I hope you all can join me on my journey to educate myself on the future of our world economy and Alternative Energy’s place in this new age. As I am new to this study, I welcome all contributors to not only share their knowledge, but for contributors to share their lack of knowledge. All of your opinions, based on facts or fiction, are important to know. Your questions, both technical and simplistic are welcome, as we all may share your curiosity and fear to ask those same questions. If what I say, has been said before, I apologize for my redundancy. If questions I pose, have answers that have been answered, please share those answers. (I truly am new to this) …and most important, if you feel I am wrong or not properly analyzing something, please speak up. That is the best way for me to learn.
As a beginner/amateur to this field of research, I hope I can provide the same forensic analysis that I have been able to apply to our financial markets by maintaining an impartial, unbiased view of this growing industry and its vast components that make it up. In addition, it will be important to understand the industries shortcomings and constraints due to the current crisis, as well as the existing cartels that have molded its growth.
As America ushers in new hope, through changes in leadership, I can only hope the same “timeless creed” can be applied to successfully employing change in the way we harness energy and treat our planet. The path to alternative energy will be a long road, and to its critics I say with a degree faith: Yes we can!
So without further ado I offer my first contribution:
PAST: – Mission Impossible
In order to understand any part of alternative energy, I feel you have to first analyze the history of energy and what has brought us this far.
Websites like the Oil Drum, and Peak Oil have discussed at much greater length, and in a much more educated way, oil’s place in our society. I hope to offer views that may or may not have been discussed. To start, I will not argue “peak” oil. Nor will I try to speculate on concepts of overall supply or eventual worldly demand. (at least not today) In my opinion, it is hard to argue for or against any theories within this spectrum as true or factual, as I am led to believe so much of what we read is nothing more then speculation.
Oil is a unique animal in the world of commodities. Too much or too little success will breed failure. They both offer equal risks. Oil Price increases, makes alternative sources more financially viable, as well as decreased price destroys their profits. Companies like Exxon have spit in the face of these risks with an attitude of: We are oil. This is what we do, you need it, we’re the best at providing it and all alternatives will not be financially viable. They are correct! So far. But, in my opinion, that same mindset is what worked for Wall St for so long and was its eventual fatal error.
Granted, Exxon does own many of the best alternative energy patents, and has the capitol to buy any upstart companies that could provide viable options that are cost effective, but this approach is susceptible to additional risks that Exxon may not be ready to face. Will oil cartels have access to capital if they don’t receive the same preferential treatments they have in the past? Can their stock piles of cash absorb higher taxation while at the same time pay the new obligations of more expensive and complicated extraction of the black gold? Will recent oil price increases and environmental responsibility force/scare the world into creating alternative energy sources regardless of cost? Will Alternative Energy growth outpace demand growth, and if so, would these renewable sources of energy create a death spiral of lessoning demand for oil? (Remember, less demand will force price decrease for an industry that is most susceptible to failure through price decrease.)
Now, not all oil companies are the same. Cheveron / BP / RoyDutchShell / C.P. / and the South Americans Companies, have shown a public willingness to start looking into these alternative sources. They’ve adopted green slogans, euphemized their names, and actually started spending some capital in this arena. (Exxon’s only real forays into this related “efficiency trend” have been bettering the use of oil through cleaner or more proficient burning.) The modern era of Research and Development for alternative energy will be very costly. With the current constraints on the worldwide economy, and the massive inflow of cash from the record high oil prices, the oil industry will be a key player in the advancements in this field. For those oil companies that spend that new found wealth early and often, this will be a marriage made in heaven based on current worldwide private credit supplies and demands of their interrelated products.
I have taken a statistical review of oil and shredded it in as many directions as I know how, to find a trend. I took real price history and compared it against inflation adjusted prices. Then tracked year or year trends based on % fluctuations. I did this with 5 & 10 year price averages. …and did their % fluctuations. Then I did the same with inflation adjusted pricing. Then I looked up world events based on timeline shifts… (I’m tired) …and I’m left with 1 word. WOW! Oil should be spelled W.O.W.!!! When you dip you hands and brain into this commodity you really can’t help but feel overwhelmed! (I’m stunned that I didn’t even realize oil was selling at $11 a barrel less then 10 years ago!!! I’m embarrassed that I didn’t know the size of the run up!) In addition, these charts I created look nearly identical to those of websites that I am now finding after the fact that I wasted so much time putting data together!!! (WTRG / InflationData were by my accounts, very accurate and I will consider using them for future information) …but creating my charts from scratch gives me perspective of oil’s actually size and history.
