu aren't clueless about natural gas and natural gas transportation. THEY KNOW it can solve our problems. So, let's take a look at why they are not doing so.

    COAL POWER

    And we are not talking about coal power electrical generation here - we are talking about the power of the coal lobby and coal interests. The last thing the coal folks want is adoption of natural gas for power generation and for transportation. This is obvious. These powers own Obama and Chu, and is the only explanation for Obama and Chu supporting the myth of "clean coal". We know its a myth because we know it is dangerous to the environment to simply mine it. We know of the workers who suffers all kinds of ailments and bodily harm in their work to obtain it. We know that burning coal generates 50% more CO2 than natural gas, but this isn't the biggest negative. The biggest negative is the toxic heavy metal particulates generated by burning coal. These end up in our air and in our water. We only need read about the disaster at the TVA's coal plant in Kingston, TN

    http://en.wikipedia.org/wiki/Kingston_Fossil_Plant_coal_fly_ash_slurry_spill


    to understand the entire Tennessee River system is dead water for at least two generations. I pity the poor folks in the Tennessee River valley whose municipal water systems exists in this watershed. I anticipate cancer rates to skyrocket. Further, the only reason coal is "cheap", is because the government subsidizes coal to the benefit of the miners and company executives, and the health care and environmental costs are all paid for directly by the American people. So, everyone knows "clean coal" is a myth and the phrase is an oxymoron. Yet, Obama and Chu support their failed strategy of electric cars charged by burning coal. Obama, the supposed environmentally, is therefore supporting the dirtiest and most expensive fossil fuel. Talk about an oxymoron.

    MILITARY INDUSTRIAL POWER

    U.S. military and defense contractors also don't want to see America adopt natural gas transportation. Doing so would negate the need to fight oil wars and deploy hundreds of thousands of troops around the world to obtain and secure oil. How would the generals then get their promotions and how would the defense executives get their big salaries and bonuses if there were fewer defense contracts? It's clear the American military industrial complex is also against natural gas transportation.

    PRO-ISRAELI POWER

    The pro-Israeli lobby, including most of the government economist and Federal Reserve bureaucrats, are also against natural gas transportation. Why? Because they desire the U.S. military to be deployed in the Arab oil producing countries (Israel's enemies) believing this makes Israel more secure. This is the main reason you never hear supposed "economists" in the U.S. fully discuss the severity of America's foreign oil addiction on the present and future U.S. economy. This "strategy" appears to be working: U.S. troops are in Iraq and Afghanistan and surround oil producing Iran. Massive quantities of Iraqi oil could indeed hit the market relatively soon. (NOTE: I am receiving an increasing number of emails suggesting that my bullish outlook on oil will be completely wrong when the Iraqi oil comes online. I of course counter that lower oil prices in the short-term will increase economic activity, oil consumption, and therefore oil dependence. I also counter that oil demand in China, Asia, and the Middle East (not to mention the U.S. military) will also drive up demand). However, the "strategy" seems to be failing long-term. Why? Firstly, the Arab oil producers (Israel's enemies) are being enriched beyond belief. As weapons technology improves and becomes more widespread, do the pro-Israeli powers actually believe some of this Arab wealth will not be funneled into anti-Israeli efforts? Secondly, the U.S. is simply going bankrupt due to high oil prices, out of control government spending, insane tax-and-spend policies (creating huge deficits), imperialist military policies abroad, and the lack of a strategic long-term comprehensive energy policy:

    http://thefitzman.blogspot.com/2008/08/strategic-long-term-comprehensive-us.html

    So, how is a strategy that is bankrupting the United States, Israel's sole protector, good for Israel? It's very ironic to me that the majority of America's economic policymakers are pro-Israel and anti natural gas transportation. Again, it's an oxymoron in my mind. Why not reduce the flow of American wealth to Israel's enemies? Why not strengthen the U.S. economy and energy foundation? I have no respect for these economists as they are simply not doing their jobs. They, along with Energy Secretary Chu, should be fired and forced to go out into the labor market and make a real living doing something productive. Perhaps then, they'd look back and see how foolish their "economic policy" has been.

