R-Squared Energy Blog

Pure Energy

The Looming Spike in Crude Prices

Lots of very crazy stuff going on behind the scenes that’s been keeping me very distracted, and writing to a minimum. Fortunately, Money Morning sent me a very timely essay this morning on crude prices. This one takes aim at the API. While I have a cordial relationship with the API, like Kent Moors who wrote the article below I think their crude production projects are way too optimistic. Of course I say the same thing about projections from the EIA, IEA, and pretty much any organization that predicts that we are going to have a major increase in production from today’s rates. My position for the past 5 years has been that the top is pretty close to 90 million barrels/day, give or take a few million. Some of these organizations are predicting that we will be able to produce over 100 million bpd, and I just don’t see it.

Anyway, as I previously explained topical Money Morning content will be featured here from time to time. As always, normal caveats apply: I am not an investment advisor; these stories are meant to spur discussion.
—————————-

Profit From the Looming Spike in Crude Prices That the U.S. Oil Lobby Doesn’t See Coming

By Kent Moors, Ph.D. Contributing Editor Money Morning

John Felmy has been the chief economist of the American Petroleum Institute (API) for years. He’s well respected. And I appreciate his experience. But the two of us disagree more often these days.

We most recently locked horns at Malone University in Canton, Ohio, last week, where we were debating the future of oil. (Actually, when the invitation was made, I was supposed to debate Sarah Palin. But she pulled out to go on the road and pitch a book she didn’t write.)

Nonetheless, something disturbing emerged from the debate.

I still find John a pleasant enough fellow, but the mantra coming from the API, the mouthpiece of the oil industry, is wearing thin. They want us to believe that the oil market is still fine, still humming along, still providing the best energy value. You’ve heard the argument before: Gasoline is cheaper than milk or bottled water.

This time, John tried the latest API version of this sleight of hand: Whatever price you need to pay, oil is still cheap, still plentiful, still the energy of choice.

Sorry folks, the API just doesn’t get it. And what it refuses to get is becoming one of the most important factors investors in the energy sector will need to watch – carefully. This is all about supply and demand. But it’s not the traditional lecture from Econ 101.

This one is going to roll out differently.

Over the next several months, oil will begin losing its balance. As it falls off the wagon, risk will escalate. And that will require greater due diligence by investors. But as the risk increases, so will the number of opportunities. I’ll show you how to profit from them as they surface.

But first, here’s the problem with the API’s approach.

“Suspect” Figures Are Way Off

As John grudgingly admitted in our exchange, the API’s figures are becoming “suspect.” I have a less charitable view. (Unlike John, I don’t work for them.)

The API figures are way off.

They still portray a view of demand (low) and supply (high) that will not continue to square with reality. We have had lower demand for months only because of the financial crisis and the credit crunch. But this has had nothing to do with the oil market as such.

Others are catching on.

The Paris-based International Energy Agency (IEA), for example, has already admitted its supply estimates were too optimistic while its view of demand was too conservative. The IEA revisions have been paralleled in similar moves by the London Centre for Global Energy Studies (CGES), Russia’s Institute for Energy Strategy (IES), and even Washington’s usually impervious Energy Information Administration (EIA).

There’s a reason for this.

Worldwide oil demand, while sluggish, is nonetheless returning more quickly than anticipated. In addition to the usual suspects – China, India, a resurgence in the Far East – OPEC countries are retaining more of their own production to diversify their economies. Russia is facing rising domestic needs at the same time it tries to avoid a significant decline in crude production. Mexico is witnessing a meltdown in its oil sector while its domestic needs also rise. And new major markets are exploding in places like West Africa and South America.

Notice this is not happening in the United States or Europe. These countries are no longer the driving forces in the oil market. The most developed markets are not calling the shots, despite still being over-weighted in the data collected. The IEA finally got that. So did CGES, IES, and even the EIA.

But not the API.

Indeed, the paid spokesperson for the American oil industry continues to see crude oil as the main option. True, it gives lip service these days to alternative and renewable energy. Moreover, given its position as the in-house spokesman for the hydrocarbon sector as a whole, it is also praising the virtues of natural gas as the immediate choice when we transit from crude oil.

Unfortunately, the API still fails to provide an accurate picture. Perhaps in the final analysis, this happens because its clients are the oil producers.

Oil’s (Profitable) Reality

We currently have about 86 million barrels a day in worldwide crude oil demand. That still represents a figure below pre-crisis levels. However, all of the organizations mentioned above (with the exception of the API) are now estimating a rise to around 87.5 million over the next year, with increases accelerating thereafter.

Current global supply, on the other hand, will max out at 91-92 million barrels. That gives us a small cushion – just a few years – before the real fireworks start. Period.

Because new volume coming on line will barely replace declining production from older fields, we have little prospect of avoiding insufficient supply producing a spike in crude oil prices. This is not necessarily a bad development from the investor’s perspective, since a volatile market will provide profit opportunities, especially if the direction in price remains sustainable over any period of time.

The impact on other market sectors, of course, will be less positive.

The key here is to recognize the major benchmarks and triggers, along with early changes in what they tell us. These will not all be moving in the same direction as the unwinding ratchets into high gear. But we will be able to identify when they are changing and, more importantly, how to profit from them.

I’ll be discussing the strategy as it unfolds over the next several months.

I’ll show you, for example, how to spot a real oil-demand rise in the American market before it becomes apparent to everybody else. There are several approaches I will suggest as the market opens up. The best place to start is watching the leading economic indicators.

Actually, six of the 11 stats provided by the Department of Commerce are dependent upon, or reflect, changes in productivity and industrial needs. These are all also energy intensive. That means a rise in energy demand will precede the actual rise in the indicators. This is one of the early triggering mechanisms I use in my analysis and for making my estimates.

I’ll flag them for you as they emerge. And I’ll lay out how they impact the U.S. energy sector and related investments. There are quite different ways of early detection for other global markets, where the demand will be moving in more quickly.

Calls on investment alternatives will be very sensitive to changes in indicators and triggers. That means in energy, we need to stick to the trends. So stay tuned. The recommendations will follow in short order.

Just don’t expect to gain much traction from the API!

[Editor’s Note: Dr. Kent Moors, now a regular contributor to Money Morning, is the executive managing partner of Risk Management Associates International LLP, a full-service global management consulting and executive training firm. He is an internationally recognized expert in global risk management, oil/natural gas policy and finance, cross-border capital flows, emerging market economic and fiscal development, political, financial and market risk assessment, as well as new techniques in energy risk management.

Dr. Moors has been an advisor to the highest levels of the U.S., Russian, Kazakh, Bahamian, Iraqi and Kurdish governments, to the governors of several U.S. states and the premiers of two Canadian provinces, a consultant to private companies, financial institutions and law firms in 25 countries and has appeared more than 1,400 times as a featured television and radio commentator in North America, Europe and Russia. He has appeared on ABC, BBC, Bloomberg TV, CBS, CNN, NBC, Russian RTV, and regularly on Fox Business Network.

Moors next columns will be written from Moscow and London, where he’ll be talking to officials, company executives, traders and bankers. Russia is about to signal a major change in oil and gas development strategy, while recent events in London are signaling a new oil pricing approach.]

December 4, 2009 Posted by | American Petroleum Institute, api, investing, investment, Money Morning, oil prices | 15 Comments

The Future of Energy

I am back in Hawaii, and over the next couple of days I will climb out from under an avalanche of correspondence. I have a couple of essays to get out, including an interview that I conducted with the CEO from an algae company. What he said may surprise you.

Until then, the latest energy-related story from Money Morning. As I previously explained topical Money Morning content will be featured here from time to time. As always, normal caveats apply: I am not an investment advisor. I don’t endorse any specific stocks mentioned in the following story; these stories are meant to spur discussion.

—————————–
A Money Morning Interview: The Future of Energy

Renowned Oil Expert Dr. Kent Moors Details Shortages of Oil, the Impact of Higher Prices, the Promise of New Technologies and the Opportunities For Investors Dr. Kent Moors is one of the world’s foremost experts on oil, energy policy, finance, risk management and new technologies. Moors advises the leaders of six oil-producing countries, including the United States, as well as global corporations and banks operating in 25 countries.

Moors is the founder and director of the Energy Policy Research Group, which conducts analyses and makes recommendations on a range of energy-related issues. He is also the president of ASIDA Inc., a worldwide advisor on the oil-and-natural-gas markets.

In an interview with Money Morning Executive Editor William Patalon III this week, Dr. Moors detailed the top current energy challenges in the global economy, and also provided investors with a look at some of the looming new technologies, as well as a future in which China is a dominant global energy player.

Some of these issues are already at work. Although oil prices remain well below the all-time record of $147 a barrel set in July 2008, crude prices have been on the march of late. Just yesterday (Wednesday), in fact, supply concerns pushed oil futures up above $81 a barrel, their highest level in more than a year.

“If you think the run up to July 2008 was a wild ride, you haven’t seen anything yet,” Dr. Moors told Money Morning. “In the next five years, investors who focus on medium- to small-sized producers and oil-field-service companies having a well-developed specialty niche will outperform the overall energy sector.”

Money Morning (Q): In an earlier discussion, you said that the successful energy investor of the future wouldn’t be a person who just goes out and invests in ExxonMobil Corp. (NYSE: XOM). Can you explain?

Dr. Kent Moors: We are entering a period of rising prices. There is still some play left in the large verticals (vertically integrated oil companies, or VIOCs) such as ExxonMobil, but the primary profits will be made with smaller, leaner exploration-and-production (E&P) outfits, field-service companies and specialized producers (unconventional gas producers – shale gas, coal bed methane, tight gas, hydrates – heavy oil and biodiesel).

