Peak Fossil Energy

Tom Konrad CFA Bargain hunters looking for opportunities in muni bonds should be mindful of peak oil. Meredith Whitney predicts a wave of defaults in municipal (muni) bonds, followed by indiscriminate selling and potential buying opportunities for some.  She's been widely criticized for the prediction of defaults, but I'm a lot more interested in the prediction of the market's reaction.  With tax-free, AAA-rated munis currently yielding more than comparable taxable Treasury bonds, they seem at least a relative bargain already.  I would not call it outright panic, but I'd expect there are be some bargains...

Tom Konrad CFA No alternative fuel or combination of alternative fuels will allow our transportation system to operate the way it does today on oil.  As oil becomes increasingly scarce and expensive, the way we get our transportation needs met will have to change.  Understanding what the future of transportation may look like is key to making good investments in transportation. If the measure of success for alternative fuels is the ability to continue to live in suburbs and commute in multi-ton boxes of metal on congested freeways for hours each day, then alternative fuels will...

Tom Konrad CFA Photo: Robin Lucas, via Wikimedia Commo With friends like these, who needs enemies? The Sierra Club is fighting new Liquified Natural Gas (LNG) export terminals, because they believe LNG exports would reward and encourage producers of shale gas. Fighting shale gas has blinded them to the bigger picture. If LNG exports were to reward shale gas producers, they would have to be significant enough to raise the price of domestic natural gas. Such large exports would also lower...

by Garvin Jabusch Sempra Energy’s leaking gas field in Porter Ranch, CA, near Los Angeles, has been making national headlines recently, as it now enters its third month of being the largest methane leak in U.S. history. How big is that? The LA Times says that, “by early January, state air quality regulators estimate, the leak had released more than 77 million kilograms of methane, the environmental equivalent of putting 1.9 million metric tons of carbon dioxide in the air.” 1.9 million metric tons of carbon dioxide and counting. In addition, methane isn’t only a powerful greenhouse gas, it can...

Tom Konrad CFA There are two types of solutions to the liquid fuels scarcity caused by stagnating (and eventually falling) oil supplies combined with growing demand in emerging economies.  The most obvious is to find a substitute to replace oil.  Supply constraints limit the full replacement of oil by most potential substitutes.  Understanding those constraints leads us to the investment opportunities that arise from these substitutes.  Increasing demand and constrained supply of oil is fueling the search for oil substitutes to use in its place.  Unfortunately, almost all of these potential substitutes also have limited...

Peak What? Eamon Keane The Energy Information Administration (EIA) released its Annual Energy Outlook 2010 (AEO 2010) last week, with projections out to 2035. It makes for interesting reading. Most notable was its take on peak oil, natural gas vehicles and on converting natural gas to liquids (GTL). An otherwise reasonable report was marred by the presumption of oil plenty. Figure 1 shows a graph presented (.pdf) by Glen Sweetnam, director of the EIA's International, Economic and Greenhouse Gas division, in April 2009. Although it mentions the source as being the...

Charles Morand The relationship - or lack thereof - between oil prices and the performance of alt energy stocks has been a long-time interest of mine. I discussed it last in late March when I looked at correlations between the daily returns of alt energy and fossil energy ETFs. At the time, I found that only a weak relationship existed between the two and that if someone wanted to make a thematic investment play on Peak Oil, alt energy ETFs were not an ideal way to do so.  Seeing as the popular press and countless "experts"...

Tom Konrad CFA The last ten years have brought a structural change to the world oil market, with changes in demand increasingly playing a role in maintaining the supply/demand balance.  These changes will come at an increasingly onerous cost to our economy unless we take steps to make our demand for oil more flexible. We're not running out of oil.  There's still plenty of oil still in the ground.  Oil which was previously too expensive to exploit becomes economic with a rising oil price.  To the uncritical observer, it might seem as if there is nothing to...

Jim Hansen That is the question many buyers of shale gas assets should have been asking themselves over the last few months. This week’s news that shale gas high roller Range Resource was selling its Barnett shale properties reinforced our view that there is major trouble brewing in the shale gas business. Upstreamonline reported that “…Range Resources Corporation said it will sell almost all of its Barnett shale properties to a private company for $900 million…” Then of course there is the number one shale gas play cheerleader of them all, Chesapeake Energy. Just last week they...

Green Energy Investing For Experts, Part V Tom Konrad, CFA A global climate deal in Copenhagen would have been bad for coal miners, and coal companies have been rallying as the economy recovers, but it may not be clear skies for the black rock. In the battle to reduce greenhouse gas emissions, coal is enemy number one.  The global disarray in Copenhagen can only be good for coal mining companies, and they duly rallied when the climate talks ended with little to show for it.  Yet carbon emissions are not the only black mark on the coal...

I was tempted by greed, and I succumbed. Last week, I bought the iPath S&P GSCI Crude Oil Total Return Index ETN (OIL), at $19.75 a share.   The Temptation I made the trade as a simple speculation.  I watch oil because the oil price is one of the key drivers of investor interest in alternative energy, although oil is only a true competitor for biofuel companies, not producers of wind turbines (at least until there are a significant number of plug-in electric vehicles.) With crude trading below $40/barrel, oil producers are cutting back on new drilling.  This is...

Green Energy Investing for Experts, Part II Tom Konrad, CFA The next Tequila Crisis will be a peak oil crisis.  Mexico's government is dependant on revenues from declining oil fields.  The prospects for replacing these revenues look slim.  Shorting Mexico Country ETFs looks like a good way to hedge market exposure. In Green Energy Investing For Experts, Part I, I discussed why it makes sense to use companies and sectors that may be hurt by peak oil or climate change as a hedge against the market exposure in a green portfolio.  In Mexico, peak oil is already a reality. ...

By Christopher Mims According to some of the most complete calculations available, when we use natural gas to generate electricity in an average power plant, it results in 40 percent less warming than if we generate the same electricity with coal. If we fully utilized the natural gas-fired power plants that already exist in this country, we could significantly reduce the amount of coal we’re burning practically overnight. What’s more, primarily because of access to new natural gas reserves, proved reserves of natural gas recently shot up to 284 trillion cubic feet – more than we’ve...

John Petersen On August 27th, we'll celebrate the 150th anniversary of Colonel Edwin Drake's completion of the world's first successful oil well near Titusville, Pennsylvania. That discovery and the many that followed planted the seeds of an industrial, economic and cultural revolution that transformed America from an agrarian backwater into a global superpower. For the next 114 years, oil was cheap, plentiful and the solid bedrock of the American Dream. Since the early '70s, however, the dream has gradually become a nightmare as domestic and global oil production began an irreversible decline. My first graph comes...

No peak demand Eamon Keane "So much for peak demand - try 134mb/d by 2030."  That was the startling conclusion dispatched from the ivory tower recently by Joyce Dargay, a British transport econometrics professor, and Dermot Gately, an American economics professor. I'll present their conclusions and then discuss the implications. Their report is available here (pdf). The main conclusion is that the low hanging oil fruit has already been picked after the 1970's oil shocks. From 1978-85 OECD fuel oil consumption dropped by 7mb/d and then from 2003-2008 by another 2mb/d. The...