    There you have it. Obama, Chu, the Federal Reserve, the U.S. government, and the U.S. bureacrats in charge of economic policy all support the electric car charged by coal transportation architecture. They all work actively to prevent natural gas transportation for the reasons listed above. With respect to HR1835, it is dead. Part of that is the bill itself: why should U.S. taxpayers give an $85,000 tax credit for an natural gas 18-wheeler? Westport Innovations (WPRT) makes outstanding natural gas engine solutions and no one can tell me these engines and fuel systems are $85,000 more expensive than a comparable diesel engine. In this regards, Pickens shot himself in the foot. I also believe that to significantly reduce foreign oil imports, we must push natural gas transportation into middle-class Americans' garages.

    What does all this mean for investors? Buy Peabody Coal (BUT) and Massey Energy (MEE). And you'll never know how much it pains me to type that.


    Disclosure: Long BP
    May 08 1:53 PM | Link | Comment!
  • A Natural Gas "OPEC"? It Will Never Happen
    Major natural gas exporter Algeria recently lobbied for OPEC style production cuts in hopes to address the global supply glut and raise weak natural gas spot prices. Is a natural gas equivalent of OPEC in the cards? Not in your lifetime.

    The problem Algeria faces is quite simple: the world is awash in natural gas. Huge natural gas supply is now, and will be coming on stream, from all over the world: Australia's coal seam gas, StatOil's (STO) Snohvit LNG project  http://www.upstreamonline.com/live/article212423.ece , ExxonMobil's (XOM) huge LNG project in Qatar
    http://www.exxonmobil.com/Corporate/news_features_20081231_qatar_lng.aspx
    , as well as Iranian and Russian supply just to name a few examples. Best of all for United States are the prolific American shale plays and the technology needed to economically bring that shale gas to market. This is the wonderful news about natural gas: there is no possibility of an OPEC style cartel to control prices because the world has a very diverse set of suppliers. It is because of this abundance of supply and because of large LNG capabilities coming on-line which will enable world-wide delivery of natural gas that prices will remain low for decades into the future.

    As I have written on Seeking Alpha before: I believe the historical oil-to-natural gas ratio has been changed forever. The ratio is currently over 20, about double the average since 1995 (9). Many natural gas consuming countries have made a huge mistake by linking natural gas contracts to on oil-index. This is a huge error and shows a basic misunderstanding of the fundamentals of oil and natural gas economics. In the coming years, worldwide oil supply will have much difficulty keeping up with worldwide oil demand while the exact opposite is true of worldwide natural gas supply and demand, It doesn't take a rocket scientist (let alone an economist...) to figure out this means higher prices for oil and low and stable prices for natural gas.

    Yet the biggest error in judgment has been made by U.S. economists and energy policy "experts" like Energy Secretary Chu. Despite huge staffs of highly paid "professionals", these folks have been unable to figure out the energy basics described above. Their inability to figure things out is mystifying considering 2008's $145/barrel high, current oil prices over $80/barrel, and natural gas going for $4/Mcf. So what's their problem? Since the economics are obvious, natural gas is cleaner, and the supply is domestic(!), the problem must be political. How sad is that? As a result, legislation like HR 1835 remains moth-balled in Congress and the obvious solution to the economic, environmental, and national security issues America faces as a result of its addiction to foreign oil (natural gas transportation), has not been adopted. Worse still, the oil crisis we have experienced and still face has not resulted in an American strategic long-term comprehensive energy policy like this:
    http://thefitzman.blogspot.com/2008/08/strategic-long-term-comprehensive-us.html

    In spite of these serious lapses in energy policy, no one (other than me) seems to be calling for Energy Secretary Chu to resign. He should do so - preferably today.

    What does this mean for investors? Obviously my take is that the American economy will again be racked by much higher oil prices and gasoline prices. Logically then, an investor should have significant exposure to oil investments while at the same time being out of broad market investments like the S&P500. While smaller oil producers highly leveraged to oil prices and more likely to be bought out are perhaps the best way to play it, I also like the large oil producers that pay nice dividends: StatOil (STO), BP, Chevron (CVX) and Conoco Philips (COP) come to mind. Occidental Petroleum (OXY) is more highly levered to oil prices than any of these and deserves consideration albeit its devidend is less attractive. A more speculative stock is Brazilian company Petrobras (PBR). However, the proven large reserves will mean the biggest increases in oil production of all the previously mentioned companies. For this reason, PBR is worth the risk. Buy PBR anywhere below $45/share and you won't be sorry 3-5 years from now.

