Russia was forced to forge new deals with China because of the previous sanctions during the Ukraine crisis; Russia now sells high tech military equipement to China, which has increased Chinese power in East Asia and weakened U.S. miltary power. The U.S. is now likely to favor lifting sanctions because the military consequences are becoming negative. In addition, the Obama administration created a deal with Saudi Arabia to force oil prices lower to pressure Russia over Ukraine; this major impetus for lower prices is essentially mute. Saudi Arabia and other OPEC nations are losing billions of dollars by keeping oil prices artifically low. The Saudi attempt to force out low cost producers will boomerang, because Russia and Iran have more oil and gas than all of OPEC. They can bear lower prices and the Saudi's need higher prices more than Russia or Iran. The oil price boomerang should be soon. Finally, major American oil and gas producers are keen on the cost savings of Capstone turbines in a difficult pricing environoment.
During the past several days, the White House and EPA have been notified by an group of top scientists that climate change is accelerating and worsening more than anticipated. They have recommended that the U.S. utilize more nuclear power; nuclear power is seen as the most feasible energy to deal with climate change.
Check out the differential via web sites by comparing retail diesel to retail natural gas. It makes sense that the oil and gas producers want to find more markets for natural gas and it is a given that governments at all levels wants to increase gas and diesel taxes to raise revenues. The fall in oil prices has also meant a fall in natural gas prices. However, when oil begins to rise, natural gas prices will not increase as greatly. Another reason is that this winter and upcoming winters will be coming warmer; thus less demand for natural gas by utilities. A lot of natural gas will be taken off the world market by the restart of Japanese nuclear reactors. The outlook for natural gas is dampened demand for utilities and greater usage in the transportation sector.
The tremendous fall in oil and gas prices has state legislators scrambling to find more market share for natural gas in the oil and gas producing regions of the country. The oil and gas producers want to increase the use of NGV and are putting pressure on the legislators. The differential between diesel and natural gas has stayed constant during the decline; however, when oil begins to rise again, the price of natural gas is likely to remain lower than diesel, thus, further increasing the spread in favor of natural gas. Also, federal, state, and local legislators are using the low oil prices as a timely opportunity to increase taxes on oil products to raise revenues. Natural gas are likely to be taxed as a lower rate than diesel, thus, further favoring NGV adoption.
The dramatic decline in natural gas prices has many state legislators in the oil and gas producing regions eagerly promoting the use of natural gas in the transportation markets. We should begin to see additional tax incentives and more traction for natural gas vehicles. The precipitous fall in oil and gas prices has created a good scenario for WPRT. The differential between diesel and natural gas has stayed steady throughout the decline. However, the oil and gas producers want more natural gas use in the transportation sector; thus as oil prices begin to rise, the price of natural gas is likely to remain relatively lower than diesel and thus favor more NGV adoption. Federal , state, and local legislators are seriously looking at the low oil prices as a timely way to increase taxes on oil derivatives to raise revenues. Natural gas products will be taxed a lower rate than diesel, thus, further increasing the differential.
CPST is greatly undervalued and the economics behind the decline are not justified. The company will continue to gain traction and we may even see a positive profit for the upcoming quarter because of the large orders to Mexico. The time to buy is when the valuation of the stock is greatly askew.
WPRT has been gaining market traction ever since the stock began trading more than 10 years ago. Few know that the differential between retail natural gas and pump diesel has remained wide and still favors natural gas adoption by a wide margin. Oil would have to drop below $18 per barrel to seriously affect present retail NG prices. That is highly unlikely since natural gas would fall concomitantly with oil. With Japan restarting its nuclear reactors; Japanese LNG utilities will be importing less natural gas and dampen NG prices. The ongoing increase in warmer temperatures will also reduce the usage of natural gas by utilities. The price of natural gas will be going lower. The problem with WPRT is that there exists a perception problem among investors who do not understand the real dynamics between retail diesel and natural gas pricing nor the NG macroeconomics that will favor adoption. The U.S. still imports about 50% of its oil from other countries and will continue to do so in the future because of the decline rates of present wells even when new ones come online. In order for the U.S. to become more energy independent, it must begin to use more plentiful natural gas in the U.S. This implies that the oil majors will be more willing to accept adoption of natural gas engines in the transportation sector.
The White House is aware that Capstone Turbine provides the technology to capture flaring and leaking methane emissions from oil and gas wells. The EPA is aware as well. I surmise that the oil and gas industry will be implementing more controls on their own initiatives. without cumbersome legal interventions. However, both newer state and federal regulations are likely to prompt more leakage remediation from the industry. What is positive about CPST turbines is that they provide more cost savings; thus, with the collapse of oil prices, the industry will be looking for ways to cut operational expenses.
The U.S. imports about 50% of its oil. The declining rate of oil wells in the U.S. even though new ones will be produced will still cause the the US. to import more than 50% of its oil in the future. In order for the U.S. to become energy independent, it must increase its use of nuclear energy. This same scenario applies to most other countries in the world.
The share price indicates that almost all investors who have held the stock have lost money. During more than 10 years, the company has grown with alliances and increased patents. One has to wonder why the stock is greatly undervalued according to a book value much greater than the stock price. The price of natural gas has dropped concomitantly with the price of oil and the differential still favors transitioning to natural gas engines.
The huge drop in oil prices will ultimately be the undoing of the OPEC countries. The major reason is that American ingenuity has little credibility among OPEC members. American oil and gas engineering will be devising innovative ways to be efficacious in their operations, thus, lowering the cost of production. Oil and gas producers can use Capstone turbines to lower operating costs and become more cost competitive with OPEC. The silver lining in this scenario is the fall in oil prices is actually making oil and gas producers more competitive in the long run.
Forward earnings are hazy because of the downturn in the oil and gas industry. However, new regulations, and oil and gas producers wanting to be more efficient plays into a robust future. My guess is that next earnings announcement will actually be more positive than analyst's expectations. Mexico oil and gas orders are robust because of the build out of the Mexican oil and gas industry.
The White House is considering laws that would curtail methane emissions from oil and gas operations. They are aware of Capstone Turbine as a viable option for capturing emissions. New regulations to restrict emissions is likely to face stiff opposition from the republican congress. State regulations are likely to grow in addition to the congressional ones even if republicans attempt to modify them.
In 2015, we should see higher taxes on higher carbon fuels that are being implemented by local, state, and the federal government. The low price of crude oil is making it easier to raise revenue taxes when prices are low. Natural gas will be exempted in most localities or taxed a much lower rate than higher carbon fuels.
Oil and gas companies are scrambling for innovative ways to cut costs. One way is to capture emissions and use them to power on site production. In addition, both federal and state rules will be mandated in 2015.
The Obama administration and EPA are wanting stricter controls for oil and gas flaring and leakage. Primarily directed at methane emissions, the new regulations will come out in January. In response to these new rules, the oil and gas industry is maintaining that they are already working towards more controls. The low price of oil is forcing many oil and gas producers to see ways to cut costs, which means that Capstone turbines are a viable solution.
The Mexican project orders is only the tip of the iceberg. The tremendous decent of oil prices is forcing all oil and gas producers to be more energy efficient and reduce flaring. The producers are scrambling to reduce costs, which translates into robust business for CPST.
Those who deny climate change do so at their own risk. If 10 different doctors tell you that you have a serious disease then it would be wise to listen and get some help instead of being in a state of denial.
Erroneous thinking, for now is the time to buy when the stock is grossly oversold. Natural gas prices should remain advantageously priced to diesel.