The list of casualties from the explosion at Transocean's (RIG) Deepwater Horizon just keeps getting longer.
There are the 11 rig workers who died in the fire. The reputation of BP (BP), the owner of the oil, Transocean, the owner and operator of the rig, and Halliburton (HAL), the company that at the time of the explosion was pouring the concrete that was to seal the well. The wetland ecologies of the Gulf coast. The fishermen and shrimpers who make a living from these waters. The towns and communities that depend on the Gulf for their economic life blood.
And somewhere in that list of casualties you should add national energy policy.
Certainly any national energy policy that's built on cap and trade or a carbon tax or any other mechanism for fighting global climate change is now dead. And maybe even the kind of smaller, focused energy bill that Senate majority leader Harry Reid (Dem.-NV) started to talk up last weekend.
One of the strange consequences of the Deepwater Horizon disaster is that it has reduced the chances for any kind of comprehensive energy plan in the near future to between slim and none
Not because the United States doesn't need a national energy policy. We do. Desperately. The disaster in the Gulf of Mexico just makes that clearer.
But because of the politics of energy in Washington.
The disaster has made opening up new areas of the U.S. continental shelf for oil drilling, as proposed by the Obama administration and its Republican opponents before the explosion, politically impossible. And without increased drilling as a bargaining chip to offer there's no way to build the coalition necessary to pass an energy bill that focuses on fighting global climate change like the Kerry/Lieberman legislation that the Senators from Massachusetts and Connecticut introduced on May 11.The 987-page plan once included provisions for expanding offshore oil exploration and production, but those were stripped out of the version introduced on Wednesday and replaced by a provision that would give states the right to veto any drilling plan. That would have the effect of limiting drilling off the Atlantic and Pacific coasts.
Hard to see how Kerry and Lieberman can bring oil state Democrats and any Republicans at all on board with that language.
I can see a chance for a bill that creates something like a scaled-down version of a national energy policy but not the version that Reid highlighted over the weekend as his alternative to the Kerry/Lieberman plan. Reid seemed to indicate that he'd like to move forward on a reduced plan modeled on the legislation the Senate Energy and Natural Resources Committee approved last June with four Republican votes.
But I don't see how even that bill flies in the post-Gulf disaster environment. The smaller plan in that bill would include a national mandate that utilities generate a percentage of their electricity from renewable sources, stepped up energy efficiency standards, incentives to build out the power supply grid, and subsidies and loans for energy production from such low-carbon sources as solar and wind.
And it also included provisions that would expand oil and gas drilling in the Gulf of Mexico. That was a critical feature in gaining the bill the votes it needed in committee. With those drilling provisions stripped out, as is likely in today's post-Deepwater Horizon explosion environment, I think this bill too goes nowhere.
Smart politicians could cobble together a new coalition that used support for policies to encourage the use of natural gas as the new bargaining chip to replace the drilling bargaining chip.
And I think smart politicians could recast an energy bill to harness some of the post-Deepwater Horizon anger. An effort that appealed directly to our national interest in increasing domestic security by reducing dependence on foreign oil and on increasing U.S. competitiveness and employment could work.
Smart politicians are always in short supply, however, and I think the odds against this effort are pretty formidable. Not impossible. But unlikely. As long as politicians are still focused on using the emotions of the moment to bash some target.
Here's how a handicap the likely winners and losers in the post-Deepwater Horizon disaster environment.
Quite frankly, I hope my cynicism about Washington politics is excessive. I think a failure to produce a national energy policy is a mistake that costs the United States jobs and reduces our national security. So I sure hope my handicapping of energy sectors is wrong.
But I fear that just as you can't be too rich or too thin, you can't be too cynical about Washington.
Full disclosure: I own shares of A123 Systems, Cosan, Energy Transfer Partners, Flowserve, Johnson Controls, Transocean, and Ultra Petroleum.
Jim, I may not agree with you about everything, but that last line nails my political views perfectly!
One of the other problems with alternative energy sources like wind and solar is they don’t produce as much energy for the cost as nuclear, oil, or coal.
One thing I would add to your comments on ethanol: Sugar-based ethanol won’t happen in the U.S. (via domestic growth or trade) because the corn lobby won’t let it happen.
If you look at the history of sugar-based ethanol, the U.S. developed the technology to make it, then gave it away to the Brazilians for practically nothing. Now, all their cars run on sugar-based ethanol, and Brazil is energy independent, while we struggle with our energy policies for our 4th decade.
As an engineer and investor, I was hopeful that with economies of scale that the ethanol industry would overcome the energy cost to manufacturing ethanol. Unfortunately, they have not.
I really thought Ormat had a good idea with tapping the geothermal into the grid 24/7. Too bad they cooked their books. I whiffed badly on that one.
Not to sound like too much of a T-Boone Pickens syncophant, but I think natural gas is our best alternative to oil. It is cheap, we have lots of it domestically, and it isn’t too difficult to retrofit cars for it.
