After the recent mining accident which has been front page news, all investors must consider the implications of Sago on stocks in the coal mining industry. It’s been a long time since the industry was so firmly ensconced on the front pages and safety considerations play an enormous role in profitability. And coal mining isn’t the only segment of the energy business that’s publicly seen as dangerous. In this issue, we’ll also examine safety considerations for the nuclear power businesses and the implications for investors.
Over the past few months I’ve made it clear that I see some near-term downside risk to oil and natural gas prices. However, it’s important to note that such moves would not at all change the long-term picture for either commodity: The era of cheap oil and gas is over.
A wrapup of 2005 which examines the performance of The Energy Strategist’s key investment themes as well as some of the individual recommendations.
At first blush, alternative energy certainly might seem like the perfect answer to spiking energy prices and surging global electricity demand. But the fact is that when it comes to meeting global energy demands, there are no perfect solutions, nor is there a single emerging technology that can meet all demands.
Coal miners can be very profitable if you are selective in your investments. Some are facing increased operational costs as the level of complexity rises with their aging mines and their skilled employees begin retiring. However, those operations that are able to utilize strip-mining techniques, especially in the Powder River Basin (PRB), are relatively low cost and profitable. Also, having to transport the coal from the PRB creates profitable plays in the railroads.
In this era of booming global demand, the importance of Saudi production can’t be overstated. The world is already depending on another turbocharged spurt of production growth from Saudi Arabia to meet future needs.
With natural gas prices hovering at record highs and oil back above $60 a barrel, the media isn’t giving coal the time of day. But when it comes to electrical power, coal remains king.
Back in 1965, Saudi Arabia produced less than 2.3 million barrels of crude oil per day, roughly a quarter of what the US was supplying at the time. In fact, 40 years ago, the Desert Kingdom was far from the key supplier it is today–the country’s production accounted for less than 7 percent of the global total. By 1975, the Saudis were already pumping more than 7 million barrels per day and in 1980 the Kingdom’s prolific fields were flowing more than 10 million barrels per day. However, with its aging fields, more advance technology will have to be deployed to ensure production keeps up with demand.
With gasoline prices touching $3 in most of the country this autumn and natural gas well over $10, politicians have been looking for a scapegoat. Sadly, many have pointed fingers at the big integrated producers, claiming that they’ve somehow “gouged” consumers.
An invitation to join Elliott in San Francisco on November 27 and 28, 2005 for the San Francisco Gold & Precious Metals Show.
