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The Five Main Obstacles to Energy Policy

by Dr. Kent Moors | published April 16th, 2012

Marina and I got to come home to Pittsburgh for a few days. But by the time you read this, we’ll be in the Bahamas.

Upon returning from our stay in Germany, some developments in the U.S. struck me.

President Obama said he aims to create advisory groups to explore regulations for natural gas drilling and usage. Republican candidate Mitt Romney outlined his energy policies in Pennsylvania just last week.

These moves signify one thing: This presidential campaign is in full swing, despite the conventions being months away.

Now I have talked about the need for a national energy policy for some time.

As with the problems confronted in Europe and highlighted last Monday, such a policy has significant barriers… there and here.

And while the incumbent and his expected challenger are both beginning to lay down how each sees the energy sector, it’s not going to be a simple task.

Quite the contrary.

Weaning the country from an almost exclusive reliance on traditional energy is not simply a “drill, baby, drill” approach to more shale gas and oil.

Nor is it as simple as passing the magic wand of government subsidies over otherwise cost-prohibitive alternatives.

It most definitely is not going to be business as usual.

With each step, infrastructure challenges will emerge. In addition, lifestyle changes will accompany the transitions to come, with concerns over higher costs and their impact on a still-precarious economic recovery.

America may wait a little longer – especially as we move into the election cycle-requirement that all complicated questions be “resolved” in a 30-second commercial or campaign sound bite.

The democratic process, whereby citizens choose their leaders, may well be the best political system ever devised. But it creates a terrible environment in which to make genuine policy. It seems we cannot satisfy more than one important objective at a time.

The longer we wait, of course, the more difficult this is going to be.

In fact, revising the U.S. energy base is going to be the most expensive, painful, gut wrenching and divisive exercise in recent history. Having always based our economy on cheap energy (first timber, then coal and, until recently, crude oil), we are now going to face a different mix where price will be an ongoing concern with broad-market implications.

But with all the changes that are going to come in energy sourcing, distribution and balance, and processing and trading, something else will be fundamentally changed.


The Positive Side of the WTI-Brent Spread

by Dr. Kent Moors | published February 17th, 2012

The spread between the West Texas Intermediate (WTI) benchmark crude contracts traded on the NYMEX and Brent crude traded in London is widening again.

When the market closed yesterday, the spread once again approached 20% of the WTI price (This is more accurate way to measure the spread).

Brent is fast approaching $122 a barrel; WTI stands north of $102.

Both benchmarks have accelerated; and both are now up 2.5% for the week.

Brent is also up 10.2% for the month, while WTI started its climb just recently. All of its monthly gains (at 2.4%) occurred in the past week.

But it’s not just the rising price tag that has us concerned.

We are fast approaching that time of year when gasoline and diesel demand are at their peak.

In the U.S., more than 20 municipalities will introduce new summer gasoline mixtures by May 1.

Now you might never have heard of this. But there are two types of seasonal gasoline.

There is a winter-blend and a summer-blend fuel.

The summer blend is mixed to cause less smog from its emissions. It is also designed to reduce pressure in your gas tank when summer weather reaches scorching temperatures.

Those additives traditionally add about 15% to the cost of a gallon of gas. And, the transition requires that U.S. refineries temporarily retool their production capabilities, which can lead to a short-term supply dip.

We will certainly see the highest gasoline costs on average in the U.S. market this summer.

Just how high?

The Great Energy Reversal

by Dr. Kent Moors | published February 13th, 2012

Don’t look now… but the almost unthinkable is about to happen.

The United States could finally become completely self-sufficient in its energy policy.

You already know that our energy situation is undergoing a revolution, thanks to things we talk about here every week: huge shale gas surpluses, the highest domestic oil production volume in years, prospects for major gains in North American heavy oil production, and increased efficiency standards.

And you already know that this new vision will lead to huge profits for investors like you and me.

But it does require that we change the way we approach investing in the energy market.

Stop Imagining Possibilities; Start Seizing MLP Profits

by Dr. Kent Moors | published February 8th, 2012

On Monday, Kent challenged me to offer you a way to make some money in energy.