(MM): How will investors have to play this future? What types of companies should they be looking for, and where should they look?

Moors: The market rapidly approaching will be more volatile with valuation often more difficult to determine than in the past, even with prices increasing. How much of the increases result from actual product margins and how much results from oil becoming a financial asset rather than just a commodity is a major concern. It requires some careful homework. The types of categories mentioned above – smaller producers, new developments in field services and technology (especially those providing ways to decrease wellhead and operational costs, increase productivity, use associated gas, treat and utilize produced water, increase efficiency per barrel … there is a long list here) as well as the specialized producers and providers of their technical needs are the main targets.

(MM): When we look at the U.S. economy, you said that investors would be stunned to discover how much of our oil is produced by small players. In that discussion, in fact, you even described the type of firm that could be the “savior” of the U.S. energy sector, and perhaps even the economy. Could you take a moment to describe that situation and explain what that means for the economy?

Moors: The United States remains one of the top five producers of crude and will shortly ramp up production of natural gas (once the current glut has moved through the system). Sixty percent of crude produced in the U.S. market is at stripper wells providing less than 10 barrels of crude a day, but more than 20 barrels of water, a major byproduct. As America enters an accelerating field maturity curve (and an intensifying decline in well debit – well production), the efficiency of production declines. Therein lies a significant area for innovation and leaner companies. And that spells greater profitability at lower entry prices. Some offshore and Alaskan National Wildlife Refuge (ANWR) production will be done at scale, but that is not where the future of U.S. production will be. It will be the result of greater profitability at existing depleting wells with the new technology rolled out (on the oil side) and unconventional gas production.

(MM): Let’s take a look at the global markets, too. China’s global shopping spree has been well chronicled. As China locks up suppliers and supplies of oil and natural gas, what are the chances there could end up being what’s almost a two-tiered market, where China has access to oil and natural gas at lower prices levels, creating a shortage of non-captive supplies and leading to Western countries having to pay much higher prices?

Moors: Price rises for Westerners will occur anyway, and not just because of China (where a rising energy bubble resulting from the recent acquisitions is a concern). The competition for available energy sources will usually result in those regions prepared to pay more, increasing the overall aggregate price for most others. China, India, a resurgent East Asia, Japan and even regions such as West Africa will occupy important positions moving forward in this regard. Also, rising demand will center in places other than OECD countries. The new oil market emerging can hardly discount the developed countries, but the primary demand spikes are going to come from elsewhere.

(MM): After some significant turmoil in recent years, you said that Russia is finally opening up to foreign investment. Will that last, and what effect will that have on global energy prices?

Moors: To offset a more rapidly declining traditional production base (primarily Western Siberia), Russia must move north of the Arctic Circle, into Eastern Siberia and out on the continental shelf. These moves are technologically sensitive and very expensive. Moscow needs the outside investment and that will remain. However, projects must be carefully structured. Foreigners cannot own 50% of “strategic fields” under new laws or anything on the shelf. This means watch out for the smaller, focused operators and oilfield service companies. They will include companies currently trading on the Alternative Investment Market (AIM) in London: The AIM and London Stock Exchange (LSE) are the sources of the new external investment phase in Russia.

(MM): From a global perspective, which markets show promise? And which ones – either because of overly restrictive investment policies, or because of the risk of nationalization – are markets to be avoided?

Moors: Many markets show promise or telegraph restraint. Let’s look at some of the more noticeably promising markets, organized by energy category:

  • Conventional Oil: Sub-Saharan Africa, Brazil, Kazakhstan, Russian Eastern Siberian and Far East smaller fields.
  • Conventional Natural Gas: Turkmenistan (if recent government overtures to outside investment remain genuine), Uzbekistan, Northwestern Australia (region of the Gorgon project) and New Guinea.
  • Unconventional Oil: Tatarstan (Russia) for bitumen and heavy oil, Alberta for oil sands (assuming an average and multi-year sustainable crude price of $72 [USD] a barrel or above).
  • Unconventional Gas: The United States for shale (especially Marcellus Shale) and coal bed methane (Powder River Basin, Wyoming, also basin into Montana – if that state reduces regulations), Poland, Turkey and Germany for shale, south central Russia and Ukraine for coal bed methane. If Baghdad and Erbil can finalize central Iraqi and regional Kurdish oil legislation – and if security is maintained – Iraq will become a major play in both oil and gas.
  • TO BE AVOIDED: Iran (sanctions and buyback contract frustrations), Mexico (collapsing infrastructure and nationalization), Venezuela (significant technical shortcomings, concerns over productivity assessments, and absence of Western operators).

(MM): If an investor were to divide the energy market into short/intermediate/and long-term segments, what will be the dominant energy plays (oil, natural gas, solar, coal-bed methane, for example) in each of those three time segments? What time periods would you tack onto the short-term, intermediate-term, and long-term segments? And which energy plays will be the real winners?

Moors: To make this easier to see, let’s divide this into short-term, intermediate and long-term segments and look at the key players, issues and technologies in each category.

  • Short-Term (five years out): Here we’ll see an increasing efficiency at existing oil wells; Marcellus Shale natural gas; an extension of large fields into known deeper production layers – for example, BP-led (NYSE ADR: BP) multinational plays such as the Azeri-Chyrag-Guneshli and Shah Deniz deposits offshore Azerbaijan. Other developments to watch are the huge Chevron-led (NYSE: CVX) Tengiz field in Western Kazakhstan, initiatives in the central Gulf of Mexico and all satellite fields operated by other companies.
  • Intermediate-Term (five to 15 years out): All U.S. and Canadian shale plays, Wyoming, Montana, New Mexico and Russian coal bed methane, selected wind power Western U.S. and Baltic Sea region (Denmark, Germany, Poland).
  • Long-Term (20 years or more): All alternative and renewable energy (by this point, crude oil will be too volatile with supply problems and natural gas from whatever source will be the main power source both for conventional applications and for new technologies – fuel cells will obtain most of their price-sensitive hydrogen from natural gas).

Moors: Here’s the bottom line. Looking forward, successful energy investors will be those who: (1) weigh volatility as well as opportunities; (2) understand the rapidly changing supply/demand balance; (3) hedge within a focused time-frame; (4) watch the development of new technology to improve production, processing or transport; and (5) have a flexible approach to the market.

October 29, 2009 Posted by | investing, investment, Money Morning, oil prices, shale gas | 9 Comments

BP’s ‘Giant’ Discovery Gives the Gulf of Mexico New Life

I am trying to climb out from under an avalanche of correspondence, and I also hope to have the “Niches” article done by Monday morning. Until then, the latest from Money Morning on BP’s new oil discovery. As I previously explained topical Money Morning content will be featured here from time to time. As always, normal caveats apply: I am not an investment advisor. I don’t endorse any specific stocks mentioned in the following story nor the ad at the end of the story; these stories are meant to spur discussion.

———————————-

BP’s ‘Giant’ Discovery Gives the Gulf of Mexico New Life

By Jason Simpkins

Managing EditorMoney Morning

BP PLC (NYSE ADR: BP) yesterday (Wednesday) announced a “giant” oil discovery in the Gulf of Mexico that may contain more than 3 billion barrels of oil. The find is evidence of the Gulf’s resurrection as a major oil producer, as well as the great lengths – or depths – to which major oil companies must go to find vibrant wells.

The well, known as the Tiber Prospect, is one of the deepest wells ever drilled with a total depth of about 35,055 feet, or 6½ miles. An appraisal will be required to determine the size and potential commercial value of discovery, but preliminary estimates suggest the field is bigger than Kaskida, a 2006 discovery that boasted 3 billion barrels of oil equivalent (boe).

“Tiber represents BP’s second material discovery in the emerging Lower Tertiary play in the Gulf of Mexico, following our earlier Kaskida discovery,” said Andy Inglis, BP’s head of exploration and production. “These material discoveries together with our industry leading acreage position support the continuing growth of our deepwater Gulf of Mexico business into the second half of the next decade.”

BP is already the largest producer of oil and gas in the Gulf of Mexico, generating about 400,000 boe/day. But once they start producing, the Tiber and Kaskida wells could boost the company’s output in the region to 650,000 boe/day.

BP did not say when the Tiber well would begin producing oil, but analysts don’t expect the field to start pumping until at least 2014. That seems optimistic, however, as BP’s last large-scale development in the Gulf – the Thunder Horse field – took nearly twice as long. That well was discovered in 1999 but didn’t start producing until just last year.

Of course, the Thunder Horse platform offers a compelling case study for the revival of oil exploration and development in the Gulf of Mexico – once referred to as the “Dead Sea” by oil majors who believed the region was tapped out.

Thunder Horse is ramping up its production to 300,000 barrels per day (bpd), which makes it the No. 2 U.S. producer behind Alaska’s Prudhoe Bay, BusinessWeek reported.

In fact, Thunder Horse and projects like it have added about 1.2 million bpd to total U.S. output. U.S. crude oil production is expected to rise this year for the first time in nearly two decades. In the first seven months, the country has averaged 5.26 million bpd, the highest for the January-to-July period in four years, according to the American Petroleum Institute, an industry group.

The deep waters of the Gulf of Mexico are now “one of the few bright spots in global oil production” Bob MacKnight, an analyst at PFC Energy told BusinessWeek.

The Gulf now accounts for about 25% of domestic oil production and 15% of natural gas output through about 3,800 offshore production platforms, according to the U.S. Minerals Management Service.

Of course, that production has come at a high cost. Exploration wells cost up to $200 million to bring onstream, and actual offshore platforms are even more expensive. Thunder Horse cost more than $1 billion to build and another $250 million more to repair after Hurricane Dennis knocked the massive structure on its side.

