energy


The chart tells the story. The problem clearly is that oil, once the plentiful cheap provider of energy and of course the million other uses that it has, has reached the point of where the costs are prohibitive to production, or very close too it.

The US is now sitting on a massive supply of natural gas, in addition to a mountain of coal. The generation of power needs to be switched to gas, away from oil. Less demand, lower prices. The result will allow oil to be used in other areas at a lower price. Electric cars, filled up with electricity generated by natural gas.

Productivity and the natural rate of interest need to rise if there is to be any chance of reducing through payment of the now unmanageable debt loads. If productivity does not rise, and the natural rate of interest with it, vast quantities of capital [debt] will be destroyed in default. America and the world are no longer rich enough to simply default and maintain the standard of living currently enjoyed.

The world faces a long-term uranium shortage as China and India build new nuclear plants, and major buying opportunities may emerge for shares of some beaten-down uranium producers.

Uranium prices have seen the largest drop in two years following the Japanese nuclear disaster and Germany’s decision to phase out its nuclear plants, both of which hit uranium prices hard. This has hammered the stocks of the leading uranium producers, but the longer-term fundamental and technical outlook suggests a major buying opportunity may lie ahead.

Germany depends on nuclear power for 23% of its needs, and with Japan considering cutting back on its nuclear expansion plans, the entire industry has been in retreat. Though Japan is the third-largest nuclear power producer after the US and France, it’s important to take a much more global look at the prospects for nuclear power.

Well I’ve held a uranium position for a little while, currently I’m up about 13% on the position. Buy on the cannons as they say. The above article is from Forbes, but the Economist has been running similar articles. While nuclear will probably remain feared and generally unpopular, there are many new power stations being built, particularly in China, thus the demand for uranium will rise, as will its price.

Economic growth. The panacea. For Western economies, the mature economies, carrying far too much debt, economic growth is required to lift them past the major problems brewing and soon coming to the boil.

Energy fuels productivity from capital investment. Coal fueled the industrial revolution, providing abundant, and therefore a cheap energy source to England, which in the the early 1800’s was burning in coal, the equivalent of 15M acres of wood per year. From coal, the world moved to oil. Oil has been the stalwart since the early 1900’s.

Energy, cheap energy, is what provides capital with it’s amazing productivity. With the advent of electricity, powered by power stations, fueled with coal, oil, the genie was out of the bottle. Oil of course fueled transport, which further enhanced the division of labour, and added further wealth.

Currently it’s not so much that oil is running out, although that will at some point be an issue: it is that the cost in energy, of extracting the oil is rising. The key ratio is: Energy Return/Energy Invested. In the 1930’s this was circa 100:1 in the 1970’s 30:1 currently, calculations put it somewhere around 16:1 If the world were a giant corporation, running financial statements, an analysis would disclose that the return on capital is falling. Productivity is falling. Growth is falling. This, when combined with the negative demographics and crippling liabilities incurred via the Socialist dream, has placed the world in a tricky position.

Biofuels have been an area of research. Until yesterday I held BIOF, an ethanol producer, that essentially was a bad play. Biofuels however have a potentially brighter future than this failure might indicate. Forget ethanol, the BIOF product, ethanol is a technology that is going nowhere. Rather, consider “Drop In Fuels” Drop-in-fuels are hydrocarbons grown by bacteria, fed on sugar. Drop-in-fuels can critically fuel jets. Ethanol never could be used for Jet fuel, and electric motors could never power jets: the world can’t and won’t need to give up jets.

The electric car has every possibility of actually taking off this time round. If they do, they still need the power to be supplied from electric generation powered from, drop-in-fuels. So either way, drop-in-fuels have a market, either to fuel cars running petrol/diesel motors, or running power stations to generate the electricity. Jets will be reliant on jet-fuel manufactured in this manner.

The US may, or may not, after the nuclear disaster in Japan, proceed with nuclear reactors on mainland US sites. Even if they do, there will be room enough for drop-in-fuel generators to provide electricity for business and domestic demand. The key is that energy has to become, as it was in the early 1900’s, cheap, abundant and [relatively] clean. The US also wants energy independence. The Arabs and Middle East debacles, military bases, can all be mitigated, pulling away from Imperialistic US foreign policy.

So who makes it, does it actually work, and more importantly, is there a stock that I can speculate in?

Dr Shaw is your man. Based in Redwood City California, Alan Shaw is the boss of Codexis which makes specialised enzymes that perform the chemical conversions. Who backs him? Shell and Cosan. Shell needs no introduction. Cosan is Brazil’s third largest sugar producer. Together, they are going to scale-up: building a factory that can produce 2.5M barrels.

The stock trades on the NASDAQ as ticker CDXS