February 21-22, 2009 Newsletter
On Saturday, Bob had on one of his favorite guests, Charlie Maxwell, Senior Energy Analyst for Weedon & Co. Charlie was educated at Princeton and then Oxford. He has been working in the oil industry since the 1950s. In the 1960s he became an analyst on Wall Street and has been rated the #1 energy and oil analyst on many occasions. Bob heaped heavy praise on Charlie as the best of the best in terms of energy analysts and mandatory listening for Moneytalk trekkies. I summarized the important parts of the interview below.
Bob noted that we are hearing a lot about alternative energy, such as wind and solar power from the White House and asked Charlie to comment. During the course of the interview, Charlie touched on the major energy issues. I decided to break them down by topic for your ease of reference.
Maxwell: Charlie said the first problem is the wind doesn't always blow. Sometimes when you have heavy hot spots, there isn't wind for a long period of time and you have to replace that energy with coal or some other fuel. You would have to build that extra capacity because you never know when you would need it. Plus, it takes a lot of energy to make the infrastructure for wind energy, and there are other problems with it, such as birds that get killed in the propellers. Even when they do produce electricity, the wind farms are often in areas that they would need to transport the energy produced to where it is needed. Charlie said even if we put money toward it, the best we could get it up to over the next 15-20 years would be 3-4% of our power needs. However, it will never be a large proportion of energy source for the simple reason that the windy parts of the United States are quite far from where the power is needed. If the wind doesn’t blow, you need the coal generating capacity already built to replace it. The result is that while you might produce energy from wind, you have to spend money on substitution energy sources for when the wind doesn’t blow which is a huge added-on cost to wind power that many people don’t consider.
EC: On T. Boone's web site promoting his energy plan, he states that the Department of Energy reports that 22% of America's electricity can come from wind with North Dakota alone having the potential to provide power for more than 25 years. Read about it here:
Maxwell: Charlie said we produce much less solar power than wind power today. It only accounts for about 0.1% of all the energy we use in this country. Charlie said that even by spending a lot of money on it at best over the next 20 years, solar could only provide 1.5%-2.0% of our energy needs, so it is also not something we can rely on.
EC: I was checking my notes, and Charlie was on Moneytalk a couple of years ago and forecast that solar would only constitute 1% of our future needs. Today, he said it could go up to 2%. Why am I even bringing this up? Well, 2% is a 100% increase over 1%, even though the total piece of the pie is still small. Thought it was worth noting since I think it represents a significant change in forecast, although Charlie’s bottom line view about solar hasn’t changed.
Maxwell: Another problem is that solar energy isn’t a dense source of energy. The result is you spend a lot of time and energy making solar panels and thus the net power the solar cell generates is not that much compared to what it cost to put it there.
EC: Last week, I was writing about “green” investments that might benefit from the stimulus plan. There is an article out this week you solar fans might be interested in entitled, “Solar-power firm fired up about stimulus” which you can read at this url:
Maxwell: Charlie said there are some very encouraging developments for a source of energy that could really help us. Charlie said we have excellent long term prospects for developing clean energy from coal. We are learning how to sequester the bad stuff like CO2 and other pollutants and isolating them deep under the earth where it won’t harm the air. Charlie said we won’t have this for another decade as the technology is not fully developed yet, but it is something we can look forward to with relative confidence to using in the future.
EC: The notion of “clean” coal energy is not without controversy. As you might expect, some think clean coal is an oxymoron. Learn more about the concept at this url:
Maxwell: Without coal being able to contribute much over the next decade in terms of clean fuel, we have to look to other sources. The good news is that we are finding out new ways of getting a lot of natural gas from under the ground. Over the last five years, there have been some incredible new horizontal drilling methods. Using new cracking techniques with sand, we are getting a lot more gas than we got in the past 20 years. Now the gas business is growing and of vital importance to us. Charlie said natural gas as a fuel for transportation is an area where the current administration could really make some strides. It has such potential, it could be as big as nuclear energy. Japan already produces cars that use natural gas, but we need to make a concerted effort to bring that to our country.
EC: Natural gas prices hit a 7-year low this week. Natural gas was trading at $3.01 per 1,000 cubic feet on Friday, less than a third since last July and the lowest since 2002. The Energy Information Administration is forecasting wholesale prices to average $5.01 per 1,000 cubic in 2009 and $5.93 in 2010.
Maxwell: Charlie lamented the fact that we don’t yet have the broad-based public support needed for nuclear power. Charlie opined that nuclear energy is safer than it ever has been. We have had 5 generations of new equipment developed since Chernobyl and Three Mile Island. The rest of the world is using nuclear power safely and efficiently.
Charlie pointed out that we have about 400 nuclear units under United States control that we don’t think about much — those are the naval ship and submarines that use nuclear power. We are one of the world’s nuclear powers because of our navy and we have a resource of many fine men and woman who are familiar with that power. But it takes about 8-10 years to design and build nuclear plants, so there has to be a movement now if we want to get those online in the next decade. Charlie said he does think there will be a ground swell of support for nuclear power in the next 4-5 years in our country.
Caller: A caller pointed out to Charlie that the New York Times ran an article about how Sweden was somewhat resistant to nuclear power a decade ago, but they have changed and are now embracing it. Charlie noted that the France, Japan and Canada have all done well with nuclear power. Charlie said he doesn’t think the main problem with nuclear safety is human error anymore, it is terrorism. That is an issue that we will have to address. It is not insurmountable. But we need stricter security since a determined group of people can do something awful.
EC: I found the New York Times article entitled, “Sweden Takes Another Look at Nuclear Power” at this url:
Battery and Hybrid Technology
Maxwell: A caller asked Charlie whether we have the resources in North America to mass produce fuel cell and battery technology. Charlie said it is a concern and China is tying up a good deal of minerals around the world. There are going to be shortages of various metals. The good news is that we do have a large amount of these resources, particularly in Alaska and Canada. There are some metals in Africa and Asia that we don’t have that we will have to trade for. But for the rest of them, we are in pretty good shape.
EC: By some estimates, Africa holds 30% of the world’s mineral resources, including much of the world’s platinum and chromium. Course, they got lots of the the good stuff like diamonds and gold as well (over 50%).
Maxwell: Oil prices have been crushed. Charlie noted there was so much public and government commotion when prices where going up, but nobody seems to be paying attention to it now. Charlie said he is concerned that the debate over fossil fuels has waned. The recession has created a supply/demand scenario where we can enjoy lower prices of oil — but it is only temporary. We are not solving the problem. As soon as China, India and the emerging markets begin to recover, we are going to see oil, coal rand gas rise again. It won’t be long at these low prices where the whole energy price system will turn back to rising demand. Charlie said we need to prepare for the time frame of vulnerability between 2012-2025 where we won’t have enough coal, or oil and will have to depend on natural gas. All of this we will come back to tough days with high oil prices so we need to keep our guard up.
EC: These comments jive with my own view for establishing a position in oil. The more I think about it, the more I believe that it makes sense to diversify an investment portfolio not only across different stocks, sectors, and countries, but also asset classes. Given the availability of ETFs to do that these days, it makes it easier than ever if you want to.
Maxwell: By creating greater efficiency use of the energy we have, that in a sense is another source of energy. Charlie said he thinks the final revolution in energy over the next century will be conservation and efficiency. We will be able to maximize our resources in a more cost-effective and less wasteful manner.
EC: I always enjoy it when Charlie Maxwell is on the show. He is a real class act. Charles Maxwell's bio is at this link:
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David Korn writes "The Retirement Advisor" and "David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service" newsletters. Just ask us for details on how to get a discount on subscriptions to both newsletters.