Still, operating in U.S. waters in the Gulf of Mexico is easier and less costly taking on projects in countries such as Venezuela, Africa, Iraq, and Russia where political skirmishes and civil unrest often lead to costly setbacks.

————————————

Money Morning Editor’s Note

Why Is Beijing Investing $200 Billion in One Company? The answer is simple. This rail company hauls 25% of the world’s freight – but it only has 6% of the world’s track. Right now, freight supply is 65% shy of demand. Sales for this company have grown on average 47% over the last five year. And now, with a $200 billion infusion, it’s about to jump even higher. Estimates show the potential gains at 356%. Click here for the full report.

September 5, 2009 Posted by | BP, Gulf of Mexico, Money Morning, oil discoveries | 14 Comments

Is Venezuela’s Stagflation the Beginning of the End for Chavez?

I am just finishing up Biofuel Contenders, and should have that up later today or first thing tomorrow. Until then, a topical post from the latest from Money Morning, which as I previously explained will be featured here whenever they have relevant material to offer. As always, normal caveats apply: I am not an investment advisor. I don’t endorse any specific stocks mentioned in the following story nor the ad at the end of the story.

——————————————

Is Venezuela’s Stagflation the Beginning of the End for Chavez?

By Jason Simpkins

Managing Editor – Money Morning

It wasn’t long ago that Venezuelan President Hugo Chavez’s decision to nationalize state oil company Petroleos de Venezuela SA (PDVSA) resulted in a failed coup that very nearly cost him his post.

Now, Chavez’s aggressive economic policies are again being called into question, this time as the country slides into what could be a protracted period of stagflation, which is defined by the exasperating mixture of torpid economic growth and high inflation.

Before that, however, the period from 2004-2007 was marked by rapid economic growth – punctuated by a miraculous 19.42% burst in 2004. Since that time, unfortunately, Venezuelans have watched as their standard of living was slowly eroded by restrictive price controls, rapid inflation, unsustainable public spending, and widespread nationalizations that have put a stranglehold on industry.

Even as these problems festered, an unprecedented surge in oil prices allowed Chavez to maintain his questionable – and ultimately unsustainable – economic policies. When the bull market in commodities abruptly stalled last year, Venezuela’s economy lumbered to a stop.

Venezuela’s economy grew by 3.2% in the fourth quarter of 2008 and just 0.3% in the first quarter of 2009. Then – for the first time in more than five years – that country’s economy contracted, shrinking 2.4% in the second quarter.

Unfortunately for Venezuela, the decline in gross domestic product (GDP) did little to quell surging inflation. The annual rate of inflation climbed to 26.2% in July, according to the Central Bank of Venezuela. Many foreign sources have it higher.

President Chavez insists his country is not in the midst of a financial crisis, but analysts believe this is just the beginning of a bad-news saga that will trip up a country whose heavy-handed economic policies have made it few friends.

To sum up, we could say that such scenario of stagflation has two basic components,” Orlando Ochoa, an economist and professor with Andrés Bello Catholic University (UCAB), told El Universal. “On the one hand, price control, exchange control, nationalizations and restricted distribution of foreign currency damage supply. On the other hand, lower oil prices curtail revenues and have an impact on demand.”

Going forward, Venezuela’s currency controls are perhaps the biggest hurdle for the economy to overcome. Chavez and his cabinet have said they are preparing to announce measures to stimulate the economy, but that may not be enough.

The problems that come with over-reliance on oil and a vast net of unwieldy social programs and the cost burden of nationalized industry aren’t going anywhere. And the nation’s other obstacle – the gap between its official and parallel exchange rates – won’t be addressed until at least the end of September.

An Unparalleled Problem

Indeed, the problems facing Venezuela are many. But President Chavez and his cabinet believe they have the solution.

“There is a remedy,” Venezuelan Finance Minister Ali Rodriguez said in an interview broadcast on state television. “The differential between the official dollar and the [so-called] ‘parallel dollar’ can be reduced.”

Rodriguez was referring to the difference between the country’s “official” exchange rate – which remains at 2.15 bolivars per U.S. dollar – and the so-called “parallel market,” which suggests a rate of about 6.5 bolivars per U.S. dollar.

The official exchange rate of 2.15 bolivars per U.S. dollar was arrived at in 2003, when Chavez imposed currency controls that force Venezuelans who want to import goods to apply for a government permit. Importers that are unable to get permits to buy currency at the official exchange rate have been forced to turn to the parallel market, where they pay three times the official price.

The problem now is that a large drop in oil revenue has sharply reduced the amount of dollars the government has available to exchange. That has driven more importers to the pricier parallel market. Some have stopped importing entirely.

With limited access to imports, Venezuela’s manufacturing sector contracted by 8.5% in the second quarter.

The manufacturing sector is going to have a negative performance, mostly because of the restriction in imports and dollars, which has caused a drop in the supply of primary materials,” Miguel Carpio, an economist at Banco Federal CA in Caracas, told Bloomberg News. “Add to that the drop in consumption, and this is going to be a very difficult year.”

Now, with the threat of stagflation looming large, Chavez has no choice but to take action. But economists are unsure of what the government will do.

Few analysts expect the government to order an outright devaluation, because it would push inflation beyond the 28% annual rate. (Venezuela last devalued the official rate in 2005, weakening the currency by 11%.)

Instead, the government could try to lower the parallel rate by issuing dollar-denominated debt, by creating a second, separate exchange rate for “necessary” industries, or by doing both those things.

Traditionally, the government chooses to subsidize certain favorite industries – mainly heavy machinery, foodstuffs and medicines – by allowing them to trade bolivars at the official rate and driving other non-essential goods producers to the parallel market.

This could be taken a step further by imposing a tax on lower priority industries seeking dollars at the official exchange rate, Russ Dallen, head trader at Caracas Capital Markets, said in a research note. Or the government could simply create multiple “official” rates for different industries. Venezuela may create four different exchange rates to help the government deal with a drop in oil revenue.

“This complicated system, if implemented, would satisfy the requirements of the government of pretending not to have a formal devaluation of the exchange rate,” Dallen said.

Credit Suisse Group AG (NYSE ADR: CS) said in an Aug. 28 report that it expects the government to avoid devaluating its currency by selling dollar-denominated debt to the parallel market. In 2008, after an aggressive sale of dollar-denominated bonds, the administration was able to bring down the parallel rate to around 3 bolivars.

Ultimately, it’s Chavez – who opened the door to speculation in August by saying he would “restore balance” to the parallel rate – who will decide what to do about his country’s quandary. But he won’t be making a decision until later this month.

“Is there going to be an adjustment? I can’t respond to that right now,” Chavez said Sunday at the presidential palace in Caracas. “If any adjustment comes, it will be in September, towards the end of the month.”

But whatever Chavez decides to do, his remedy is likely to fall short, analysts say. That’s because the parallel rate is not the problem – it’s actually a symptom of flawed economic principles. The restrictive price-and-exchange-rate controls, government expansion, and political obtuseness that Chavez has made the cornerstones of his economic policy will continue to conspire against Venezuela until there is reform.

We always said the situation was only tenable for the government if oil prices not only remained high, but also rose constantly. But that has not happened, and the fall in oil income is now clearly in evidence,” UCAB’s Ochoa told Inter Press Service News Agency. “That’s the first factor contributing to stagflation, to which are added price and exchange controls and restrictions on hard currency availability, which harm supply and investment, and thirdly, the policy of nationalization.”

Venezuela’s Crude Oil Slick

In the years leading up to the financial crisis, Chavez used PDVSA’s growing revenue to finance large social programs, as well as the nationalization of other industries.

Spending on social programs soared 340% from 2000-2005, according to the Center for Economic and Policy Research. It rose even higher as oil prices soared into 2008, boosting purchase orders and fueling a spending spree among even the poorest Venezuelans.

But since the financial crisis eviscerated commodities prices, Venezuela’s oil bounty has all but evaporated. Oil brought in $22.8 billion in the first six months of 2009. That’s less than half of the $52 billion it brought in during the first half of last year. For 2008 as a whole, oil generated about $90 billion in revenue for Venezuela.

Meanwhile, FONDEN – Venezuela’s development fund – has already committed all but $3 billion of the nearly $20 billion it had available at the end of January, as the government used most of the money in the first half of the year to sustain fiscal spending.

And while Venezuelan oil traded at an average of $53 a barrel in the second quarter, up from $40 a barrel in the first three months of 2009, that’s still a far cry from last year’s levels.

That means borrowing has had to rise to compensate for the decline in revenue. Venezuela’s domestic debt jumped 44% during the first half of the year to $20.42 billion from $14 billion at the end of 2008.

“Public spending keeps rising and is financed by more public debt, which increases spending in a vicious circle, while the government defers or postpones workers’ demands, which is itself another sign of the approaching recession, although the government seeks to deny it,” economist Domingo Maza Zavala, a former head of the Central Bank told the IPS.

Calculations based on official figures suggest domestic and foreign debt repayments will total about $19.6 billion between the second half of this year and 2011, the Latin American Herald Tribune reported. Roughly $10 billion of that total will be due on foreign debt, with the remaining $9.6 billion destined for the domestic account. Total state debt is estimated at $50.3 billion.

What’s the government figures don’t include is the cost of compensating private companies that have been taken over or bought out under Chavez’s nationalizations and expropriations.

Chavez’s government earlier this year seized the assets of more than 70 foreign and domestic oil service companies after conflict erupted over nearly $14 billion in debt owed by PDVSA.

PDVSA demanded that service companies accept a 40% cut in their bills; when they refused, the Venezuelan government seized at least 12 drilling rigs, more than 30 oil terminals, and about 300 boats.