I started scanning the energy and agricultural stocks I monitor, and began combing financials, looking for some undervalued little company about to pop.

Then I stopped.

I already knew a failsafe way to ace Kent’s challenge. And so do you. We talk about it all the time.

It’s the midstream sector of the energy supply chain. And it’s the best and easiest way to make money in energy today.

I want you to understand the value of these companies that are involved in the gathering, transport, and storage of oil and gas. Not in terms of just how important they are to the industry, but also how important they can be to generating very strong returns for your wallet.

Because if you’re ignoring them, you’re missing out.

Big time.

LNG Trade is About to Take Off

by Dr. Kent Moors | published January 27th, 2012

Over the past two years, I have discussed at length the benefits of the coming U.S. trade in liquefied natural gas (LNG).

Exporting LNG will offset the glut forming from excessive shale gas extractions, bringing balance to the U.S. market. It will also cause a small group of companies already involved in the development of this trade to become a main focus of investors.

This is a complete game-changer.

Remember, the LNG process cools the gas to a liquid, allowing it to be moved over long distances by tanker instead of just via pipeline. It is then regasified on the receiving end and injected into existing transit pipeline systems for delivery to consumers.

Already, the construction of LNG receiving terminals in Asia and Europe is accelerating. These are the two markets most in need of large increases in imports. The continents need to both meet rising demand and restrain the prices commanded by long-term pipeline-delivered gas.

Luckily, LNG can do both.

The Ultimate Fate of the Keystone Pipeline

by Dr. Kent Moors | published January 20th, 2012

Yesterday the Obama Administration decided not to approve the Keystone XL pipeline.

This has introduced another political firestorm into an already uncertain market.

If there is one subject that is likely to stimulate more angst over economic recovery prospects, it is the availability of energy.

Energy is central in everything that happens in the U.S. market.

And Keystone is designed to transport up to 700,000 barrels of oil a day from Alberta to refineries on the U.S. Gulf coast. It represents a new North American-centered initiative to lessen reliance on Middle Eastern imports and would create thousands of new jobs.

It also would create new opportunities for investors.

But the pipeline has had its detractors from the beginning.

An Earnings Preview… for the Natural Gas Sector

by Dr. Kent Moors | published January 18th, 2012

Today, I’m convinced, is the financial media’s favorite day of the year.

For the next 24 hours, they have something to parrot from one show to the next.

That’s because Goldman Sachs (NYSE: GS) reported fourth-quarter earnings before the bell this morning, beating the ever-lowering expectations of Wall Street analysts.

And we all know how much CNBC loves to talk about these Masters of the Universe and what Goldman’s earnings mean for 2012.

An equally important company will report earnings after the bell. But it will receive far less coverage.

Later today, Kinder Morgan (NYSE: KMI), master limited partnership Kinder Morgan Energy Partners (NYSE:KMP), and limited partner Kinder Morgan Management (NYSE: KMR) will all report earnings for the first time since the parent company engaged in the largest energy deal of 2011 – the $37.8 billion KMI-El Paso merger.

And here’s the thing: I’m not worried if Kinder Morgan beats earnings estimates or not.

I’m more interested in its general performance. That’s because of what Kinder Morgan does and what it represents. This company’s recent activities provide a glimpse of the domestic energy picture and the major trends moving forward, particularly in the natural gas markets.

Put simply, we can learn from Kinder Morgan.

The company clearly understands where to put its money in order to profit…

Nuclear Energy’s (Growing) Rebound Potential

by Dr. Kent Moors | published January 16th, 2012

All the talk about Iran’s nuclear ambitions and potential military conflict has overshadowed the current dialogue on nuclear energy for peaceful purposes.

What is happening on this front is important – and surprising – to the energy markets.

Following the meltdown of the Fukushima Daiichi reactors last March, many people (quite naturally) thought that prospects for building large-frame nuclear power plants would now be off the table.