    Disclosure: Long BP, COP, PBR, STO
    Apr 20 11:45 AM | Link | 2 Comments
  • Like Obama and Chu, Conoco Philips CEO Mulva Still Doesn't Get It




    Conoco Philips CEO Jim Mulva was interviewed by CNBC's Erin Burnett yesterday and you can view it here: http://cosmos.bcst.yahoo.com/up/player/popup/?rn=289004&cl=19046430&src=finance&ch=4043681.

    Mulva supports a more balanced U.S. energy policy going forward - for more natural gas in the mix of alternative energy options. Mulva says energy security is more important than energy independence.  He also says natural gas is not simply a bridge fuel but should be considered part of long-term energy policy. Mulva sees long-term natural gas prices in the $6-8/Mcf range. He also talked about the Denali natural gas pipeline, but that has been covered in many other press releases so it will not be discussed here.

    Although it is good to see Mulva pounding the table in support of natural gas, as a Conoco (COP) shareholder it disappoints me that he, like President Obama and Energy Secretary Chu, just cannot bring himself to support the obvious solution to American's oil crisis: natural gas transportation. Mulva, like Exxon Mobil's (XOM) CEO Tillerson, apparently only envisions increased natural gas use for power generation, not for transportation. Clearly Conoco generates more profits producing oil - especially with natural gas at $3.91 Mcf and oil at $86/barrel. But why not run on both cylinders? Increased natural gas consumption for transportation will not endanger COP's oil profits. Oil consumption growth in China, India, and other emerging markets will see to that. So Jim, come on, support Pickens and natural gas transportation legislation currently moth-balled in Congress. Also, Jim, just think of all the compressors GE would sell if the U.S. began to build out a natural gas refueling infrastructure. Since you sit on the Board of Directors for GE, seems like you should be looking out after that business opportunity as well.

    I also take issue with Mulva's comments that it is energy security that is important not energy independence. After what the country has experienced over the past few years, certainly any definition of "security" should include economic security. How is the U.S. going to achieve economic security while it is dependent on foreign oil producers for 65% of its oil (currently "cheap" at $86/barrel)? As Pickens says, we are witnessing the greatest transfer of wealth in the history of the man. After all, the Federal Reserve and U.S. Treasury can only print and distribute so much fiat currency to fund oil wars and foreign oil purchases, right? Logically, it is simply unpatriotic not to support natural gas transportation - it would create many good American jobs, reduce the trade deficit, and reduce CO2 and particulate emissions in the process.

    Meanwhile, Obama and Chu continue to support the two most dirty and expensive fuels: coal and oil. As if the Kingston, TN environmental disaster http://en.wikipedia.org/wiki/Kingston_Fossil_Plant_coal_fly_ash_slurry_spill wasn't reason enough to replace all coal burning plants with natural gas, the recent mine catastrophe in West Virginia reminds us that above ground pollution isn't the only reason to make the switch: miners put their lives at risk every day to pull the dirty black fuel out of the ground. Over 1,000 miners die every year of black lung disease and thousands more are affected by all kinds of ailments due to various exposures in the mines. Before all the comments are posted about coal being "cheap", as Robert Hefner points out in the his excellent book The Grand Energy Transition, if the true environmental and health care costs were put on the coal producers instead of the on the backs of the American people, coal would be much more expensive than natural gas. Indeed.

    All that said, I continue to recommend Conoco as an investment. Despite a recent run-up in the stock price, the dividend yield is still over 4%. Although the low price of natural gas hurts the company, oil at $86 will more than compensate. Yesterday, Chevron (CVX) reported increased downstream margins in the current quarter, and this will favorably affect COP as well now that summer driving season is at hand. Expect COP to beat analyst expectations when they report earnings on Wednesday April, 28. Aslo - It should be an interesting conference call considering all the divestiture work in progress. COP under $50 is a buy.

    Disclosure: Long COP

    Disclosure: Long COP
    Apr 09 10:13 AM | Link | Comment!
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