The demonstration was a pointed reminder of a 2007 incident, which is still playing out in the international courts. Two years ago, Venezuela forced six oil majors to hand over equity stakes of 60% or more to PDVSA. However, Exxon Mobil Corp. (NYSE: XOM) and Conoco Phillips (NYSE: COP) opted to walk away from their contracts rather than accept a minority role.

This conflict is still being disputed, and last year Exxon won a court order to freeze $12 billion in assets from PDVSA as compensation for its lost projects. Additionally, Chavez’s heavy-handed policy has cost the country untold billions worth of oil-related investments, as many oil majors now refuse to operate there

There is the uncertain outlook over how the extensive nationalization pursued over the past 12 years will pan out,” Alvise Marino, an analyst at Ideaglobal, told The Wall Street Journal. “Based on the government’s unimpressive track record on the economic management front, we tend to take a less-than-optimistic view.”

The Colombia Conundrum

In addition to alienating foreign oil majors, Chavez has also sequestered Venezuela from many of its neighbors, especially Colombia. Chavez has ordered his country to prepare for an outright “rupture of relations” with Colombia after that country gave the United States permission to use its military bases.

The United States says access to the bases will help it fight drug trafficking, but Chavez has his own theory. He says American use of the bases could be used as a launch point for an invasion of his oil rich nation.

“Those seven military bases are a declaration of war,” Chavez said last week. “We must prepare for the rupture in relations with Colombia. There is no possibility of a return [to normal relations] with Colombia, an embrace.”

However, cutting off ties with Colombia poses yet another economic hurdle for the Venezuelan economy to overcome. Colombia provided about $6 billion in products to Venezuela in 2008, or about 15% of Venezuela’s total imports, according to Venezuela’s government statistics institute INE.

In fact, when Chavez closed the border for three days in 2006, there was shortage of food in Venezuela. Chavez can turn to other South American countries, but his credit extends only so far.

Nobody wants to sell to Venezuela if payment isn’t made in advance,” José Rozo, president of Fedecámaras Táchira, the region’s main business association, told the Latin American Herald Tribune.

About 70% of trade activity in Venezuela depends on imports from Colombia, Rozo said, adding that the only country that had been willing to export on credit had been Colombia.

Without Colombia, Venezuela will have to settle for trade terms that heavily favor its partners.

For instance, Argentine President Cristina Fernandez de Kirchner made a visit to Venezuela last month, and signed no less than 22 accords. Virtually all of the deals were in Argentine’s favor, the Tribune reported.

We’re going to drive a horse and cart through all the regulations if they want to do business with us,” an Argentine official told the paper prior to the signing of the deals. “Prompt payment. Simple procedures. Fewer controls. Less bureaucracy. No delays. Hard currency. I’ll tell you the rest when I’ve thought of them.”

That means if Venezuela wants to keep doing business with Argentina, it’s going to have to pay more.

And that will fuel inflation.

The cost of purchasing in Argentina is higher, and that means that prices will be higher in Venezuela,” Abelardo Daza, an economics professor at Caracas-based IESA business school, told The Journal.

——————————–

The $300 Trillion “Money Bang” Keith Fitz-Gerald and his team have just produced a groundbreaking report that shows how this historic “Money Bang” is gaining steam. You’ll find out why China is investing $200 billion in one company – and why it’s expected to gain 356%… Why the Dept. of Energy is “backing” one solar company – and why it’s 506% revenue jump is a “smidgen”… And why one recently IPO’d water company is headed for a 600% run. Just go here for details.

September 2, 2009 Posted by | Hugo Chavez, Money Morning, Venezuela | 7 Comments

China Tightens Grip on Africa’s Energy Resources with Stake in Offshore Field

Today a topical post the latest from Money Morning, which as I previously explained will be featured here whenever they have relevant material to offer. As always, normal caveats apply: I am not an investment advisor. I don’t endorse any specific stocks mentioned in the following story nor the ad at the end of the story.

————————–
China Tightens Grip on Africa’s Energy Resources with Stake in Offshore Field

By Jason Simpkins Managing EditorMoney Morning

CNOOC Ltd. (NYSE ADR: CEO) and Sinopec Corp. (NYSE ADR: SHI) have agreed to buy a 20% stake in an oil field off the shore of Angola for $1.3 billion, illustrating China’s persistent attempts to acquire resources for its economic expansion at a time of weakness for many Western oil majors.

CNOOC and Sinopec will form a 50-50 joint venture to buy the stake in the so-called Angola Block 32, which has 12 previously announced discoveries. The Chinese energy giants purchased the stake from U.S.-based Marathon Oil Corp. (NYSE: MRO), but the sale is still subject to government and regulatory approval.

Marathon’s existing partners in the block – France’s Total SA (NYSE ADR: TOT), Portugal’s Galp Energia SGPS SA, Exxon Mobil Corp. (NYSE: XOM), and Sonangal, Angola’s state-owned oil company – have a right of first refusal. Marathon will keep a 10% interest in the block.

The oil field “is a significant resource base with estimated recoverable light crude oil reserves of 1.5 billion barrels,” Goldman Sachs Group Inc. (NYSE: GS) analysts wrote in a report, according to MarketWatch. “The $1.3 billion consideration compares with our valuation of $1.4 billion to $1.65 billion and Marathon’s publicly disclosed offer of $1.8 billion to $2 billion.”

The acquisition will build on CNOOC’s “growing deepwater exposure” and values the recoverable reserves at $4.30 a barrel, the analysts said.

The acquisition will also build on two of Beijing’s broader objectives: Securing long-term energy resources and expanding its presence in underdeveloped, and riskier, countries in Africa and the Middle East.

Since last fall, China has been using the Western world’s financial crisis as an opportunity to stock up on commodities while prices are low.

Sinopec recently paid $7.22 billion to acquire the Addax Petroleum Corp., a Canada-based energy company with operations in West Africa and Iraq. Meanwhile, Sinopec’s rival, China National Petroleum Corp. (CNPC), made its own foray into Iraq, winning the first contract in more than 30 years to develop the Rumaila oil field.

China’s involvement in Africa has an even richer history. In 2006, Beijing hosted the China-Africa Cooperation Forum – an event attended by more than 40 African heads of state. At the forum, China unveiled $9 billion in preferential loans, export credits, and trade incentives – all part of a strategic plan to achieve a preferential status with key African nations.The meeting was more than a mere publicity stunt to play up Beijing’s humanitarian efforts. It was a symbolic acknowledgment of growing cooperation between the regions.China has invested tens of billions of dollars directly into African-infrastructure and social-development projects, all in an effort to tighten its grip on the continent’s resources. Some examples:

  • In Freetown, the capital of Sierra Leone, office blocks, military headquarters and a refurbished stadium are all the work of planners from Beijing.
  • In Uganda, the new State House was built with Chinese money.
  • In the city of Rwanda, Chinese companies built 80% of all new roads.
  • And in Nigeria, China’s Civil Engineering Construction Corp. is building an $8.3 billion railroad linking Lagos and Kano.
  • And Money Morning Investment Director Keith Fitz-Gerald says this is only the beginning.
    “It’s a virtual certainty that China will maintain this policy going forward,” Fitz-Gerald said. “My contacts in China and Africa have told me point blank that China’s leaders ‘don’t care about human rights or nukes or hostile governments.’ What matters is anyone who provides oil to China no matter what the rest of the world thinks.”

    [Editor’s Note: In a market as uncertain as the one investors face now, it helps to have a guide. And the ideal guide is The Money Map Report, the monthly investment newsletter that’s a sister publication to Money Morning. In fact, a new offer from Money Morning is a two-way win for investors: Noted commentator Peter D. Schiff’s new book – ” The Little Book of Bull Moves in Bear Markets” – shows investors how to profit no matter which way the market moves, while our monthly newsletter, The Money Map Report, provides ongoing analysis of the global financial markets and some of the best profit plays you’ll find anywhere – including such markets as Taiwan and China. To find out how to get both, Check out our latest offer. ]

    July 22, 2009 Posted by | Africa, China, ExxonMobil, Money Morning, Total, XOM | 31 Comments

    U.S. Ramping Up Wind Power Programs Even As Concerns Surface About Possible Declines In U.S. Wind Strength

    Once again at DFW Airport, about to make my way back to Europe. So I will be offline for just a bit, but wanted to post the latest from Money Morning, which as I recently explained will be featured here whenever they have topical material to offer. As always, normal caveats apply: I am not an investment advisor. I don’t endorse any specific stocks mentioned in the following story nor the ad at the end of the story.

    ——————————
    U.S. Ramping Up Wind Power Programs Even As Concerns Surface About Possible Declines In U.S. Wind Strength

    By William Patalon III – Executive Editor

    Money Morning/The Money Map Report

    Just as the United States is boosting its reliance on wind power, a new academic study set for release in August says that U.S. wind forces may be getting weaker.

    Eugene S. Takle, a professor of atmospheric science at Iowa State University, and the director of the school’s “climate science initiative,” says the research study concluded that U.S. wind strength has potentially declined by 15% to 30% during the past 30 years – an average decline of as much as 1% a year.

    While conducting the study – which will appear in the Journal of Geophysical Research – researchers reviewed wind data taken at airports around the United States, and then based their findings on two sets of figures: One set from 1973-2000, and the other from 1973-2005.

    The study concluded that three factors could be contributing to the declines in U.S. wind strength: Land-use changes, a changing climate and changes in the kind of instruments used to measure the wind, Takle told MarketWatch.com.

    “If there have been trees growing or new buildings constructed near airports, it could impact the speed of winds on airports,” Takle said. However, it is also “[basic] meteorology that the wind is driven by differences in temperature between the poles and the equator, and those differences have been narrowed by climate change.”

