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PowerShares Financial Preferred ETF Message Board

  • ltbhdollars ltbhdollars Sep 26, 2004 11:01 PM Flag

    Why Energy might be a Good Place to be

    Tug, just ideas that may provide a bit broader horizon on why myself and others believe energy has had and continues to have alot of promise.

    Oil and NG (natural gas) are limited commodities whose new supply/available undiscovered reserves has been and will continue to dwindle while world demand continues to increase.

    Oil is a world commodity that for the US has supply limiters of world production capability, finite tanker (ship) numbers that are tight, finite storage capacity and lastly a refinery capacibilty that is strecthed and that is mainly light sweet capable while supplies are mainly heavy sour. (All that extra Saudi oil that is always talked about is heavy and sour. Therefore meaningless to US who cannot refine it in any significant qantities).

    Middle East heavy crude and its issues should not be confused with the larger Canadian tar sands operations such as COS who are minig heavy oil but then convert it to a light sweet syncrude through a very costly process. This crude is useable and desireable for US refiners. NOTE: this is NOT a plug for COS. I do not own, have never owned and probably never will own COS (Canadian Oil Sands).

    NG is a regional commodity because it is not practical, cost effective or safe to transport it in meaningful quantites. It is only practical via pipelines which due to cost limits supplies to Canada, Mexico, the Gulf and of course, domestic.

    NGs major limitations are storage which is filled during the spring and fall, pipeline capacity which limits amount that can be delivered to storage/users at any given time, how hot it gets in summer that brings gas fired peak geanerators online for the AC load and how cold is the winter when the use of gas for heating has a greater demand than supply therefore storage is drawn down to meet demand. Of course too much cold for too long and the limited storage becomes exhausted.

    So both oil and gas, their prices and the prices of their producers should continue to climb over the long haul because absolute supply is finite, limited and diminishing while demand is infinte and increasing.

    Futhermore, the above phenomina provides more leverage to the price of NG since it is a regional commodity. Currently though, the constant terrorism problem has caused the price of oil to marginally outpace that of NG.

    Oil and gas as an industry, has always been a very cyclical boom and bust business. And on many of the past upcycles, investors and producers have thought not this time only to be proven wrong.

    There are a few things that are different this time that may well assist that outlook. Producers have not ramped production as in the past thereby killing the goose; there haven't been any major finds like Lady Fern where there was a mad rush for everyone to get their straw in the ground before the reservoir was sucked dry.

    On the oil side, China and India, with their huge populations, have finally entered the industrial age and are consumming large amounts of oil in the process.

    And the icing on the cake, is when a large staid income producer like ERF (along with many other income trusts) which is a holding for an income investor and paying 22% a year ago, becomes a cap gain growth stock which has doubled but still pays 10%+, all due to more investors awakening to the thoughts mentioned above.

    Almost all the major analyists have been predicting falling oil prices for several years and continue to look you in the eye and say $20 oil....seems that not only O&G prices have not been listening but more and more investors also.

    These are just some quick, off the top of my head thoughts on some of the energy dynamics in a simplistic form. These are all MHO and should only be used to assist in highlighting areas you decide to do further DD.

    Contact your financial advisor for investment advice. Enough ramblings for the night.


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    • I believe energy stocks could be in a long term bull market as in ten years or more! Two days ago I added IXC SOSA PLLL.My dad has been in PEO for the last three months.We both sold KSP too soon, but it might be bargin yet....AL

    • Got to think a little more about what you wrote. The prices of oil related stocks may still have quite a way to go. Tough call but I think a small portion of portfolio should be in energy. I still have FRO,VLCCF,SFL,SFF,SPH,SGU, and PEO.

    • Thanks for the coverage. Just one addendum. One fairly certain future aspect of the natural gas situation is LNG. Africa is loaded with NG and it must be liquified in order to be able to transport here. Also will require the construction of LNG ports up and down both coasts with the associated NIMBY issues. How this plays out in the five to seven year period is unclear. Opportunities could exist in new tankers, construction or operation of LNG ports, and in whoever owns the fields in Africa from which the NG to be liquified is extracted. It is unclear to me if CanRoys can legally get involved in the latter aspect of this opportunity.

      • 1 Reply to captainlate2001
      • Cap,

        Intentionally did not mention LNG, wind, fuel cells etc as possible future benefactors of higher energy costs. However, recently (last 2 weeks) IIRC New Brunswich just gave completed approvals for an LNG build within couple hundred miles of the very lucretive US NE. Of course, even if everything is ready to go right now, still probably at least 6 years down the road till its online.

        Again IIRC, it was a Canadian jv with one party a Canadian trust....just do not remember the details...I frequently forget more than just the dimest of details due to the vast quantity of daily reading and my senior memory limits, lol. Besides we all know you cannot stuff very much into a small container.

        I would guess the "safest" but also a longer term way to play this angle would be stranded NG producers and or current flairers... bit more risky but also more immediate, someone currently is running several LNG liquidification plants with one location in Trinidad (also seem to remember discussion of them buildin a pipe to the US)...again cannot remember any details past that except they may also be shipping to the Maryland LNG terminal (dusted off 20+ yr old mothball). NOTE: All this speculation is way off the beaten path of this INCOME investor so use with extreme caution.

        Sorta agree on the tankers, future looks bright for the short term but they are historically violently up and down from a day to day basis as well as seasonally. Personally, biggest stay away sign is ease/possibility of terrorism and second place goes to inconsistancy of distributions....just my inclinations, I choose to spend my risks in other ways.

        As to airlines; in all fairness I choose not to comment on them other than to say I do not believe the words INVESTOR and airline belong in the same sentence and certainly do not believe INCOME investor and airline are even in the same universe. Harsh perhaps but my simple opinion.


        PS I generally try to provide info for folks to followup and form their own opinions and the prior posts were for anyone but specifically intended for Tugs question on 1)whether trusts could buy/sell assets and 2) why energy may continue to outperform (which form(s) and stocks are an individuals choice)

    • I think it is a little late to get into energy stocks including tankers. At the current high stock prices, everyone is following this group, and I feel that the risk/reward is nor favorable. Agree that a small position may be alright but would not buy heavy.

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