experienced

Time to Bail on Shale?

The decision by Chesapeake not to hedge for the moment appears to be based on common sense (at least from the statements in the recent conference call). You don't hedge when natural gas prices are abnormally low. Instead, you are probably better off waiting for at least some strength in spot or futures prices.

There has also been some comment on the environmental impacts from the method used to extract natural gas from shale. Chesapeake already decided not to develop potential natural gas resources in areas of New York state that supply water to New York City. Potential adverse impacts may also restrict development of shale reserves in other areas.

Finally, the historic relationship between the price of natural gas and crude oil, based mainly on the amount of energy from each source, is out of line, with natural gas currently well below crude oil. All these factors justify a decision to postpone hedging until there is evidence of stronger future prices.

Is Tech Overvalued?

Ugh! Investors DON'T have access to the same information. In theory, they do, but time and cost of access are important factors that influence a buy or sell decision by an investor.

Yes, there appears to be less investor sentiment in favor of tech stocks, but here again, the sentiment may be based on poorer results from a few companies, rather than poor results in general. That's why investors who rely on ETF's, with their mixture of good and bad results, are probably worse off than those who hold individual stocks with consistently strong earnings prospects.

Solar Market Declines for First Time Ever

The views in the article are misleading. Solar depends in part on the price of alternatives. With oil prices on the increase, solar demand also increases.

Solar also depends on financing for the consumers. The arrangement made by SunPower with Wells Fargo, for example, gives SunPower an edge over competitors.

Finally, because solar still costs more than conventional alternatives, a certain amount of subsidy is necessary and justifiable in order to reduce carbon and related emissions. While Germany and Spain may not be interested in the degree of subsidy in earlier years, enough nations, including the U.S. have renewed their subsidies, preserving an adequate growth rate.

Shale Gas: Promises, Promises, Promises

Berman's report has many inconsistencies. If reserves are less than expected, and if cost of extraction is greater than expected, then the price of natural gas will rise to a point where extraction is profitable. In the current climate, natural gas prices are well below their traditional value in relation to crude prices, owing to the notion that we have huge, untapped natural gas reserves.

The large amounts of water/liquid needed to extract gas from shale may lead to environmental constraints, less gas produced, and higher gas prices. On the other hand, if environmental damage is minimal and huge reserves are available, then it's likely there will be new applications for natural gas, such as widespread use in fleet vehicles. In any event, except possibly the implementation of energy conservation measures far greater than at present, the long term price of natural gas will rise.

Climate Change: How to Invest for the Possibility

To argue that the earth has been cooling over the last 500 million years or so is irrelevant. What counts more is the trend over the last 15,000 years (warming), and whether that trend is "natural," as the climate warming skeptics would have us believe, or manmade.

There is no longer any scientific basis to argue that recent warming trends have no relationship to increased burning of carbon, particularly from coal and oil. Meanwhile, those who spend a lot of time trying to minimize the problem are the last to advocate doing anything. Better conservation practices, particularly in home insulation and design of communities to minimize the use of cars to get around would do more in the next 10 years to reduce CO2 than any other policy. The coal burning advocates should get their act together and promote conservation instead of trying to argue that nothing should be done to interfere with smoky coal plants.

Energy Recovery: Too Much Competition

Siemens recently entered into an agreement with a small Israeli company specializing in desalination. As far as I have been able to determine, this technology doesn't exclude or make obsolescent the ceramic device made by Energy Recovery. If distillation were the preferred technology, there would be no need for the ERII product, but the fact is that reverse osmosis seems to be by far the most cost effective way of obtaining fresh water from sea water.

SunPower's Rose: How Important Is High Efficiency in PV?

It would be quite unusual if a roof solar PV installation could supply all the power needed in a typical residential household -- especially during mid-day with an air conditioner. So the higher efficiency of SunPower units would ordinarily not supply enough power to alllow a utility company like Duke Power to send a check to the homeowner. On the other hand, what if the homeowner is away on business or vacation? Then it's likely the solar unit will provide more electricity than needed. A utility company could easily provide credits for excess power in individual units. This is far from being a power broker. It's more like doing good business.

Plenty of Natural Gas: Exploration and Production Companies Keep Increasing Oversupply

Regarding the Pickens plan for using NG for transportation, it is a mystery to me why more public officials haven't endorsed the idea. Perhaps the lobbying for continued use of gasoline and diesel has discouraged attempts to use NG. While it might be difficult to convert general use cars and trucks to NG, it certainly would be practical for school buses, local truck and taxi fleets, and other primarily local applications.

The fundamentals for oil have not changed: The rate of growth in demand, spurred by huge increases in transportation demand in China and other developing nations, is greater than the rate of growth in proven reserves. Put another way, less new oil is being discovered than is being consumed. This means the price trend for crude is up. Meanwhile, the low prices for NG, if nothing else, should provide incentives to switch to NG where NG is a viable alternative. All this ignores pollution related issues, which should provide further incentives for NG.


