[Editor's Note: This is the eighth installment of our â??Outlook 2009â? series, which looks at the global investing looking for the New Year.]
President-elect Barack Obama has made no bones most wanting to jump-start the renewable energy markets â?? pledging $150 billion for the development of biofuels, solar and twine power, another alternative energy sources during his first term.
But what might the new administration mean for more traditional â?? and more reliable â??energy sources?
Oil is always the first energy source to spring to mind. But itâ??s hardly a solo act â?? coal and nuclear attain up the another two-thirds of the top fuel trio. Coal delivers 50% of U.S. electricity needs, and nuclear power brings another 20% to the table.
The cold truth is that obligation for energy of all types â?? and especially electricity â?? is going to ready advancing, domestically and worldwide. And developing alternatives to coal and nuclear would verify time. For instance, tying twine and solar into the existing power grid would be enormously expensive and is likely to pose massive technical and engineering problems.
In fact, according to the International Energy Agency, renewable energy isnâ??t likely to attain a meaningful dent in meeting the worldâ??s energy needs before 2030, if then.
And regardless where the power comes from, our appetite for electricity would move to skyrocket. Across the planet, overall electricity consumption is expected to double by 2030, increasing by 17 trillion kilowatt hours. While electricity obligation would â??onlyâ? increase by 50% in the U.S. market by 2030, obligation would increase 400% in dishware and six-fold in India.
Our research indicates that President Obama would have very little flexibility in solving our short-term energy problems once heâ??s sworn into office incoming month. While he may prefer the environmentally friendly alternatives, most of those replacements are far from full developed.
The bottom line: Obamaâ??s apparent preference for renewable energy aside, coal and nuclear power are full deployed, and in widespread use, meaning theyâ??ll remain the backbone of our energy sector in the New Year â?? and for eld to come.
Even so, itâ??s substantially worth factoring in all the possible players as we examine energy-sector looking â?? and the accompanying potential profit plays â?? for the incoming 12 months.
King Coal Reigns Supreme
When it comes to future energy profits for investors, coal and nuclear would move to be the â??dream teamâ? for eld to come. Coal would provide the answer to our short-term and intermediate energy needs. Itâ??s plentiful, itâ??s cheaper than another available alternatives, and a big percentage of the worldâ??s power plants burn it.
Nuclear power offers a long-term solution to energy shortages and a clean solution to global warming, as well. Uranium-fueled nuclear plants are cheap to operate, can run for long periods without refueling, and cause little pollution.
While there is widespread distaste for coal-fired power plants that spew billions of tons of copy dioxide and another pollutants into the air, thereâ??s no doubt coal would move to be the dominant player in the electricity game for some instance to come.
A full 50% of the electricity U.S. consumers use is generated by coal, and coal is king in the rest of the world, as well. According to the IEA, coal accounted for 42% of all worldwide electricity consumption in 2005.
But get this â?? the agency predicts coal use would explode by 73% over the incoming 20 years. Thatâ??s the largest projected percentage increase of all energy sources.
As you might suspect, dishware and Bharat use 45% of worldâ??s coal and would be responsible for 80% of that increase. China, alone, uses more coal than the United States, Japan and Europe combined. dishware is utterly dependent on coal to run its factories and assembly plants, with coal supplying 80% of its electricity. The Red Dragon also is the worldâ??s top producer of steel, a process thatâ??s also a big burner of coal.
But while dishware is coalâ??s largest consumer and producer, the United States controls 27% of the worldâ??s proven reserves, the biggest-single percentage on the planet. That puts this country front and center on the worldwide coal stage, and President-elect Obamaâ??s energy policy in the spotlight.
The president plays a pivotal role in shaping the nationâ??s energy policy, naming top officials at the U.S. Environmental Protection Agency (EPA), the Office of Surface Mining Reclamation and Enforcement and the U.S. Army Corps of Engineers.
Obama has proposed an economy-wide cap-and-trade system to reduce copy emissions by 80% by 2050. His system â?? which would set an overall emissions limit, then require polluters to buy allowances at public auction â?? would increase electricity rates and discourage coal consumption in the U.S. market. President-elect Obama even has stated that any utilities building coal-fired plants could go bankrupt buying pollution allowances.