    Tough Timing

    The findings come at time when the United States is making a serious push to increase the amount of electricity that’s generated by wind turbines grouped into so-called wind-power “farms.” Attempts to harness the wind are part of a broader national – or even global – commitment to “green” energy sources as a way of reducing dependence on oil and other fossil fuels for power generation.

    Other power sources include solar, geothermal, hydroelectric and nuclear for commercial electricity production, while automakers are looking at new types of batteries and such innovations as power-storing “fuel cells” as alternatives to the conventional internal combustion engines that power most of the world’s cars and trucks.

    The objectives are twofold. By decreasing the U.S. reliance on foreign oil, the country is hedging against the time when global supplies of the “black gold” begin to dry up, an eventuality that will propel the prices of crude and gasoline skyward. Diversifying away from oil and, perhaps, even coal is also a way of reversing – or at least slowing – environmentally ruinous (and politically controversial) global warming.

    President Barack Obama is attempting to use the ongoing financial crisis to create a sense of urgency about America’s energy future, a challenge that no prior administration has yet been able to meet.

    About one-third of President Obama’s $800 billion-plus stimulus package will go to infrastructure, with $30 billion allocated for U.S. roads and highways and another $10 billion earmarked for railways and mass-transit systems.

    President Obama has also proposed spending $150 billion “over the next 10 years to catalyze private efforts to build a clean energy future.” The administration also proposes to increase the amount of electricity that comes from renewable resources from 10% in 2012 to 25% by 2025, Wall Street 24/7 reported in early January.

    Creating the power is only part of the problem. Delivering it will be a challenge, too, especially given the country’s aging power grid. Upgrading that aging equipment is expected to cost more than $880 billion, according to a November 2008 report from the Brattle Group.

    An Energy Boon For Entrepreneur T. Boone?

    In many cases, those federal outlays will serve only as seed capital. It will likely fall to innovators in the U.S. private sector to really energize the alternative-power market.

    One key player is legendary oilman and venture capitalist T. Boone Pickens, who has unveiled a plan to cut U.S. dependence on foreign oil through the power of alternatives such as wind and natural gas, Money Morning reported last July.

    We’re paying $700 billion a year for foreign oil. It’s breaking us as a nation,” Pickens said at the time. Former U.S. President Richard M. Nixon “said in 1970 that we were importing 20% of our oil and that by 1980 it would be 0%. That didn’t happen. It went to 42% in 1991 with the Gulf War. It’s just under 70% now. Where do you think we’re going to be in 10 years when our economy is busted and we’re importing 80% of our oil?”

    Pickens wants to create what he calls a “bridge to the future” that will help cut slash the U.S. reliance on imported foreign oil by focusing on two specific alternatives:

    • Cars that burn natural gas instead of gasoline.
    • And electricity generated by wind power.

    There’s a smooth and elegant logic to his strategy: By constructing electric-generating wind-power farms, the United States can free up natural gas supplies that currently generate 22% of the nation’s electricity. That natural gas can then be used to power cleaner-burning cars and trucks, thereby reducing our dependence on imported oil while also reducing the damage to the environment. This will also buy time for the development of other, even-greener, alternative sources of energy.

    Pickens’ Wind Power Project

    According to Pickens, wind power could eventually fulfill as much as 20% of the United States’ energy needs. Calling the Great Plains region of the United States the “Saudi Arabia of wind,” Pickens last summer launched plans for a $10 billion alternative energy project in the Texas panhandle that has the potential to one day become the world’s largest wind-power farm.

    Picken’s Mesa Power LLP plans to purchase 667 wind turbines from U.S. industrial giant General Electric Co. (NYSE: GE). Each turbine can produce 1.5 megawatts of electricity – enough to provide the ongoing power needs of 360 to 600 U.S. homes, according to Money Morning calculations based on statistics provided by Oregon Power Solutions Inc., a Baker City, OR consulting firm.

    The first phase of the Pickens project, already under construction, will produce 1,000 megawatts of electricity, enough energy to power 300,000 homes. GE will begin delivering the turbines in 2010, and current plans call for the project to start producing power in 2011.

    Ultimately, Mesa Power plans to have enough turbines to produce 4,000 megawatts of energy. Overall, the “Pampa Wind Mill” project is expected to cost $10 billion and be completed in 2014.

    Pickens has launched a “Pickens Plan” Web site, which is urges the country’s “energy army” to lobby Congress for funding and a commitment to green-energy projects.

    Other Players Showing Interest

    An Irish company – its interest in the U.S. alternative energy market piqued by the green-technology money included in the Obama administration’s stimulus package – on Monday acquired three Illinois wind farms located within 100 miles of Chicago, The Chicago Tribune reported.

    Plans call for the Dublin-based Mainstream Renewable Power to invest $1.69 billion over four years to develop the wind farms. The purchase price was not disclosed.

    “The U.S. market is of strategic importance to Mainstream, and the scale of the opportunity is strongly reflected in President Obama’s economic stimulus package, which includes $56 billion in grants and tax breaks for U.S. clean energy projects over the next 10 years and a budget of $15 billion a year to fund renewable energy programs,” Mainstream co-founder and Chief Executive Officer Eddie O’Connor said in a statement. “The administration’s goal of generating 25% of the nation’s electricity from renewable energy sources by 2025 will help revitalize the U.S. economy and protect consumers.”

    The farms have the potential to generate 787 megawatts of electricity by 2013, The Tribune said. The most advanced is the 120-megawatt Shady Oaks project in Lee County. When finished next year, it should be able to generate enough electricity to power about 30,000 homes, Mainstream said.

    The other two wind-power farms are the 467-megawatt Green River project, also in Lee County, and a 200-megawatt project set for Boone County. Construction on the Green River project will begin next year, while the Boone County project is still in is development stages.

    This is Mainstream’s second North American deal in three months; it earlier announced a Canadian wind farm project. It has also announced plans to build a wind farm in Chile.

    Founded a year ago, Mainstream was created to build and operate wind-energy, solar-thermal and ocean-current power plants in partnerships with government agencies, electric utilities, developers and investors in North and South America, Europe, and South Africa. Barclays Capital (NYSE ADR: BCS) has a 14.6% stake in Mainstream.

    Going Global

    As Mainstream’s proposed forays into South America, Europe and Africa demonstrate, the push to harness the wind isn’t limited to the United States.
    As of the end of last year, worldwide wind-powered generators were capable of generating 121.2 gigawatts (GW) of electricity. Wind power produces about 1.5% of the world’s electricity and its use is surging: The amount of electricity generated by wind power doubled between 2005 and 2008 alone.

    Several countries have already embraced wind power in a major way: As of last year, it accounted for 19% of electricity production in Denmark, 11% in both Spain and Portugal and an estimated 7% in both Germany and Ireland. As of this May, 80 nations around the world were using wind power on a commercial basis.

    Not surprisingly, China is making a big push to commercialize wind power and by last year was already the world’s sixth-largest user of wind-generated electricity. The country’s largest manufacturer of wind turbines – Xinjiang Goldwind Science & Technology Co. Ltd. – went public last year, raising nearly $250 million. It has about 33% of China’s wind-power-equipment market, according to KGI Securities Co. Ltd., a Taiwan investment-banking and brokerage firm.

    “As China’s wind power sector takes off, we think Goldwind is well positioned to become a major beneficiary, thanks to its strong brand and first mover advantage,” KGI wrote in a research report.

    Not a Complete Answer

    Although wind power has substantial promise, it’s not an infallible energy solution, and has some serious limitations – as the U.S. wind-power study shows. For one thing, although an estimated 72 terawatts of wind power on Earth can be potentially commercially viable – an amount that’s six times the estimated 15 terawatts of total power usage on earth – not all the wind energy flowing past any given point can be recovered.

    Accoridng to a science axiom known as Betz’s Law – named for the German physicist, Albert Betz, who discovered the rule in 1919 – no turbine can capture more than 59.3% of the potential energy in wind.

    And there are other challenges, some of which are caused by the natural lay of the land in a given location. In the United States, for instance, where there are now concerns about diminishing wind strength, some coastal areas may retain wind strength because of the greater temperature differences between the land and the ocean.

    Given the growing importance of wind power, more study will be required.

    Concludes the study: “Given the importance of the wind-energy industry to meeting federal and state mandates for increased use of renewable energy supplies and the impact of changing wind regimes on a variety of other industries and physical processes, further research on wind climate variability and evolution is required.”

    [Editor’s Note: Is it a new bull market, or just a bear-market rally that’s going to separate investors from the last of their cash? For the shrewdest investors, it may not matter. A new offerfrom Money Morning is a two-way win for investors: Noted commentator Peter D. Schiff’s new book – “The Little Book of Bull Moves in Bear Markets” – shows investors how to profit no matter which way the market moves, while our monthly newsletter, The Money Map Report, provides ongoing analysis of the global financial markets and some of the best profit plays you’ll find anywhere – including such markets as Taiwan and China. To find out how to get both, check out our latest offer. ]

    June 22, 2009 Posted by | guest post, investing, Money Morning, T. Boone Pickens, wind power | 25 Comments

    Is the Dark Cloud Over Solar Energy Beginning to Break?

    Sitting in DFW Airport, about to make my way back to Europe. I will be offline for a day or so. This seems like a good time for the latest from Money Morning, which as I explained last week will be featured here once a week or so. As always, normal caveats apply: I am not an investment advisor. I don’t endorse any specific stocks mentioned in the following story nor the ad at the end of the story. Personally, I have looked into investing in solar a couple of times, but the stocks always seem extremely pricey. But then that’s also why I never invested in Google. 🙂

    ————————————–
    Is the Dark Cloud Over Solar Energy Beginning to Break?