EdMcGon, what is your view on ETP or UPL?
I think we need to wait and see how much of a “disaster” the oil spill actually turns out to be. Lessons were learned from the Exxon Valdez, lets hope they get applied and we don’t try to scald the entire Gulf seaboard.
The problem with ethanol production is that we developed a technology that only makes sense at certain latitudes. Corn based ethanol is a waste of time and money. Sugar cane is the way to go. We cant grow sugar cane at our latitudes for year round harvesting. The only other place that could possibly do it in the western hemisphere would be the large underdeveloped coastal plains of Central America. But this would entail cooperation between a half dozen countries. No chance of this happenning with the growing Chavez influence in that region.
I am not quite sure why we even differentiate between domestic and foreign oil. The Debate should be all about decreasing our dependance on oil in general. Oil reserves are finite, non renewable and decreasing. Maybe not just quite yet, but within the next few years, it will become increasingly expaensive to find and extract oil as the known reserves are in extremely inhospitbale areas. either deep in the ocean or in the frozen Siberian tundra. We need to look for alternative renewable solutions that are not so taxing on the environment. Corn based ethanol is not it and nuclear is not either. Similar to the disaster in the Gulf of Mexico which “never should have happened”, Chernobyl and 3 Miles Island, should never have happened either, but something happened, fingers were pointed, but the damage was done. Wind and Solar produce energy but not enough to replace Oil. It will take courage, bi partisanship and smart decision in Washington to bring a real energy policy that actually works, and that is in very short supply these days, so for an investor, the only way to make decent return in short term plays as indicated in Jim’s post…
Jim, Vestas is a Danish company and the Danish crown is still the currency of that country, not the Euro. But, and I have not checked it, maybe the mills are in the Euro zone?
Jim:
Is this bad for GLF, Noble and other offshore drillers too?
Renaudm: There is a new generation of nuclear reactors under development that should address the safety issues. Pebble-bed reactors, as they are called, are basically meltdown-proof because the reaction that produces the heat is inherently self-limiting. There is a temperature ceiling, enforced by the laws of physics, which the reaction cannot exceed. You still have the waste problem, though.
The first one is scheduled to go online in a few years, and China has committed to building a ton of them over the next decade. These types of reactors could be a great stopgap while we get a truly renewable energy economy up and running.
Jim, I am even more cynical about politics, when it has to do with the energy policy. Here is my thinking … (1) Oil … I agree with you: sooner or later cheap oil resources will be exhausted, but there are plenty of oil on the Earth. It is expensive, but it does not matter; there are always people available who are willing to pay for old technology higher price than for newer, less proven technology. (2) Coal/gas … There is plenty of it. Cars can utilize gas, and it is a pity that it this is not common in the US, where shale gas production has not even reached its peak. US is very slow in adapting this technology, and I attribute it solely to the policy makers. (3) Nuclear … Once again, it is all about politics. All the known incidents on nuclear power stations were due to the reactor design, which was aimed to produce, in addition to energy, fuel for atomic bombs. Take Japan, where are plenty of nuclear reactors shaken by earthquakes every single day. They are doing pretty good job. The major reason – different reactor design. Someone in Congress should do their homework and find out that the combined environmental effect of all the nuclear power stations is much less than coal, gas, or hydro power stations. (4) Wind … It has a limited capacity, but someone should look on the other positives of using wind energy. For example, have a large number of those turbines near Chicago, will make the city less windy. (5) Solar … It is still expensive. However, if google this topic hard enough, you will be surprised to find out that in the late 70-s, when oil prices were high, everyone was saying absolutely the same words, as everyone is saying now. I was once fooled by an article thinking that it is a “fresh” one. Actually, it was published exactly 30 years ago. What happened over those years? Nothing. Really, nothing – government decided that solar energy is not the highest priority and barely supported solar energy research. Once again – politics drives the economic troubles. (6) Ethanol … The idea is not a bad one. However, politics play an important role here. Ethanol is considered to be a agricultural product, meaning that it is taxed, if imported, making all these ideas of growing sugar canes in Central America 20% less attractive (or more, if you take into account actual net profit).
This list is not complete, but my point is simple: all our energy troubles are due to political games in support of some selected groups of businesses.
Knowing that the above problem exists and will not go away, I invest in gas and oil and speculate on solar energy stocks.
unfortunately, I share Jim’s pessimism on getting a national energy policy. As noted above, look at the range of solutions that Brazil has used to essentially become energy independent and on the verge of a net petroleum exporter (they use *gasp* deepwater drilling).
georic… you are correct, Denmark is a part of the EU, but uses the krone, not the euro.
Other thoughts: -natural gas: watch for federal regulations that change fracking, which could disrupt/change current horizontal drilling techniques
-smart grid: a different way to play energy, play the conservation end. I’m watching Comverge (COMV), Enernoc (ENOC) and Itrion (ITRI). Plus other networking players are trying to get into this space.
You need to login in order to post a comment.
Read Full Article »