After all, close to one year after the disaster, Japan has yet to bring more than a few of its 54 reactors back online.

The central issue for Japan remains the economic impact of weaning itself off reactor-generated electricity. The island nation has no domestic energy resources and has to import virtually all of its oil and liquefied natural gas (LNG). That reality has forced Tokyo to backtrack on its commitment to curb Iranian crude imports only days after saying it would support the new U.S. and European Union sanctions. Between 10% and 15% of daily of Japanese oil imports comes from Iran.

When it comes to energy, the country faces a serious conundrum…

With its nuclear web severely impaired, and no alternative domestic sourcing to turn to, the Japanese economy is rapidly moving into an energy constriction. It faces much higher prices ahead.

And Japan is not alone.

Another Blow to Coal-Fired Power Plants

by Dr. Kent Moors | published January 13th, 2012

On Wednesday, the Environmental Protection Agency (EPA) issued its list of top greenhouse gas emitters from 2010.

Of the top 100 emissions sources, 96 were power plants, virtually all of them coal-fueled.

The EPA recently developed new air emissions standards to curb pollution. This follows a 2007 U.S. Supreme Court decision that ruled greenhouse gases can be regulated under the Clean Air Act.

This week’s report will provide more ammunition for the EPA to move on air quality standards.

But the EPA is not just targeting carbon dioxide levels. As I have discussed previously, new interstate air standards focusing on mercury, nitrous, and sulfurous oxide emissions will likely have a more immediate impact on coal’s prospects in generating electricity.

Even without a renewed EPA push, coal’s prospects were diminishing.

Even though it remains the cheapest fuel for power production on average, the environmental impact looms large.

And then there are the enormous reserves of unconventional gas that will capture portions of coal’s market share. The sources are primarily from shale basins, but they also include the rising production of coal bed methane and tight gas that have exploded onto the market in the last several years.

This gas largesse has put the cost advantage of coal into perspective.

Watch It Now: Kent Discusses a High-Stakes Game in Iranian Oil

by Dr. Kent Moors | published January 11th, 2012

Kent Moors Iraq OilThe interview, which I think you’ll definitely want to watch, highlights an important point that Kent has addressed numerous times regarding this ongoing period of increased volatility in crude prices.

To read more and watch the full interview, click here.

A Big Round of Energy Sector M&A is Coming

by Dr. Kent Moors | published January 9th, 2012

In 2011, we saw signs of renewed activity in mergers and acquisitions (M&A) among energy companies. This was especially noticeable with oil, gas, and midstream providers.

Still, what happened last year is nothing compared to what is coming in 2012…

And this is what I want to talk about today, because it will dictate how we oil and energy investors approach the market.

You see, as crude oil prices rise in both New York and London trading, and natural gas pricing remains stagnant (due to a continuing oversupply and unusually warm temperatures), the dynamics of the M&A activity will play out differently than they have in the past.

Understanding how and why is always the challenge, and I’m here to explain them both.

The Iranian Oil Spike

by Dr. Kent Moors | published January 6th, 2012

In addition to what I write for Oil & Energy Investor, Energy Advantage, The Energy Inner Circle, and the new Energy Sigma Trader, I also pen the lead Iranian/Iraqi oil and gas analysis for each edition of Thomson Reuters’ Caspian Investor.

(It’s true – I just can’t get enough of this stuff.)

That means I have a unique opportunity today to give my OEI readers a sneak peek at what I’ll be telling Thomson’s high-priced corporate- and government-level subscribers next week.

It’s big.

As you’ve no doubt noted, crude oil prices have moved up sharply since the beginning of January.

The Brent benchmark set in London is once again approaching $115 a barrel, increasing 3.6% since January 3. Meanwhile, West Texas Intermediate (WTI), set in New York, has been above $103, but increasing at less than half the growth rate of its London counterpart.

The spread between the two is again in double digits, with Brent higher than WTI by some 11%. That is well less than half of what the difference was a month ago… and less than one-third of the figure in mid-October.

However, it is widening again.

And this is a big deal for oil and energy investors like you and me.