The Power Sector Shakeup
We just wrapped up our first Small-Cap Energy Summit. The five-day cruise from Vancouver to Los Angeles was one of the most rewarding times I can remember in my life.
Our workshop sessions presented the opportunity for informal and personal conversations on a range of investment subjects. I got to spend significant time with a great group of Oil & Energy Investor subscribers. And your very thoughtful questions and comments (and some lively exchanges) only made the experience better.
Actually, we could not have done this in any other way. As I've said, given the low market capitalization of these companies, releasing them to all my subscribers would have both buried the companies and guaranteed that most members could not even get in at a decent price.
Sharing the selections with this small group – and taking the time to discuss methodology, rationale, and analysis – was a great work-around.
I am already looking forward to doing this again. I will let everybody know well in advance of the next Summit.
Yesterday, as soon as Marina and I disembarked the cruise ship in L.A., we were off to my next appearance.
I am writing you now from the famous Inn at Spanish Bay, encircled by the spectacular course at Pebble Beach, California. (Golfers – eat your hearts out!) This incredible location on the Monterey Peninsula is a beautiful setting to slice – or hook – a bag of golf balls into the Pacific surf.
But beginning today, it is also the site for something else.
I am here to provide the keynote address for the annual Western Utility Executive Conference. For the next two days, I will be meeting with top officers from the largest power companies in this part of North America.
They asked me here for a very specific reason.
There is a revolution unfolding in the generation of electricity. As it unfolds, it will also change the world of investing.
Here's what I will tell the assembled execs…
The New Power Sector
The U.S. market is moving quickly to replace more than 100 gigawatts of capacity based on coal.
Natural gas will take over, covering most of the capacity lost.
Still, it's the movement from coal to gas that will highlight the initial phase of these developments – especially through the end of this next decade.
Both of those factors will be changing the cost dynamic. Expenses for the use of gas will remain low, and the cost of coal will increase.
As you might guess, coal is going up because of the infrastructure expenses involved in refurbishing aging plants, as well as the need to significantly lower non-carbon emissions.
Meanwhile, even though a rise in gas pricing should take place before the end of next year, known reserves subject to immediate extraction will rise sharply as well. So natural gas costs will remain subdued.
Two Things to Keep in Mind Here…
First, U.S. and Canadian gas producers could increase overall production by 25% each year for years to come.
They will not do that, of course. Such a move would destroy the market.
But this amazing little detail certainly does illustrate why we now believe North America has well more than 100 years worth of reserves.
The flood of unconventional (mainly shale gas) coming on the market is responsible for this game change. And we may not yet have even seen the largest of the new basins to come.
Already, projections are nothing short of staggering.
From a rough equivalence between coal and gas as a fuel source for electricity in 2010, the environment will transform into one decidedly favoring natural gas… before the end of this decade.
By 2020, the U.S. is likely to use 20% to 25% more natural gas for the production of electricity than it does now.
Meanwhile, not a single new coal-fired or co-fueled (using both coal and natural gas) power plant is on the drawing board. All of the new generation facilities of any consequence will run either on gas or renewable sources.
This is a “super shift” of major proportions.
[Editor's Note: Kent is now showing his Energy Inner Circle members the best ways to profit from these “super shifts.” Click here to join.]
The power execs here in Pebble Beach know that.
They realize, too, that the cost of gas will be predictable for some time to come. Besides, plants that run on gas are easier and cheaper to build than those using coal, and we have a ready domestic source already there and increasing.
So the strategic element is quickly coming into place.
The most exciting change, however, is what is coming next.
Second, we will be spending considerable time over the next two days discussing new types of transmission technologies, battery applications, smart grids, and electric cars.
In short, the mega change in fueling electricity is just the beginning. With fuel sourcing and power production expenses now favorable, serious attention is going to move to determining the next generation of power delivery systems and usages.
And those may be the most revolutionary results of all.