And on Capitol Hill, newly emboldened Democrats recently tackled global warming and another environmental problems by choosing Sen. Henry Waxman, D-Calif., to head the House of Representativeâ??s Energy and Commerce panel. Waxman has already signed onto legislation that would ban any new coal-fired power plants that arenâ??t built using new technologies that capture copy dioxide and store it underground, a key part of the Obama energy plan.
Luke Popovich, a spokesman for the National Mining Association, said he believes Obama would be pragmatic most the need to ready coal in the nationâ??s energy mix.
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“He presumably would be sensitive to the impacts of energy policies given the perilous state of the economy,” Popovich said.
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But while U.S. utilities may eventually be forced to tighten emissions rules and increase rates, Obamaâ??s renewable energy plans would have very little impact on U.S. coal producers in the near future.
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The concern needs coal. We have it. And weâ??re going to sell it.
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In the first half of 2008, U.S. coal exports increased by 13 million brief tons, or 50%, over first-half 2007 shipments, according to the IEA. Strong global obligation for coal, combined with supply disruptions in several key coal exporting countries (Australia, South Africa and China), were the primary factors behind the increase.
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But lately, coal prices, along with the prices of another fossil fuels, have suffered from the global scheme crisis, and from a resurgent U.S. dollar. An 80% decline in global shipping rates has also fostered competition from another exporters, same Australia, which can now ship farther and compete with U.S. exporters.
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As a result, the price of Appalachian Coal on the New York Mercantile Exchange (CME) has fallen to less than $80 a ton from $143 in July.
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This would have a negative impact on coal producers until the concern frugalness is able to gather itself back up and build up a new head of steam.
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But donâ??t wait the slump to last long. Chinaâ??s frugalness is getting a shot in the arm from a gigantic $586 billion stimulus package, cementing ontogeny expectations for 2009. wait U.S.exports to accelerate when that kicks in, probably in the second half of 2009.
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Since the stock market usually leads scheme indicators by six-to-nine months, right now is a good instance to be looking at candidates for your investing dollar. But you should be cautious most pulling the trigger. Watch construction activity in dishware â?? especially steel obligation in the late spring â?? for the first signs of a rebound in coal prices.
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When you think things are ready to verify off, Peabody Energy Corp. (BTU) and Arch Coal Inc. (ACI) â?? the largest U.S. producers â?? are worth a look. For those who same to play a basket of shares, the Market Vectors Coal exchange traded fund (KOL), or ETF, provides the desired diversification. All three securities are trading at discounts of at least 80% from their July highs, and currently trade at bargain basement multiples.
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If you want a coal play that bets directly on China, Money Morning Investment Director Keith Fitz-Gerald likes Yanzhou Coal Mining Co. Ltd. (ADR: YZC), one of Chinaâ??s biggest coal suppliers. It produces lots of high-grade, low-sulfur coal, which burns cleaner and therefore fetches a premium price. The company boasts profit margins of 22%, when the industry averages half that. The company profits are up a blistering 364% in the yearâ??s first three quarters, compared with a year ago. The stock trades at only three times earnings and has a dividend yield of 4.3%.
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Nuclear Power: It Struggles in the U.S., but Thrives Abroad
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Nuclear power is attractive to the energy industry because it produces electricity on a predictable, 24-hour basis â?? earning it the industry sobriquet of â??base loadâ? power. Coal and hydroelectric plants are the only another power sources that also rate that label. Such alternatives as wind, solar or biofuels do not.
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During its term, the Bush administration tried to spark a â??renaissanceâ? in the construction of nuclear power plants. And during his presidential campaign, Sen. John McCain stood firmly behind the industryâ??s hopes of building 45 new reactors by 2030.
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Interest in new types of reactors seemed to hint at least at the beginnings of a new start. But President-elect Obama has been lukewarm on nuclear. He acknowledges that nuclear is one of several viable components of the nationâ??s energy portfolio â?? the underway 104-plant fleet provides 20% of Americaâ??s electricity â?? but has questioned its safety while emphasizing a need to diversify the nationâ??s energy mix with more wind, solar and another renewable sources.