    By Jason Simpkins
    Managing Editor
    Money Morning

    By sucking the air out of energy prices and sapping private investment, the financial crisis submarined solar energy last fall. But a silver lining has emerged around the dark cloud that has blanketed the sector for so long.

    Oil prices have recovered, climbing over $60 a barrel, the recent stock market rally has lured many investors back off the sidelines, and President Barack Obama’s clean energy agenda has breathed some life back into the browbeaten sector.

    Now, solar energy stocks – some that lost more than two-thirds of their value last year – have come roaring back.

    After topping $300 a share last spring, shares of First Solar Inc. (Nasdaq: FSLR) plummeted to just $85.28 a share in November. But since then the company has bounced back, soaring 125% to Friday’s close of $191.72 a share. Shares of Trina Solar Ltd. (NYSE: TSL) hit $52 last summer before bottoming out at $5.61 in November. That stock is up more than 260% since Nov. 21.

    Global economic growth is far from guaranteed at this early stage, but there’s good reason to believe that when a recovery does get underway, solar stocks will be shooting for the moon.

    California’s Gold Standard

    While many other solar energy companies have collapsed under the weight of the economic downturn, a small upstart out of California has managed to greatly expand its business.

    That company is BrightSource Energy, which last week agreed to what the company’s Chief Executive Officer, John Woolard, called the “the largest solar deal in the world.”

    Pacific Gas and Electric Co. agreed to purchase 1,310 megawatts (MW) of solar thermal power from BrightSource Energy for a sum that analysts’ believe tops $3 billion.

    BrightSource had already agreed to transmit 900 MW of solar power to PG&E in a deal that analysts valued at $2 billion to $3 billion. The terms of the new deal, which expands upon the original 900MW agreement, will build on top of that figure.

    BrightSource plans to build seven solar power plants in the Mojave desert of California that will use mirrors to direct sunlight onto a group of centralized water towers to create steam that will, in turn, power turbines. PG&E estimates that the amount of energy produced by the plants will be sufficient enough to power 530,000 homes.

    Earlier this year, BrightSource signed a similar 1,300 MW agreement with Southern California Edison Co. – an indication that, despite economic hardship, the solar energy business is still hot.

    But a lot of BrightSource’s recent activity has to do with California’s newly adopted state energy policy. In 2006, California passed a law that required electrical utilities to get 20% of their power from renewable sources by 2010.

    However, on November 17, 2008, California Gov. Arnold Schwarzenegger took the state’s green energy mandate further by signing Executive Order S-14-08, which requires that utilities generate 33% of their power through renewable sources by 2020.

    Indeed, the state of California has led the country in adopting renewable sources of energy, particularly solar.

    Renewable energy accounts for 13.5% of the state’s energy consumption, and for the past three years, the California Energy Commission has been managing $400 million targeted for solar on new residential building construction. That includes an ambitious “Million Solar Roof” initiative that will create 3,000 megawatts of installed photovoltaic capacity by 2018.

    But California is more than an energy pioneer. It’s an early indication of where U.S. energy policy is headed.

    If President Barack Obama’s administration has its way, mandates similar to those issued in California will be employed across the country over the next 10 years. In fact, they already are.

    Solar Shift

    Obama announced Tuesday that he is making California’s standard for vehicle fuel efficiency and greenhouse gas emissions the new national standard.

    Under Obama’s new proposals, vehicles would be 30% cleaner and more fuel efficient by 2016. And that’s just the beginning.

    The President’s budget incorporated $646 billion in revenue from capping global-warming pollution, while allocating $150 billion to renewable energy investment over the next 10 years, making his green-funding initiative the largest such effort in U.S. history.

    Among other things, Obama’s recent stimulus package provides a tax credit of up to 30% for home solar installations.

    The Obama administration also advocates a policy that would require 25% of U.S. electricity demand be met by renewable energy by 2025. The President has the support of the Democrat-led Congress. U.S. Sen. Jeff Bingaman, (D – N.M.), Chair of the Senate Energy and Natural Resources Committee, is working on legislation that aims to make 20% of U.S. energy demand renewable by 2021.

    While a renewable energy policy was largely neglected by the administration of George W. Bush, Obama’s effort can hardly be described as partisan. It is more representative of a shift in political ideology that arose when gas prices soared above $4 per gallon last summer.

    A recent Gallup Poll showed that the majority of Americans support higher fuel efficiency standards such as those Obama announced Tuesday. In March, 80% of Americans said they favored higher fuel efficiency standards for automobiles.

    Currently, just 28 states have renewable energy goals, but with the Obama administration’s effort and a shift in public opinion, it won’t be long before all 50 are enacting their alternative energy mandates.

    According to a study by Allianz Global Investors, 78% of investors think green technology could be the “next great American industry,” and 97% of investors believe the development of alternative fuel sources will remain important even if oil prices remain relatively low.

    And statistics bear that out. Venture capitalists invested $4.1 billion in alternative energy projects in 2008 – a 54% increase from the year prior, according to a report by PricewaterhousCoopers. What’s more, 45% of that money went to solar projects, compared to 23% in 2007.

    “Alternative energy’s rise isn’t going to be smooth, but it’s going to be one of the great new growth industries,” Steven Berexa, managing director of research for RCM Informed, an Allianz subsidiary, told Kiplinger’s Personal Finance magazine.

    A Global Industry

    In addition to the United States, solar energy is gaining traction around the world.

    After subsidizing 2,400 MW of solar projects last year, the Spanish government will subsidize an additional 500 MW this year. Japan aims to create more than 100,000 new jobs in its solar industry as part of an effort to jumpstart its flailing economy. Proposals for solar energy plants are also being considered in the Middle East and northern Africa.

    Even BrightSource’s Woolard has attributed some of his company’s success to its overseas operations.

    PG&E looked hard at what we’d done,” Woolard told The San Francisco Chronicle. “They looked at the results from our plant in Israel, and that built a lot of confidence that we were meeting milestones and delivering.”

    Most recently, Australia announced plans to build a solar power station that will rival BrightSource’s Southern California operation. The network is expected to produce about 1,000 MW of energy, but won’t be operational until at least 2015.

    We don’t want to be clean energy followers worldwide, we want to be clean energy leaders worldwide,” Prime Minister Kevin Rudd told the Financial Times.

    The Australian government hopes renewable energy will account for 20% of the country’s power grid by 2020. Rudd said the government intends to spend about $1 billion (A$1.4 billion) of the $3.6 billion (A$4.7 billion) it has pledged to clean energy initiatives over the next decade.

    Like in the United States, the Australian government hopes its alternative energy initiative will be a catalyst for private investment. John Connor, head of the Sydney-based Climate Institute, told the FT that Australia’s clean energy plan will drive an estimated $15.5 billion (A$20 billion) in private investment.

    Another country with an ambitious solar agenda is China. A country with notoriously high greenhouse gas emissions, China installed about 50MW of solar capacity last year, more than double the 20 MW in 2007, Renewable Energy World reported.

    Beijing plans to expand the installed capacity to 1,800 MW by 2020, as the demand for new solar modules in China could be as high as 232 MW each year from now until 2012.

    China is also a good place to find promising solar companies. LDK Solar Co. Ltd. (NYSE ADR: LDK), Yingli Green Energy Holding Co. Ltd. (NYSE ADR:YGE), and JA Solar Holdings Co. Ltd. (NYSE ADR: JASO) have all been beaten down by the market, but could post a strong rebound when China’s solar initiative takes full flight.

    Many analysts also like the aforementioned First Solar and Trina Solar Ltd., which stand a better shot of withstanding the recession because of their size and experience.

    [Editor’s Note: This story is sponsored by Money Morning Investment Director Keith Fitz-Gerald, who is the editor of the new Geiger Index trading service. As the whipsaw trading patterns investors have endured this year have shown, the ongoing global financial crisis has changed the investment game forever. Uncertainty is now the norm and that new reality alone has created a whole set of new rules that will help determine who profits and who loses. Investors who ignore this “New Reality” will struggle, and will find their financial forays to be frustrating and unrewarding. But investors who embrace this change will not only survive – they will thrive. With the Geiger Index, Fitz-Gerald has already isolated these new rules and has unlocked the key to what he refers to as “Golden Age of Wealth Creation” The Geiger Index system allows Fitz-Gerald to predict the price movements of broad indexes, or of individual stocks, with a high degree of certainty. And it’s particularly well suited to the kind of market we’re all facing right now. Check out our latest report on these new rules, and on this new market environment.]

    May 27, 2009 Posted by | guest post, investing, Money Morning, solar power | 17 Comments

    With Oil Prices Poised to Jump as Much as 70%, Every Investor Needs an Energy Strategy

    [RR note: This blog occasionally posts guest posts, and energy investing is a topic that is visited on a fairly regular basis. The website Money Morning recently noticed that I had linked to one of their articles, and asked if I would be interested in publishing some of their original energy-related content. Because their energy posts are generally consistent with the theme of this blog – and because I often find myself with little time to post – I will be posting some of their original content here. This doesn’t imply that I endorse everything in the story, but then again that was never the case previously with guest posts. These posts are designed to educate and promote discussion, and I will participate in the comments following these posts.]

    With Oil Prices Poised to Jump as Much as 70%, Every Investor Needs an Energy Strategy

    By Keith Fitz-Gerald
    Investment Director
    Money Morning/The Money Map Report

    The U.S. news media has convinced many investors that oil consumption is falling because of the global recession. While that may be true, it’s a disservice to millions of investors because production is declining at a pace that’s actually three times faster.

    And that suggests higher oil and gasoline prices in coming months – perhaps as much as 50% – 70% higher, or more – particularly if a U.S. economic recovery is truly in the offing.

