Peak Oil Investments
The Best Way to Play Oil's Coming Rebound
Despite the global economic meltdown, Peak Oil investment strategies are still very much in play...
The CEO of France's Total SA (NYSE:TOT), Christophe de Margerie, says the combination of restricted access to financing, declining traditional production in places like the North Sea and Mexico, and political wildcards in Iraq, Nigeria, and Venezuela mean global production will peak at around 89 million barrels a day in 2015.
De Margerie's estimates mean that new International Energy Agency predictions of just over 100 million bbl/d production by 2030 will miss the mark by a huge margin—even after they were already revised downward from a 2005 estimate of 130 million barrels per day by 2025!
De Margerie adds that production costs have doubled since 2004, even though we're now back around the same $40 per-barrel price we saw five years back.
But the head of Europe's #3 energy group is still an investment hawk.
Whether you're steering an international oil major or just trying to restabilize your portfolio, high costs and low prices in the near term spell huge opportunities for energy investors across the board.
Profiting from the Peak
De Margerie's Total is currently going after acreage in Venezuela's Orinoco Belt, even though the same non-traditional oil resource there—tar sands—is uneconomical in Canada. Total wants a cost reduction of at least 20% before going back into the boreal oil business.
By his reckoning, oil will need to double back to $80 for the heavy oil sludge to attract renewed attention from many majors and independent producers.
Even then, the overall assumption is that hydrocarbon loyalists will have to do a lot of bargaining as the oil runs thinner.
They might accept political risk in Venezuela, where Hugo Chavez just won a referendum that will let him run for unlimited presidential terms, instead of high costs in Canada.
Or oil companies will increase water flow into dying wells, saying they'd rather milk every uneconomical barrel at sites they know rather than speculate on super-deep formations like Brazil's Santos Field (so far down in a pre-salt formation that uranium-tipped drillbits melt!)
Whatever the approach, options are growing more limited by the day. Geological and political dynamics show that we might not need economic recovery and demand restoration to get back to expensive oil...
However we get there, though, higher oil prices may make de Margerie and Total's continued investment approach look brilliant. He's not waiting for $80 oil to pounce, and neither should you.
The question, then, is whether oil stocks are really the best way to play an oil rebound.
We think renewables are the way to go, as global economic turmoil forces changes and consolidation in clean energy...
Which leads me to a credit-crunch investing approach I introduced to Green Chip Review readers last week.
Focus on Renewables as Oil Prices Rebound
International renewable energy titans are starting to see the credit crunch as an opportunity...
"We may see some of the smaller projects which have turbine delivery contracts but are struck by the banking liquidity freeze being taken over by the larger power companies," European Wind Energy Association CEO Christian Kjaer predicts.
Not only wind but also solar or even marine power projects may stay alive even if financing falls through—instead they'll add to the portfolios of larger companies with more solid credit that can still tap major loans.
Let's mine one of the big global green exchange-traded funds for a look at which companies may emerge as winners in this consolidation.
Global Alternative Energy ETF: a Peek at the Credit Crunch Survivors
The Market Vectors Global Alternative Energy ETF (NYSE:GEX) is diversified both across clean energy sectors and international boundaries, as we see in this breakdown from www.etfconnect.com:
The top 10 companies in GEX are:
|First Solar, Inc. (USA) |
|Gamesa Corporacion Tecnologica (Spain) |
|Verbund-Oesterreichische Elektrizis (Austria) |
|Q-Cells A.G. (Germany) |
|Kurita Water Industries Ltd. (Japan) |
|Solarworld A.G. (Germany) |
|Renewable Energy Corp A.S. (Norway) |
|Trina Solar Ltd. (ADR) (China) |
|Itron, Inc. (USA) |
|Energy Conversion Devices, Incq (USA)|
Note that even with access to a world's worth of renewable energy stocks, America's First Solar (NASDAQ:FSLR) is GEX's top holding.
That makes sense in a worldwide consolidation scenario because First Solar cranks out thin-film PV cells at a highly competitive cost of just over a buck a watt.
That competitive advantage alone makes First Solar attractive. But better margins also mean more cash for acquisition and less dependence on financing in the long run.
And First Solar is not alone in that strength, as we see across the world with Yingli Green Energy.
Yingli's Vertical Integration Key
First Solar's leg up in the U.S. comes from universal manufacturing logic: the more of the production process you control, the lower your costs are likely to be.
China's Yingli Green Energy (NYSE:YGE) isn't among GEX's top holdings, but the approach it has taken to getting solar cells out the door cheaply has put it in the global green elite.
Yingli has vertically integrated its solar business at all levels: ingots, wafers, cells, and full modules, giving it a long-term strategy that is well-suited to help fight off recession pressure.
Why would you wait to tap that kind of potential? Green Chip International subscribers just sold Yingli stock on February 12 for a 55% gain in just under 3 months... we really rode the international wave up on that one.
Solar is hardly the only clean energy sector where it's important to cut costs and control production—Nick Hodge wrote in Wealth Daily last week about the global wind energy market's 363% expected growth over the next five years.
New numbers say the U.S. nudged ahead of Germany in 2008, but China doubled its wind power capacity in the same period.
That neck-and-neck race for green energy leadership will continue. Wherever the opportunities are, Green Chip International subscribers are notified when to get in and when to pull the trigger on profits like we did with Yingli.
We're not only scouring the world for winning trades, we're looking ahead to see which have the potential to be long-term winners and survivors of an admittedly tough financing landscape.
The portfolio isn't even limited to direct producers of solar, wind, and other clean energy types... it includes grid technology providers and other essential industries for bringing the new global energy economy online.
Don't miss the next winning recommendation. Check out GCI today.
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