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“Thatâ??s sort of same my wife saying sheâ??d support divorce under certain situations,” says William Kovacs, the U.S. Chamber of Commerceâ??s vice president of environment, technology, and public affairs.
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In fact, the Barack Obama/Joe Biden New Energy for America Plan, while recognizing that nukes provide 70% of our non-carbon-generated electricity, says that â??before an expansion of nuclear power is considered, key issues must be addressed including: security of nuclear fuel and waste, waste storage and proliferation.â? It goes on to say that the team of President-elect Obama and incoming Vice President Joe Biden â??do not believe that Yucca Mountain is a suitable site as a long-term repository for spent nuclear designed for long-term storage. In any case, the earliest the storage site could open would be 2017, and that was before Republicans lost control of the Senate.
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With Senate Majority Leader Harry Reid, D-Nev., firmly opposed to nuclear waste storage in his home state â?? and with the Obama administration ready to hold the industryâ??s feet to the regulatory fire â?? any plans to expand the nuclear industry in the United States now face a high hurdle.
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But nuclear proponents are hardly impotent. The Nuclear Energy Institute, the industryâ??s most powerful lobbying group, helped craft the Energy Policy Act of 2005 with more than $12 billion in subsidies for nukes.
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Maintaining nuclear energyâ??s underway 20% share of generation would require building three reactors every two eld starting in 2016, based on U.S. Department of Energy forecasts. Right now, some 17 companies and consortia are pursuing licenses for more than 30 nuclear power plants with the Nuclear Regulatory Commission.
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But the last operating license for a nuclear plant in the United States was issued in 1978, and the approval process takes a minimum of 24 months after site approval, which can verify years. wait lots of public comment and infighting in Washington, as applications twine their way through the approval process at the NRC.
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Meanwhile, the rest of the concern is racing ahead with plans to up the ante in the nuclear power game. There are currently 440 nuclear reactors in 31 countries that generate most 16% of the worldâ??s electricity.
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Uranium-fueled nuclear energy is rapidly gaining global acceptance as a clean, reliable alternative to such dirty-burning fossil fuels as coal and oil. In a twin bid to combat global warming and ready up with soaring obligation for electricity, countries are rushing to build nuclear power plants. Under underway projections, 630 reactors would be operating in 55 countries by 2030.
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Itâ??s the new technologies those reactors are designed around that are aimed at allaying the publicâ??s perception most the safety of nuclear power. Toshiba Plant & System Services, which has built 112 plants in the past 12 eld (more than any another company), is working on a â??mininuke,â? according to Forbes magazine. Called the â??4Sâ? (short for Super-Safe, Small and Simple), it uses a bath of molten sodium to produce clean twice as hot as clean from water-cooled reactors. The 4S can crank out as much as 50 megawatts of power, easily enough to fire up a small factory, or to service an entire town thatâ??s located off the main power grid.
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On top of that, the mininuke can go 30 eld without refueling, as opposed to typical reactors, which must be fed every 18 months. And the 4S would be safer, because the reactor core is deep underground, substantially protected against a terrorist attack or earthquakes.
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China and South Africa are working on so-called â??pebble-bed reactors,â? one version of which is filled with 100,000 billiard-ball-sized spheres of coated metal that are cooled by helium. That eliminates the need for enormous pressurized water-cooling systems and million-dollar containment domes, making them virtually meltdown-proof.
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U.S. firms are also on the trail of smaller and safer designs. A Santa Fe, NM company called Hyperion Power Generation Inc., is working on a hot-tub sized design, which eliminates the need for the notoriously unstable metal control rods. U.S. giant General Electric Co. (GE) is working on new, more efficient designs, as well.
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No matter how you slice it, the fuel for the reactors in those plants all depend on a scarce commodity â?? uranium. Flat out, thereâ??s meet not enough â??yellow cakeâ? to go around. It takes seven to 10 eld to transform a metal discovery into a full operational mine. With that kind of lag time, itâ??s clearly almost impossible for supply to ready up with demand.