    To really see what I’m talking about, let’s start with a close look at consumption. I’m asked about this frequently in my global wanderings, most recently at the Las Vegas Money Show last week.

    For months we’ve been hearing about a drop in global demand. It’s a popular story and one that sounds credible: After all, it seems logical to assume that during economic chaos, consumers and businesses alike will rethink their budgets and ratchet back their spending.

    For consumers, the continued economic malaise will mean fewer trips to the store, less-ambitious vacations, and car-pooling to school or work . For businesses, the cutbacks by consumers will clearly translate into canceling trips where conference calls will suffice and using lower-cost shipping alternatives for the decreased sales volumes most U.S. companies will experience.

    According to the U.S. Energy Information Administration, oil consumption fell by nearly 50,000 barrels a day throughout 2008. According to the latest figures, the EIA suggests that global oil demand may slump to 83.4 million barrels a day in 2009 – nearly 2.4 million barrels below 2008 consumption levels. On a percentage basis, that’s almost a 3% drop. I have my doubts that we’ll actually see a decline of this magnitude, but if it does occur, it will be the first time ever that consumption has declined for two straight years. That alone is pretty noteworthy in this era of cohesive and powerful global growth.

    The reason I have my doubts about such a steep decline in demand is this: While overall consumption is dropping in such developed economies as the United States, Europe and Australia, it’s being at least partially offset by continued growth in China, the Middle East and Latin America. Because the data produced there is less than transparent, I can’t help but think that analysts are underestimating the growth we’ll be seeing in those markets, where consumption is accelerating strongly. And it’s entirely possible that growth in those markets will outstrip any fall here in the developed world.

    Even if the growth in the emerging markets doesn’t quite offset the decline in their developed brethren, analysts seem to be forgetting that oil prices are a function of two variables – consumption and production. And it’s the change in production that’s going to catch a lot of people by surprise.

    After a run of record high oil prices punctuated by frantic resources development, we’re now seeing the opposite scenario. The long period of lower than anticipated oil prices following oil’s meteoric rise last year means that the entire industry is no longer making the investments needed to sustain production capacity or actual production.

    And not many folks recognize this fact.

    For instance, direct project investment in drilling may be down as much as 20%, while the number of drill rigs in operation in America alone has dropped by more than 40%. Various estimates from the EIA and private sources suggest that actual U.S. production may fall by as much as 320,000 barrels a day. While the amount is a matter of debate, the fact that production is declining is not.

    More than 20% of total U.S. oil production comes from tiny wells located in remote areas that were marginally profitable producers when crude oil was trading at $100 a barrel. With oil currently at about $61 a barrel, those producers are practically worthless now. So the “mom-and-pop” shops that own them are actually abandoning entire fields and equipment without a moment’s thought.

    To be fair, at least part of the drop in demand can be attributed to increased reliance on methanol, ethanol and other types of biofuel, but that’s hard to quantify at the moment because the long period of low oil prices has eroded the economic viability of alternative fuels – at least for now.

    The story is much the same with new exploration projects being cancelled left, right and center. The trend is particularly apparent in the Canadian oil sands that were everybody’s fancy only 24 months ago. Now we’re seeing Royal Dutch Shell PLC (NYSE ADR: RDS.A, RDS.B), StatoilHydro ASA (NYSE ADR: STO) and Petro-Canada USA (NYSE: PCZ) each backing away from multi-million dollar investments that were to bring online an estimated 500,000 barrels a day.

    Russian, Saudi and Mexican producers are reporting the biggest production drops seen in 50 years. Even Venezuelan leader President Hugo Chavez – the perennial motor mouth and longtime U.S. critic – is eating crow. He’s begrudgingly invited (read that to mean “is begging”) the oil companies whose assets he nationalized only a year ago to “come back” into the market.

    He has no choice. Venezuela’s oil production is already below its 1997 levels, and many analysts say that output could fall even more since Chavez has done such a thorough job of alienating the big foreign oil companies that actually possess the technology needed to extract crude oil from that country’s hard-to-reach reserves.

    Chavez’s Chavez’s government seized the assets of 60 foreign and domestic oil service companies after conflict erupted over nearly $14 billion in debt owed by the country’s state-owned energy company, Petroleos de Venezuela (PDVSA). PDVSA accumulated the debt as oil prices took a dramatic slide from over $147 a barrel last July to less than $35 a barrel in February.

    Then there’s simple shrinkage. This is an oil industry term for declining output. The EIA recently released data suggesting that production at more than 800 oil fields around the world is going to decline by about 9.1%. It doesn’t matter whether the decline is prompted by depletion, war, or simple neglect. The fact is that this shrinkage will take an estimated 7.6 million barrels per day out of the system.

    I could go on but I think you get the picture.

    Now imagine what could happen to oil-and-gasoline prices when normalized demand resumes. Not only will there be less oil in storage, but virtually the entire industry – exploration, production, refining and sales – is going to be caught sitting on its heels when the world needs it to be zooming along in high gear. And that means the companies that make up this industry will have to ramp up again to meet the newly increased consumption demands.

    This whole process could take two years – or even longer – to play out.

    As for prices, history is replete with examples of what happens when there are major shortages of key commodities.

    In the Energy Crisis of 1973-74, for example, I can still remember the numbingly long gas lines and waiting in the car for hours to get a fill-up. My father and grandfather vividly remember that prices quadrupled in a matter of months. I’m sure you do, too.

    Only a few years later, in 1979, we got another oil shock when prices quadrupled again. Because it was coupled with stagnant economic growth and virulent inflation (stagflation), this period was an economic disaster for the United States.

    For those who had learned from the earlier crisis, however, it was a mondo- profit opportunity.

    The same can be said for 2007-2008, when the huge spike in oil prices that I predicted contributed to the bear market in stocks, tight credit and recessionary conditions that led to the current malaise that continues to grip the U.S. economy. As much as anything else, high oil prices contributed to the carnage we’ve seen in the auto-making and airline industries, and to the financial crisis that started here before spanning the globe.
    Which brings us full circle.

    Many investors will refuse to believe we’ve arrived at this new energy nexus, especially given all the hype we’ve seen surrounding alternative fuels, hybrid vehicles and the new “green” mentality that’s taken hold here in this country. If you listen to some of the real believers, they’ll tell you that we could be living in a petroleum-free Nirvana – as early as tomorrow.

    While I personally would like that, too, it’s a misleading argument if for no other reason than there are millions of consumer items we use – from plastic bags to makeup – still created using petroleum. And there are still more than 60,000 manufacturing processes that depend on petroleum, and even the most aggressive estimates suggest that it will take the world decades to shift away from them.

    We’re in much the same situation when it comes to hybrid vehicles. There isn’t a mass-produced electric vehicle available today that could offset the coming rise in recovery-driven demand for oil and gasoline. There’s a strong effort underway, but I’m not aware of a single company ready to field the solution in cost-affordable quantities by 2010 – which is when most analysts say a recovering economy will stoke demand for oil.

    Of course, U.S. President Barack Obama’s much-lauded efficiency and greenhouse-gas-standards mandate will help significantly, but that’s like bolting the barn door after the horses have run for the fields. The irony of watching auto executives “applaud” his press conference was almost too much to watch with a straight face. But that’s a story for another time.

    The bottom line is this: Our society will be highly dependent on oil for many years to come and investors should plan accordingly.

    If governments around the world really want to get serious, they could collectively work to eliminate the fuel subsidies that are part of the price paid for gasoline in Asia or sugarcane ethanol in Brazil. We could also stop our own energy pork barreling. But given the complete lack of transparency that surrounds this issue – not to mention the influence wielded by vested industry interests, and the scores of well-paid lobbyists that patrol the halls of power in our nation’s capital – I don’t think we’ll see any big changes anytime soon.

    So I’m left with one inescapable conclusion, at least in the intermediate term. Every investor needs to have at least some sort of energy strategy – preferably one that includes a range of drillers, producers and suppliers to cover the spectrum from wellhead to consumer.

    That way, we can profit from an increase in energy prices that we can only hope rise fast enough to jump-start the oil industry’s production arm but not so fast that it snuffs out the badly needed economic recovery.

    [Editor’s Note: Money Morning Investment Director Keith Fitz-Gerald is the editor of the new Geiger Index trading service. As the whipsaw trading patterns investors have endured this year have shown, the ongoing global financial crisis has changed the investment game forever. Uncertainty is now the norm and that new reality alone has created a whole set of new rules that will help determine who profits and who loses. Investors who ignore this “New Reality” will struggle, and will find their financial forays to be frustrating and unrewarding. But investors who embrace this change will not only survive – they will thrive. With the Geiger Index, Fitz-Gerald has already isolated these new rules and has unlocked the key to what he refers to as “Golden Age of Wealth Creation” The Geiger Index system allows Fitz-Gerald to predict the price movements of broad indexes, or of individual stocks, with a high degree of certainty. And it’s particularly well suited to the kind of market we’re all facing right now. Check out our latest report on these new rules, and on this new market environment.]

    May 22, 2009 Posted by | guest post, investing, Money Morning | 31 Comments

    With Oil Prices Poised to Jump as Much as 70%, Every Investor Needs an Energy Strategy

    [RR note: This blog occasionally posts guest posts, and energy investing is a topic that is visited on a fairly regular basis. The website Money Morning recently noticed that I had linked to one of their articles, and asked if I would be interested in publishing some of their original energy-related content. Because their energy posts are generally consistent with the theme of this blog – and because I often find myself with little time to post – I will be posting some of their original content here. This doesn’t imply that I endorse everything in the story, but then again that was never the case previously with guest posts. These posts are designed to educate and promote discussion, and I will participate in the comments following these posts.]

