An Intelligent Approach
03/17/2006 12:00 am EST
They just don’t get smarter than Richard Young, whose aptly named Intelligence Report offers an exceptional look at alternative energy, from BP's "beyond energy" pledge to progressive utilities, he offers a variety of alternative ideas for a "New Era."
"Although short term, oil prices have blown past the fundamentals, oil prices will surge over the long term for any one of three obvious reasons: 1) Chinese and Indian demand; 2) terrorist-based oil supply disruption; or 3) an eventual decline in worldwide oil production. In any event, the long-term view is for higher oil prices.
"Here are some powerful considerations for you to factor into your investment thinking. First, at $40/bbl for oil, shale oil is economical. There is estimated to be about as much oil recoverable from the shale rocks in the Rockies as in all of OPEC’s oil fields. In addition, theoretically, there is enough wind power flowing across the country to supply all of our electric needs. Wind power makes economical sense at about $41/bbl oil.
"Oil from tar sands is economically feasible at $25 to $30/bbl oil. Alberta, Canada, is the Saudi Arabia of tar sands. It’s thought that as many as 300 billion recoverable barrels and another trillion plus barrels could one day be within reach using new retrieval methods. Other energy programs are on the drawing boards, including expensive solar (economically feasible at over $100/bbl oil), nuclear (little if anything will happen in the US pre 2015), fuel cells powered by hydrogen, and ethanol. All offer great long-term promise.
"So how do you invest to protect yourself from the vagaries of oil prices and the potential for higher oil prices long-term? Remembering that oil, as well as gas, is today dramatically overpriced based upon supply and demand fundamentals, here’s a solid battle plan. At the core of your strategy is a natural resources fund heavy on energy. I’ve owned T. Rowe Price New Era Fund (PRNEX) for decades and have long advised that you make this fund a dominant building block in your own portfolio.
"I’m also adding four dividend-paying utilities to my utilities group in my Monster Master List. Each has a vital commitment to alternative energy:
Cinergy (CIN NYSE) is a coal-reliant Midwest utility with a planned merger with Duke Energy. CEO James E. Rogers is on record as being behind integrated gasification combined-cycle plants. This technology has the ability to capture carbon before combustion.
FPL Group (FPL NYSE) has a strong commitment to wind-powered energy. Today, only 1% of US energy consumption comes from wind. Its FPL Energy unit is America’s largest operator and developer of wind farms and turbines. The company’s 45 US wind facilities command an estimated 40% of America’s wind market.
Xcel Energy (XEL NYSE) is the combined company of Northern States Power and New Century Energies. The combo owns four utilities serving electric and gas customers in ten Western and Northern states. Today, Xcel Energy purchases the second-largest amount of wind power in the nation.
Puget Energy (PSD NYSE) is the holding for the largest electric and natural gas utility in the state of Washington. Last fall, its acquired the development rights to the 229-megawatt Wild Horse Wind Power Project in eastern Washington. By the end of 2006, the company hopes to service over 70,000 homes with low-cost wind-generated electric power.
"I’m adding BP, plc (BP NYSE), formerly British Petroleum, to my 'Monster Master List' as a way to help you develop exposure to alternative energy under the umbrella of huge dividend-paying blue chips. The time to overweight your portfolio in oil is during the next correction in oil prices. At that point in the cycle, you will be able to add BP oil exposure and pick up each company’s sizable bets on alternate energy really for nothing.
"BP has set up a brand-new alternative energy operation called, not shockingly, BP Alternative Energy. BP plans to initially spend $8 billion over ten years on carbon-abatement technology, wind, solar, and hydrogen. Management is targeting a 15% return on capital in investments in combined cycle gas-fired generation, hydrogen, solar, and wind. BP today projects a worldwide peak in oil production in 2020 and plans to be geared up in its other alternatives as its next grand step forward. The company is now using a catch phrase ‘beyond petro’ to label itself."
Editor's Note: At the recent World Money Show, I had the pleasure of hosting the Socially Responsible Investing panel, which included BP among the panelists. The webcast for this panel is available to all Digest readers for FREE at www.moneyshow.com.