What I found was shocking to me! First, I am 100% changing my stance on $70 buying opportunities. Based on what I’ve put together, I created/calculated what I believe will be failure lines on both the high and low side of oil prices. …and 70 falls well into the failure range! In my opinion, if oil does not return to a $40-45 range within approximately 4 years, they run the MASSIVE RISK of operating in the “self destruct” range.
Below is a rudimentary model for trends and ranges. My actual version is much more complex, but this is just to get a point across…
(First $price$ is actual price average, second $price$ is inflation adjusted price)
From 1945-1972 = $3 x $20 built palaces in the deserts. It created Kings and Princes.
From 1973-1980 = $4-$37 x $22-$97 this was due to turbulence/wars
From 1980-1986 = $37-$14 x $97-$28 were a critical adjustment from self destruction
From 1987-2002 = $17-$22 x $28-$33 were proper growth which built cities in the desert
From 2002-2008 = $27-$97 x $32-$98 are once again due to turbulence/wars
From trend analysis, I say a critical adjustment down is necessary. In addition, to speed up that adjustment, we have seen a significant adjustment in the price of oil in comparison to the dollars strength vs inflation costs. The increase of oil price grew so disproportionate to dollar (due to its decreased value) that the spread of cost effectiveness of oil is way to tight. This is a double whammy on the risk side of self destructive prices. (Now let’s not forget… High prices are destructive, but not nearly as destructive as under pricing. …so oil must find that equilibrium soon, as every day it’s overpriced it will cause more reverse pressure on itself.)
***From a mathematical perspective, self destructive high oil prices can best be defined by this absurd scenario: It could potentially pay for the US government to eat the cost of putting electic cars in the hands of its citizens, just to avoid the negative impact of the cost of oil. It would be a roundabout way of ring fencing dollars, and increasing oil supply (which further reduces prices)
PRESENT: – A New Hope
Despite what oils grasp looks like on the US and the world of energy, there is proof of a change in tides. (though small… it’s a start)
Actual figures may vary, but the way I see it, approximately 75-80% of oil use is based on fueling transportation. (Raw material for chemicals/plastics (feedstock), Energy (heating homes/factories/refineries), Asphalt, lubricants, etc… make up the rest. Within the existing energy market, where alternative energy has found it’s niche, renewable energy makes up about 6-7%.
So to paint a mathematical picture lets look at 100 barrels of oil:
7 of those barrels are used for energy.
Those 7 barrels provide the US with 39% of its used energy. (coal 22%, natural gas 23%, nuclear 8%)
The renewable sources provide the rest 7% (Biomass 3.6%, Hydro 2.5%, Geothermal 0.35%, Wind 0.3%, Solar 0.08%)
Yes!!! That’s right! Alternative energy is currently a pimple on the ass of elephant that is OIL! ..but that’s gonna change!
What has to be looked at first are the other 93 barrels of oil.
I’ll break them into 3 categories:
Alt Energy Positive = 
Alt Energy Neutral (alternatives may or may not exist?) = 
Factory heat 5-barrels
Energy for Refineries 3-barrels
Rail Freight 2-barrels (very grey area here)
Alt Energy Negative (efficiency possibilities exist but not elimination) = 
Trucks (freight) 13-barrels
Raw Material 10-barrels
Air Travel 7-barrels
Road pavement – 3-barrels
Water Freight – 2.5-barrels
Machinery – 2-barrels
The Auto Industry:
In a perfect world, where we were able to maximize our alternative resources, we could reduce those 100-barrels down to 41, and potentially lower with breakthroughs within efficiency fields. No where is the commitment to ridding the world of its dependence for oil more obvious then the auto industry. This is fairly obvious, but sometimes lost in the hoopla of solar/wind/hydro is the fact that the auto industry uses 7x more oil the entire energy market does in the US. (so if every ounce of energy, electric, etc was being produced via alt en sources, it would still be 14% by comparison to automobiles) Alt Energy’s current impact is 45x less then the current auto use alone.
This leads me to believe (as I’ve stated in the past) the US auto industry will be recreated/saved/overhauled. Depending on which happens, and their current status, I see a an upside investment opportunity that could outweigh the risks of failure. In the event of Chapter 11, (which they likely need) I would be bullish on the restructure. In the event of Chapter 7, I would become bullish on the competitors.
***completely off topic, I’d just like to say that Diet Mug Root Beer is far and away the best tasting diet soda I have ever drank!!! I just finished 2 liters while typing. For those who hate that “diet taste” I say give this drink a chance.***
OK, Where was I…
Another sector I haven’t had enough time to research and would greatly appreciate input is within the battery companies that supply the auto industry. I know JCI (Johnson Controls) is in the electric car field and may be well positioned for a boom… but I don’t know who supplies them and their like companies? Ener1 (HEV) also comes to mind as a battery cell provider… but I have not looked at their books.