    With Oil Prices Poised to Jump as Much as 70%, Every Investor Needs an Energy Strategy

    By Keith Fitz-Gerald
    Investment Director
    Money Morning/The Money Map Report

    The U.S. news media has convinced many investors that oil consumption is falling because of the global recession. While that may be true, it’s a disservice to millions of investors because production is declining at a pace that’s actually three times faster.

    And that suggests higher oil and gasoline prices in coming months – perhaps as much as 50% – 70% higher, or more – particularly if a U.S. economic recovery is truly in the offing.

    To really see what I’m talking about, let’s start with a close look at consumption. I’m asked about this frequently in my global wanderings, most recently at the Las Vegas Money Show last week.

    For months we’ve been hearing about a drop in global demand. It’s a popular story and one that sounds credible: After all, it seems logical to assume that during economic chaos, consumers and businesses alike will rethink their budgets and ratchet back their spending.

    For consumers, the continued economic malaise will mean fewer trips to the store, less-ambitious vacations, and car-pooling to school or work . For businesses, the cutbacks by consumers will clearly translate into canceling trips where conference calls will suffice and using lower-cost shipping alternatives for the decreased sales volumes most U.S. companies will experience.

    According to the U.S. Energy Information Administration, oil consumption fell by nearly 50,000 barrels a day throughout 2008. According to the latest figures, the EIA suggests that global oil demand may slump to 83.4 million barrels a day in 2009 – nearly 2.4 million barrels below 2008 consumption levels. On a percentage basis, that’s almost a 3% drop. I have my doubts that we’ll actually see a decline of this magnitude, but if it does occur, it will be the first time ever that consumption has declined for two straight years. That alone is pretty noteworthy in this era of cohesive and powerful global growth.

    The reason I have my doubts about such a steep decline in demand is this: While overall consumption is dropping in such developed economies as the United States, Europe and Australia, it’s being at least partially offset by continued growth in China, the Middle East and Latin America. Because the data produced there is less than transparent, I can’t help but think that analysts are underestimating the growth we’ll be seeing in those markets, where consumption is accelerating strongly. And it’s entirely possible that growth in those markets will outstrip any fall here in the developed world.

    Even if the growth in the emerging markets doesn’t quite offset the decline in their developed brethren, analysts seem to be forgetting that oil prices are a function of two variables – consumption and production. And it’s the change in production that’s going to catch a lot of people by surprise.

    After a run of record high oil prices punctuated by frantic resources development, we’re now seeing the opposite scenario. The long period of lower than anticipated oil prices following oil’s meteoric rise last year means that the entire industry is no longer making the investments needed to sustain production capacity or actual production.

    And not many folks recognize this fact.

    For instance, direct project investment in drilling may be down as much as 20%, while the number of drill rigs in operation in America alone has dropped by more than 40%. Various estimates from the EIA and private sources suggest that actual U.S. production may fall by as much as 320,000 barrels a day. While the amount is a matter of debate, the fact that production is declining is not.

    More than 20% of total U.S. oil production comes from tiny wells located in remote areas that were marginally profitable producers when crude oil was trading at $100 a barrel. With oil currently at about $61 a barrel, those producers are practically worthless now. So the “mom-and-pop” shops that own them are actually abandoning entire fields and equipment without a moment’s thought.

    To be fair, at least part of the drop in demand can be attributed to increased reliance on methanol, ethanol and other types of biofuel, but that’s hard to quantify at the moment because the long period of low oil prices has eroded the economic viability of alternative fuels – at least for now.

    The story is much the same with new exploration projects being cancelled left, right and center. The trend is particularly apparent in the Canadian oil sands that were everybody’s fancy only 24 months ago. Now we’re seeing Royal Dutch Shell PLC (NYSE ADR: RDS.A, RDS.B), StatoilHydro ASA (NYSE ADR: STO) and Petro-Canada USA (NYSE: PCZ) each backing away from multi-million dollar investments that were to bring online an estimated 500,000 barrels a day.

    Russian, Saudi and Mexican producers are reporting the biggest production drops seen in 50 years. Even Venezuelan leader President Hugo Chavez – the perennial motor mouth and longtime U.S. critic – is eating crow. He’s begrudgingly invited (read that to mean “is begging”) the oil companies whose assets he nationalized only a year ago to “come back” into the market.

    He has no choice. Venezuela’s oil production is already below its 1997 levels, and many analysts say that output could fall even more since Chavez has done such a thorough job of alienating the big foreign oil companies that actually possess the technology needed to extract crude oil from that country’s hard-to-reach reserves.

    Chavez’s Chavez’s government seized the assets of 60 foreign and domestic oil service companies after conflict erupted over nearly $14 billion in debt owed by the country’s state-owned energy company, Petroleos de Venezuela (PDVSA). PDVSA accumulated the debt as oil prices took a dramatic slide from over $147 a barrel last July to less than $35 a barrel in February.

    Then there’s simple shrinkage. This is an oil industry term for declining output. The EIA recently released data suggesting that production at more than 800 oil fields around the world is going to decline by about 9.1%. It doesn’t matter whether the decline is prompted by depletion, war, or simple neglect. The fact is that this shrinkage will take an estimated 7.6 million barrels per day out of the system.

    I could go on but I think you get the picture.

    Now imagine what could happen to oil-and-gasoline prices when normalized demand resumes. Not only will there be less oil in storage, but virtually the entire industry – exploration, production, refining and sales – is going to be caught sitting on its heels when the world needs it to be zooming along in high gear. And that means the companies that make up this industry will have to ramp up again to meet the newly increased consumption demands.

    This whole process could take two years – or even longer – to play out.

    As for prices, history is replete with examples of what happens when there are major shortages of key commodities.

    In the Energy Crisis of 1973-74, for example, I can still remember the numbingly long gas lines and waiting in the car for hours to get a fill-up. My father and grandfather vividly remember that prices quadrupled in a matter of months. I’m sure you do, too.

    Only a few years later, in 1979, we got another oil shock when prices quadrupled again. Because it was coupled with stagnant economic growth and virulent inflation (stagflation), this period was an economic disaster for the United States.

    For those who had learned from the earlier crisis, however, it was a mondo- profit opportunity.

    The same can be said for 2007-2008, when the huge spike in oil prices that I predicted contributed to the bear market in stocks, tight credit and recessionary conditions that led to the current malaise that continues to grip the U.S. economy. As much as anything else, high oil prices contributed to the carnage we’ve seen in the auto-making and airline industries, and to the financial crisis that started here before spanning the globe.
    Which brings us full circle.

    Many investors will refuse to believe we’ve arrived at this new energy nexus, especially given all the hype we’ve seen surrounding alternative fuels, hybrid vehicles and the new “green” mentality that’s taken hold here in this country. If you listen to some of the real believers, they’ll tell you that we could be living in a petroleum-free Nirvana – as early as tomorrow.

    While I personally would like that, too, it’s a misleading argument if for no other reason than there are millions of consumer items we use – from plastic bags to makeup – still created using petroleum. And there are still more than 60,000 manufacturing processes that depend on petroleum, and even the most aggressive estimates suggest that it will take the world decades to shift away from them.

    We’re in much the same situation when it comes to hybrid vehicles. There isn’t a mass-produced electric vehicle available today that could offset the coming rise in recovery-driven demand for oil and gasoline. There’s a strong effort underway, but I’m not aware of a single company ready to field the solution in cost-affordable quantities by 2010 – which is when most analysts say a recovering economy will stoke demand for oil.

    Of course, U.S. President Barack Obama’s much-lauded efficiency and greenhouse-gas-standards mandate will help significantly, but that’s like bolting the barn door after the horses have run for the fields. The irony of watching auto executives “applaud” his press conference was almost too much to watch with a straight face. But that’s a story for another time.

    The bottom line is this: Our society will be highly dependent on oil for many years to come and investors should plan accordingly.

    If governments around the world really want to get serious, they could collectively work to eliminate the fuel subsidies that are part of the price paid for gasoline in Asia or sugarcane ethanol in Brazil. We could also stop our own energy pork barreling. But given the complete lack of transparency that surrounds this issue – not to mention the influence wielded by vested industry interests, and the scores of well-paid lobbyists that patrol the halls of power in our nation’s capital – I don’t think we’ll see any big changes anytime soon.

    So I’m left with one inescapable conclusion, at least in the intermediate term. Every investor needs to have at least some sort of energy strategy – preferably one that includes a range of drillers, producers and suppliers to cover the spectrum from wellhead to consumer.

    That way, we can profit from an increase in energy prices that we can only hope rise fast enough to jump-start the oil industry’s production arm but not so fast that it snuffs out the badly needed economic recovery.

    [Editor’s Note: Money Morning Investment Director Keith Fitz-Gerald is the editor of the new Geiger Index trading service. As the whipsaw trading patterns investors have endured this year have shown, the ongoing global financial crisis has changed the investment game forever. Uncertainty is now the norm and that new reality alone has created a whole set of new rules that will help determine who profits and who loses. Investors who ignore this “New Reality” will struggle, and will find their financial forays to be frustrating and unrewarding. But investors who embrace this change will not only survive – they will thrive. With the Geiger Index, Fitz-Gerald has already isolated these new rules and has unlocked the key to what he refers to as “Golden Age of Wealth Creation” The Geiger Index system allows Fitz-Gerald to predict the price movements of broad indexes, or of individual stocks, with a high degree of certainty. And it’s particularly well suited to the kind of market we’re all facing right now. Check out our latest report on these new rules, and on this new market environment.]

    May 22, 2009 Posted by | guest post, investing, Money Morning | 25 Comments