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Until recently, the market reflected the scarcity, rising as high as $137 a pound in 2007. But lately, despite the global shortages, metal prices â?? in sympathy with another commodity prices â?? have nosedived.
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Prices have fallen 40% this year, leading to a sharp decline in the share prices of mining companies, and eviscerating the financing for extraction projects. In the last month alone, six metal mines in western Colorado and Utah were either put on hold or closed.
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Some experts lay the blame for this underway assign squeeze squarely at the feet of inclose funds â?? who they blame for buying up metal â?? and banks no longer willing to lend money.
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â??Hedge funds were selling off their metal to raise cash, and the prices meet plunged,â? said George E.L. Glasier, chief executive officer of Energy Fuels Inc., a Canadian junior miner that recently put a Colorado mine project on hold as part of a â??capital preservationâ? strategy brought on by the assign crunch.
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Uranium prices fell to $75 early this year, and fell as low as $44 this fall. The spot price now is $55.
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With the worldwide ontogeny in the industry â?? and a classic supply/demand imbalance in the making â?? someone is eventually going to have to pay the price. History shows when metal prices move higher, metal stocks almost always hitch a ride North. So when metal prices advance â?? most likely to new highs â?? wait mining stocks to rise in virtual lock step.
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But notwithstanding global ontogeny â?? for now, at least â?? Obamaâ??s energy plan and the mothballing of mines makes any metal play a long-term proposition.
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Besides Toshiba (PINK:TOSBF), the stocks to consider include Cameco Corp. (CCJ), the largest U.S. producer; and General Electric, which has a presence in the commercial nuclear power market here and overseas. Also, verify a look at Rio Tinto PLC (RTP) and BHP Billiton Ltd. (BHP), huge international mining firms with large metal deposits. Each of these firms would stand to reap substantial profits from a resurgent price in yellow cake.
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looking 2009 â?? and Beyond
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However, regardless of what metal does, coal is still the 800-pound gorilla in the energy world. In the United States, no matter how lofty our environmental intentions may be, itâ??s unlikely coal would be regulated out of existence anytime soon. Thatâ??s especially true overseas, where coal is playing a crucial role, fueling the transformation of such countries as dishware and Bharat from â??emerging marketsâ? into first-order powerhouse economies. Given that, the concern market simply canâ??t replace coal anytime soon, either.
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As for nuclear power, safety improvements and another technological solutions attain nuclear energy a viable energy source for the long term, eventually grabbing a bigger piece of the energy pie â?? especially overseas.
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The bottom line: The scheme looking for both coal and nuclear power is upbeat. Investors might look at both energy plays when considering how to allocate their portfolio â?? for the New Year and beyond.
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[Editorâ??s Note: Money Morningâ??s â??Outlook 2009â? scheme forecasting series last looked at the looking for retail sales in the New Year. incoming up: Latin America. Check out past series stories, which have underscored that uncertainty would move to be the watchword for at least the first part of the New Year. Little wonder, as the global business crisis continues to whipsaw the U.S. business markets in a manner that hasnâ??t been seen since the Great Depression. Itâ??s almost enough to attain you surrender. But what if you knew, ahead of time, what marketplace changes to expect? Then youâ??d be in the driverâ??s seat â?? right? Youâ??d know what to anticipate, could craft a profit strategy to follow, and could then meet sit back, watching and waiting â?? and finally profiting from â?? the very marketplace events you anticipated.
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R. Shah Gilani â?? a retired inclose fund manager and a nationally known expert on the U.S. assign crisisâ?? has predicted five key business crisis â??aftershocksâ? that he says would create substantial profit opportunities for investors who know meet what these aftershocks are, and how to play them. In the causing Event Strategist, Gilani describes how investors can use these aftershocks, or â??trigger events,â? as gateways to massive profits. To find out all most these five financial-crisis aftershocks, and most the trigger-event profit strategy they feed into, check out our latest report.]
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To read more click here.
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Money Morning
Don Miller is a Contributing Writer at Money Morning