FUTURE: – Genergy X
So where are we tomorrow in alternative energy if oil is just too big to stop???
That is the million dollar question that shortsighted people just can’t see beyond when thinking “long term investments”. The concept of “renewable source” of energy means that it’s INFINITE. Small increases in infinite sources create perpetual growth. This will consistently cut into the demand side of finite/dependent resources like oil.
For example, in the new technology age, with big screen HDTVs, central air units, whirlpool tubs, computer systems, etc… we generally see 1.1% year over year demand increases in energy consumption. Our fossil Fuels have not kept that pace within this arena. Instead, these alternative energy sources have picked up the slack and then some:
(Granted, they are small in size, but their YoY growth is impressive considering their infinite potential)
Wind 17% 1 year increase, with a 4 year increase of 64%.
Biomass 6% 1 year increase, with a 4 year increase of 22%.
Solar 10% 1 year increase, with a 4 year increase of 20%.
Geothermal 3% 1 year increase, with a 4 year increase of 7%
***What I can’t seem to figure out is Hydro? Something smells rotten! For quite some time, oil companies have acknowledge Hydro as one of the only energy sources that could potentially compete based on production and cost effectiveness. Why have there been decreases in production? -16%!!! Like I said above, something smells very rotten here? Have some damns collapsed that I did not hear about? I am reminded of Enron’s taking California power companies “offline” to manipulate the cost of KW by decreasing supply. …so why would the “efficient” supplier be producing less. (and it’s SIGNIFICANTLY LESS!) I hope there is a justifiable reason for this.***
From an investment standpoint, I am not comfortable advising on any specific alt energy providers yet. (Especially since credit/capital is sooooo short right now, and these companies have large upfront overhead for R&D. Many of these companies will be forced to raise capital in the near future, and will likely come up empty.) …but what I do see is the daisy chain of alternative energy. On the infrastructure and suppliers side, there are decent opportunities. These players will likely be the first beneficiaries of paying contracts that the Government will likely fund.
If the auto industry increases its supply of electric cars or hybrids, then there will be an increased demand for electricity. Koppers and Stella Jones (KOP & STLJF) both supply the majority of the US utility poles (and railroad ties), which will both likely see contracts and payments made (while the rest of the country is reeling)
…as for the biofuel crowd. I don’t know why something isn’t sitting right with me here??? I understand the awesome benefits to being carbon neutral (for those who don’t know carbon neutral, it means there 0 negative environmental effects from using this. Oil was a biofuel billions of years ago before being locked underground. Anyway, by burning these fuels, they release carbon, rather then methane (which they release through rotting) Methane eventually turns to carbon (but I think at something like a 4:1 ratio???) Anyway it actually pays to burn it. On top of that, by using xxx biofuels it means you’re using xxx less oil, which when burned will release its trapped carbons into the atmosphere.)
…but aside from just the bad gut feeling about there being some overlooked factor (a doomsday unforeseen variable), I only see biofuels as regionally efficient. If they have to be shipped, then they have defeated their purpose as the cost overcomes its actual value. Based on that alone, there are only a few Midwest states that I see, that really stand to benefit from this.
I hope this was useful. Like I said, this is a new field of study for me, but I soon hope to be a trustworthy source of information, advice and insight.
Now it’s your turn to write!
Miss America – Rich Hartmann
p.s. I’m looking for a catchy title to my reoccurring Alternative Energy posts. For now it’s: Alt-enRGE playing off the RGE blog, but I’m open to new suggestions.
p.p.s. Thank you all for your replies last week. I apologize if I can’t always reply. I don’t have enough free time sometimes. Outerbeltway, medic, hazel, bcdogs, AfA, FreeT, great G, Lord, USSR, p1aql, lance, and even Mark (who really cut me down the prior week), miss I, and DetGen (whom should not have tae my rants personal. They are really directed at our shock highlight driven media in the US. I applaud him for being here and trying to spread the word)… KEEP the comments coming. And feel free to spread the word if you visit other sites. Cut and paste away. I’d appreciate it.
…and of course LB… Thanks as always.
p.p.p.s. Lets keep this area Ryscamp free!!! (Feel frre to like the guy if you do, but I’ve got issues. A year and a half ago, he forced me to shred his agenda and theories. If he disagrees, or you prove him wrong he ignores you. My advice is to just disregard his self promoting rhetoric, rather then waste time exposing then fraud that he is.