On Sep 11 10:31 AM Skip Olinger wrote:

> Well done article but I have a question for you and the 2 previous
> commenters.
>
> As I understand it, NG demand has fallen significantly primarily
> due to a drop in industrial demand and utility demand. Supply has
> increased as new unconventional plays have gone into production.
> So producers, who cannot just shut off wells like a light switch,
> have started to store gas in hopes of higher prices down the road.
> Storage is becoming full. Once full wells may be forced to shut down.
> Pressure in the system will fall so even pipelines won't be making
> revenue as no gas will be moving. Voila, end of the world. Do I have
> this correct?
>
> But wait, if you want to sell your gas at say $4.50 rather than $2.73
> all you would have to do is sell a futures contract for Dec delivery.
> That is 3.5 months away! There must be plenty of producers that have
> sold their production forward for winter delivery and intend of delivering.
> And, if you want $5 all you have to do is sell for June '10. What
> am I missing here?? I would appreciate some help.
>
> Also, the economy seems to be turning around a bit. That should start
> to increase industrial and utility demand. How do you see that playing
> out??
>
> Lastly, how do you see the Pickens theory play out with conversion
> to NG use away from Petroleum. I suspect that is a ways off but some
> government car fleets are now being converted?
>
> Thanks to all for your help

Megatrend Companies Summary

Many of the comments on stocks such as SSL are inaccurate and out of date. Ditto for SPWRA. Given the errors, I don't think the article has much credibility.

Countering Those Anti-Peak Oil Types

Matt Simmons was one of the first to point out (in his book, published about 2004) the reduction in Saudi reserves, contributing to his view that even if oil production goes up, proven reserves go down. The most appropriate model for describing or predicting the future of oil is the commons model. In essence, as the rate of consumption exceeds the rate of finding new reserves, the capital costs of finding and developing reserves inevitably increase. At some point, the costs become so high that demand falls (or shifts to other forms of energy).

A similar phenomenon is happening in the fishing industry, where the catch of certain types of fish (such as cod) is collapsing due to overfishing or environmental changes. The commons model is appropriate for each of these dilemmas.

Chinese Government Will Pay to Install 500MW of Solar Power

Many are skeptical that China can build that much solar photo voltaic generating capacity in such a short time. But they ignore what happens when truly large numbers of workers apply themselves to specific projects. During World War II, the Chinese were asked to build landing strips in southern China so that cargo planes from India and Burma could bring in supplies. The Americans assume that building such facilities would be a two to three month operation and were surprised that the Chinese did the job in about a week. The increase in solar facilities will definitely shore up companies currently facing a glut. The only sour note is that the Chinese make it difficult for foreign companies to compete.

The EU Stabs Apple in the Back

The EU attempt to standardize (in favor of its home grown companies) is not only restrictive but goes against innovation. Instead of a uniform connector for charge devices, the trend now is going to a tray that charges any appliance, without any connection whatsoever. Such a device has been produced by Qualcomm and others. I guess that dooms it before the EU.

Intel and Nokia's Powerful Collaboration

As pointed out in a recent EETimes article, there was very little substance or specifics in the Intel-Nokia announcement. Intel does not have a good record trying to get into the wireless business, and in fact sold a major part of its assets in that area to Marvell. Nokia needs something more substantial than its wholly owned Symbian system, which can't deliver on many applications for smartbooks or netbooks (which are not the same).

The key issue is whether the Nokia-Intel combination can produce wireless devices that have low power requirements to compete with the Qualcomm SnapDragon chip, which is based on a lower power ARM processor. Unless one is simply playing games, a netbook or smartbook need to be on continuously, just the way a handset remains on, with sufficient battery power to make it through at least one day's usage. Intel's Atom chip certainly isn't there yet, though it might be in a few years. Meantime, chips from Qualcomm and others can fill the bill.

Surviving Semi Downturn: Five Stocks That Will Thrive After 2009, Part II

The report is filled with incorrect, inaccurate, and incomplete data. It doesn't even touch on the largest fabless semiconductor company -- Qualcomm. There are so many errors in the report, I can't even begin to enumerate all of them. Yuck!


On Jun 10 09:53 AM JohnB wrote:

> great analysis. thanks for walking us through your thinking.

Is There Enough Natural Gas?

The numbers you provided concerning consumption of natural gas for transportation use and adequacy of reserves are reasonable, but that's not the whole story.

Because there are a limited number of natural gas outlets for CPN vehicles, one would first want to look at practical applications, such as fleet use in a local area. Certainly under that limited alternative, the supply of natural gas would be more than adequate, and the cost, even if natural gas prices rise to twice their current level, would still be less than gasoline or diesel fuel.

As to continued use of coal, there is at least one process (developed by SASOL) that converts coal to gas at sufficiently low prices to make such an alternative worthwhile. Sasol has several CTG plants outside the U.S. Whether these plants are low enough in CO2 emissions to please everyone is a question I can't answer, but CTG gets rid of most of the pollution problems associated with coal.

One would think that with all this stimulus money being thrown at infrastructure projects, a compressed natural gas infrastructure could reasonably be added to the list of cost effective projects. I make these comments on the basis of my past research in energy alternatives and my current position as director of the oldest online investment advisory service.