How Significant is BP’s Gulf Oil Discovery?
America’s Astonishing Renewable Energy Potential
A Stock Pick of a Little Known Company
This month started with big news from oil company BP, which said it found an oil field deep below the Gulf of Mexico that may hold three billion barrels of oil. That’s a lot of oil–pull all of it out of the ground and it meets nearly three years of U.S. net oil imports.
Realistically, though, much less than that is likely recoverable, perhaps as little as 10% or as much as 50%. We won’t know until BP tries.
The find is significant given the fact that for many years the Gulf was considered barren of truly large oil fields, and the reality is that it’s increasingly rare to find an oil “giant.”
A giant oil field is one with at least 500 million recoverable barrels of oil. In the grand scheme of world oil, giants are important–they supply roughly 60% of all oil.
The problem is there are about 500 giants in the world and the vast majority of them were discovered over 50 years ago.
As a recently published study by researchers at Finland’s Uppsala University found, most of these giants are beyond their peak production capabilities, and facing declining production rates on average of over 6% a year.
The long and short of it is that by 2030 the Finnish researchers believe total oil production from existing fields will fall 50%. That’s similar to conclusions the Paris-based International Energy Agency reached last November.
Even if demand doesn’t change from 2008 levels the world will need to find another four Saudi Arabias to meet demand by 2030, the IEA says.
Of course demand will likely rise over the next 20 years–even the modest 1.6% annual rise the IEA projects means oil demand will be 45% greater than today.
So while BP’s Gulf of Mexico field is an impressive find, it won’t do much to alleviate our fossil fuel troubles.
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But there’s good news, of sorts. There are tremendous alternative energy sources here in the U.S. to replace that diminishing oil supply.
Quite simply, the U.S. is its own Green power Saudi Arabia.
Here’s one example. The state of North Dakota alone is capable of producing 25% of America’s energy needs from wind power, provided there are enough transmission lines and the locals don’t mind wall-to-wall turbines from Fargo to Williston.
But drop environmental concerns, land use concerns and ignore areas where wind is consistently below 14 miles per hour, and North Dakota still has the potential to produce 1,210 billion kilowatt hours of wind energy a year, enough to meet the average power needs of 100 million American homes, according to a study by the federal Pacific Northwest Laboratory.
North Dakota isn’t the only prime wind state. Texas has the ability to generate 1,190 billion kilowatt hours annually, followed by Kansas with 1,070 billion kilowatt hours.
Alabama, Florida, Louisiana and Mississippi are tied as the worst for wind, with no realistic wind power resources (the study didn’t examine the states of Alaska or Hawaii or offshore resources).
Whittle all that potential down to easily developable land, and that leaves wind resources nationwide to meet 20% of the nation’s total energy needs.
Of course, exploiting wind resources to its fullest is probably more than any of us wants to deal with. Good thing there is solar. Solar power is simply converting the sun’s energy into electricity.
Let’s look at the potential we all have access to. The typical square meter (or 10.8 square feet) in full sunlight gets one kilowatt hour of energy per hour. There are about six hours a day in which there is enough sunlight to trigger the typical glass solar panel to convert energy. That means there are 2,190 hours a year that square meter can generate a kilowatt hour.
The average photovoltaic panel now can convert about 16% of the sun’s radiation it receives into electricity, so that means our panel could generate 350.4 kilowatt hours annually. And that’s more than 25% of the average household’s needs–from just 11 square feet. Of course, there is bad weather and the fact you can’t cover the country with solar panels that production lowers that some more.
Yet still according to the Department of Energy, there is enough realistic solar potential in the US to provide 27% of total American energy needs.
The U.S. is also fortunate enough to have excellent geothermal resources–enough heat under the Earth’s surface to be able to generate steam or heat water to turn a turbine or transfer energy to an above ground application.
Total theoretical geothermal energy available to the U.S. is a jaw-dropping 30,000 years worth! But it’s unrealistic to tap anywhere close to that. What is accessible right now is enough to generate 59% of total American power needs.
The Department of Energy figures enough of that could be developed in the next 20 years to satisfy 39% of annual American energy demand.
So, combine the wind, solar and geothermal, we’ve got 86% of our energy needs covered in the next decade or two. What about that last 14%?
That could be pretty easily reached by adding a few more nuclear power plants and maybe adding some ethanol to the mix. But if nuclear scares you and ethanol’s effect on food prices worries you, we can instead cobble the remainder from a variety of other sources.
There’s tidal power–in which the coming and goings of the tides turn underwater turbines and generate electricity. That could power another 30,000 homes.
Burning more of our garbage in trash-to-energy plants would power another 20,000 households. Grabbing landfill gases that aren’t currently captured for energy would generate enough power for another 1,000 homes.
That still leaves us a few million households short, but we’re getting there. Conservation could easily make up the difference.
Now consider how much of that Green energy potential we’re tapping. Of the 100 quadrillion barrels of oil-equivalent energy the United States consumes each year, 85% comes from fossil fuels, 8% from nuclear power, 3% from biomass (primarily wood burning) and 2.5% from existing hydroelectric, like the Hoover Dam (there are no more large scale hydroelectric projects planned for the U.S. and likely never will be, due to environmental concerns). That’s 98.5%.
The remainder, just 1.5% now comes from solar, wind, geothermal, biomass, tidal and other still developing alternate energies combined.
And yet having just scratched the surface of our potential, we have already seen some fantastic stocks make plenty of money for Cabot Green Investor subscribers.
Here are two recent examples: Last month we cashed in a 32% profit on SQM, a Chilean miner of lithium, an essential, ingredient to hybrid car batteries. We bought shares in March just after the market bottomed and sold in July as the shares eased off their 52-week high and we sensed weakness–shares have eased further since. A couple of weeks ago, we sold Green Mountain Coffee Roasters for a 74% profit after buying the organic and fair trade coffee company in April.
And currently, we have winning positions in a wind company, a solar-related technology outfit, a Green car-related company, a Green engineering firm, an organic food company and others.
Our picks are confidential for Cabot Green Investor subscribers, but I know readers of Cabot Wealth Advisory always appreciate a current recommendation, so here is one that is still a buy.
It’s a company few Americans have heard of: Telvent (TLVT). It’s a Spain-based information technology company that manages Green resources, like watersheds in Spain, the mass transit electric systems for Sao Paolo, Brazil, and automated toll collection on Chinese highways.
The company has been in its four business segments–transportation, energy, agriculture and environmental services–for over 20 years and has the benefit of consistently large and stable business as a result (it had 55% of 2010 expected sales locked up by December 2008).
Last year, it earned $1.41 a share earnings and sales of $1.45 billion. Yet it’s also a growth story in the area of smart grids and smart meters.
Telvent just won a $150 million contract (it will share one-third to half of that with a partner) with Finland’s largest utility to help install smart meters in 3.1 million customer homes and is working with Progress Energy Carolinas to implement smart grid technology to manage loads at peak demand hours. Presumably, that’s a prelude to even more impressive wins.
At 27 a share, it’s still priced at a reasonable 17 times trailing earnings in a segment of the energy industry–smart grids and grid efficiency–that is growing double-digits worldwide.
The latest issue of Cabot Green Investor has two more high potential stocks (of a smart grid technology company and a brand name household product maker). Subscribe today and you’ll have access to those two picks immediately, as well as the full analysis of Telvent.
For Cabot Wealth Advisory