The Scope of the Gulf Disaster
The Latest Clean Energy Bill
A Stock the Bill Promises to Boost
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As of this morning, BP’s uncapped wellhead one mile below the surface of the Gulf of Mexico has spewed somewhere between 135,000 barrels of oil (using the official estimate of 5,000 barrels per day) and 1.62 million barrels of oil (according to a 60,000 bpd estimate by Austin-based research firm Stratfor) into the Gulf of Mexico. Just how much oil is that? Somewhere between 5.7 million and 68 million gallons, the latter enough to fuel the entire war efforts in Iraq and Afghanistan for a month.
The Exxon Valdez, by comparison, released 250,000 barrels of oil, which ended up coating 1,300 miles of Alaska coastline and 11,000 square miles. The worst oil discharge in history is believed to have come during the first Persian Gulf war, when retreating Iraqi agents opened the faucets of oil pipelines and dumped eight million barrels into the gulf.
A chilling example of just how big an area this current spill covers was created by a Google Maps engineer who uses the company’s map program to overlay the area of the spill as of May 6 onto where you live, or any other place you prefer (http://paulrademacher.com/oilspill). A comparison to my native Long Island, New York, shows it covers well more than the island, Manhattan and Westchester and good chunks of New Jersey and Connecticut, too.
Plugging the broken BP well has obviously been a problem. The failsafe system, which should have used a number of different methods to plug the leak or crimp the pipe, failed. The next option, basically a giant lid called a cofferdam, froze before it could get to the bottom. A smaller one just recently went into service. If it fails, BP may try to inject golf balls, discarded tires and other “junk” into the hole under high pressure to plug the leak. Failing that, perhaps the Russians can help--they reportedly had great success on at least four occasions in the 1970s plugging uncapped wellheads by setting off nuclear bombs near them. Yikes.
I have no fundamental opposition to offshore drilling, but between this disaster and the investment bank crisis of 2008 make me wonder when companies will start spending time planning what they’ll do when their bets go wrong--and when the government will start requiring them to do so. It also tells me we need alternative energy options so that such risky endeavors aren’t necessary.
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To that end, I don’t know if the Gulf disaster makes it a good time for it or not, but last Wednesday, U.S. Senators John Kerry and Joe Lieberman introduced their American Power Act. Because I have two kids under three-years-old and therefore need no assistance whatsoever to fall asleep at night, I’ve barely waded into the 987-page bill.
But thanks to a colleague at the excellent renewable energy news blog ThePhoenixSun (http://www.thephoenixsun.com), I was able to read a staff-only internal 21-page summary of the bill.
Found in its pages: Despite the ongoing BP disaster, Kerry and Lieberman stick with the new plan for offshore drilling on areas of the coasts previously off limits; it calls for a speeding up of the regulatory approval process for new nuclear power plants, boosting electric vehicle infrastructure across the country, researching carbon sequestration, creating a carbon reduction system--primarily a cap and trade among the largest 7,500 carbon emitters in the country (with, thankfully, a provision to keep the trading market transparent), and a healthy incentive system for investing in natural gas vehicles and infrastructure.
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As editor of Cabot Green Investor, a newsletter that focuses on the technology that will transform our energy future, there is a lot in this bill that intrigues me. The nuclear option (forgive the phrase) could re-energize investing in some stodgy utility companies as well as the significant number of uranium miners and related companies.
Carbon sequestration is a nascent industry--so much so, some would argue it isn’t an industry at all--that holds out the promise of an undiscovered company with revolutionary technology making a lot of investors rich.
Carbon cap-and-trade may benefit some big investment banks, but almost certainly would create new dedicated trading companies and exchanges we could potentially invest in, too.
Right now, the option with the most immediate potential effect on the market is the section on natural gas vehicle incentives. For one, a provision to double tax incentives for the next 10 years will reduce the payback period for the extra cost of a CNG vehicle for fleet operators such as waste haulers and 18-wheelers well below one year.
Natural gas in its compressed state is a fairly attractive alternative to gasoline and diesel powered vehicles. Technology-wise, it doesn’t take a great deal of effort to make a new car or truck run on CNG, or convert a traditional engine to use it and it’s proven technology--a recent estimate showed CNG vehicles accounted for 25% of all new cars sold in Italy, a country that has done the most to encourage CNG use.
On average, a CNG vehicle emits about 30% of the pollutants of one that runs on diesel. That means right now, trucks using CNG are already compliant with strict new Environmental Protection Agency pollution requirements that went into effect this year, rules that are so strict at least one diesel engine maker decided to exit the business rather than try to meet the new standard. Airports and seaports, under pressure to reduce their carbon footprint and improve their air quality, love CNG vehicles, too. The Port of Los Angeles and Long Beach, for instance, is demanding CNG trucks and forklifts be used on site as part of their plan to meet impending California emissions regulations.
The issue that Cabot Green Investor subscribers received last week features a company that is already a leader in natural gas engines and stands to see its business supercharged by passage of natural gas incentives (and even if the Kerry-Lieberman bill fails, there is a bill in the House to extend similar CNG incentives and tax breaks, and it has 137 co-sponsors). They also learned of a company that uses its technical skill to build an essential part for the next generation of auto and consumer electronic lithium batteries. I can’t tell you what either stock is, since subscribers need time to build their positions. But I will tell you about an excellent natural gas related stock we’re watching for the future.
It’s Fuel System Solutions (FSYS), a California-based company with excellent exposure domestically and in that CNG hotbed of Italy. It specializes in systems to retrofit cars and light trucks to use CNG and kits it sells to automakers like Fiat and Ford to produce cars that use CNG off the assembly line.
The company has beaten Wall Street earnings estimates seven of the past eight quarters, including most recently when it reported $1.59 per share earnings when equity analysts were expecting just 91 cents! And this is during a time when gasoline prices are actually relatively low--imagine what they may do when gas prices inevitably rise again. For the full year, Wall Street expects sales of $445 million and earnings of $2.42 a share.
We sold our previous position in FSYS ahead of the market correction in January for a 16% profit. We have learned in the growth sector of Green to weigh both fundamentals and the indications given by trading patterns to invest successfully. And looking at FSYS right now, in my opinion it’s not a buy; the market correction at the start of the year did some technical damage and buying power remains low. Shares still need to vault resistance at 35, around which the 200-day moving average sits. Market conditions can change of course, but right now it looks like it if can settle over that level, it should be ripe to buy.
Sincerely,
Brendan Coffey
For Cabot Wealth Advisory
Editor’s Note: To get more from Brendan on the top stocks that are changing our future, subscribe to Cabot Green Investor today! Along with your subscription, you’ll get Brendan’s newest Special Report, “5 Stocks Wall Street Visionaries are Buying Now,” to help you start profiting from the enormous opportunities in the Green sector today! Click below to get started.
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