| [Editor's Note: This is the eighth installment of our | | | | nation’s energy mix with more wind, solar and |
| “Outlook 2009” series, which looks at the | | | | other renewable sources. |
| global investing outlook for the New Year.] | | | | |
| President-elect Barack Obama has made no bones | | | | "That’s sort of like my wife saying she’d |
| about wanting to jump-start the renewable energy | | | | support divorce under certain situations," says William |
| markets – pledging $150 billion for the | | | | Kovacs, the U.S. Chamber of Commerce’s vice |
| development of biofuels, solar and wind power, other | | | | president of environment, technology, and public |
| alternative energy sources during his first term. | | | | affairs. |
| But what might the new administration mean for | | | | |
| more traditional – and more reliable –energy | | | | In fact, the Barack Obama/Joe Biden New Energy |
| sources? | | | | for America Plan, while recognizing that nukes provide |
| Oil is always the first energy source to spring to | | | | 70% of our non-carbon-generated electricity, says |
| mind. But it’s hardly a solo act – coal and | | | | that “before an expansion of nuclear power is |
| nuclear make up the other two-thirds of the top fuel | | | | considered, key issues must be addressed including: |
| trio. Coal delivers 50% of U.S. electricity needs, and | | | | security of nuclear fuel and waste, waste storage |
| nuclear power brings another 20% to the table. | | | | and proliferation.” It goes on to say that the |
| The cold truth is that demand for energy of all types | | | | team of President-elect Obama and incoming Vice |
| – and especially electricity – is going to keep | | | | President Joe Biden “do not believe that Yucca |
| advancing, domestically and worldwide. And | | | | Mountain is a suitable site as a long-term repository |
| developing alternatives to coal and nuclear will take | | | | for spent nuclear designed for long-term storage. In |
| time. For instance, tying wind and solar into the | | | | any case, the earliest the storage site could open |
| existing power grid will be enormously expensive and | | | | would be 2017, and that was before Republicans lost |
| is likely to pose massive technical and engineering | | | | control of the Senate. |
| problems. | | | | |
| In fact, according to the International Energy | | | | With Senate Majority Leader Harry Reid, D-Nev., |
| Agency, renewable energy isn’t likely to make a | | | | firmly opposed to nuclear waste storage in his home |
| meaningful dent in meeting the world’s energy | | | | state – and with the Obama administration ready |
| needs before 2030, if then. | | | | to hold the industry’s feet to the regulatory fire |
| And regardless where the power comes from, our | | | | – any plans to expand the nuclear industry in the |
| appetite for electricity will continue to skyrocket. | | | | United States now face a high hurdle. |
| Across the planet, overall electricity consumption is | | | | |
| expected to double by 2030, increasing by 17 trillion | | | | But nuclear proponents are hardly impotent. The |
| kilowatt hours. While electricity demand will | | | | Nuclear Energy Institute, the industry’s most |
| “only” increase by 50% in the U.S. market by | | | | powerful lobbying group, helped craft the Energy |
| 2030, demand will increase 400% in China and six-fold | | | | Policy Act of 2005 with more than $12 billion in |
| in India. | | | | subsidies for nukes. |
| Our research indicates that President Obama will have | | | | |
| very little flexibility in solving our short-term energy | | | | Maintaining nuclear energy’s current 20% share |
| problems once he’s sworn into office next | | | | of generation would require building three reactors |
| month. While he may prefer the environmentally | | | | every two years starting in 2016, based on U.S. |
| friendly alternatives, most of those replacements are | | | | Department of Energy forecasts. Right now, some |
| far from fully developed. | | | | 17 companies and consortia are pursuing licenses for |
| The bottom line: Obama’s apparent preference | | | | more than 30 nuclear power plants with the Nuclear |
| for renewable energy aside, coal and nuclear power | | | | Regulatory Commission. |
| are fully deployed, and in widespread use, meaning | | | | |
| they’ll remain the backbone of our energy sector | | | | But the last operating license for a nuclear plant in the |
| in the New Year – and for years to come. | | | | United States was issued in 1978, and the approval |
| | | | process takes a minimum of 24 months after site |
| Even so, it’s well worth factoring in all the | | | | approval, which can take years. Expect lots of public |
| possible players as we examine energy-sector | | | | comment and infighting in Washington, as applications |
| outlook – and the accompanying potential profit | | | | wind their way through the approval process at the |
| plays – for the next 12 months. King Coal Reigns | | | | NRC. |
| Supreme | | | | |
| When it comes to future energy profits for | | | | Meanwhile, the rest of the world is racing ahead with |
| investors, coal and nuclear will continue to be the | | | | plans to up the ante in the nuclear power game. |
| “dream team” for years to come. Coal will | | | | There are currently 440 nuclear reactors in 31 |
| provide the answer to our short-term and | | | | countries that generate about 16% of the |
| intermediate energy needs. It’s plentiful, it’s | | | | world’s electricity. |
| cheaper than other available alternatives, and a big | | | | |
| percentage of the world’s power plants burn it. | | | | Uranium-fueled nuclear energy is rapidly gaining global |
| Nuclear power offers a long-term solution to energy | | | | acceptance as a clean, reliable alternative to such |
| shortages and a clean solution to global warming, as | | | | dirty-burning fossil fuels as coal and oil. In a twin bid |
| well. Uranium-fueled nuclear plants are cheap to | | | | to combat global warming and keep up with soaring |
| operate, can run for long periods without refueling, | | | | demand for electricity, countries are rushing to build |
| and cause little pollution. | | | | nuclear power plants. Under current projections, 630 |
| While there is widespread distaste for coal-fired | | | | reactors will be operating in 55 countries by 2030. |
| power plants that spew billions of tons of carbon | | | | |
| dioxide and other pollutants into the air, there’s | | | | It’s the new technologies those reactors are |
| no doubt coal will continue to be the dominant player | | | | designed around that are aimed at allaying the |
| in the electricity game for some time to come. | | | | public’s perception about the safety of nuclear |
| A full 50% of the electricity U.S. consumers use is | | | | power. Toshiba Plant & System Services, which |
| generated by coal, and coal is king in the rest of the | | | | has built 112 plants in the past 12 years (more than |
| world, as well. According to the IEA, coal accounted | | | | any other company), is working on a |
| for 42% of all worldwide electricity consumption in | | | | “mininuke,” according to Forbes magazine. |
| 2005. | | | | Called the “4S” (short for Super-Safe, Small |
| But get this – the agency predicts coal use will | | | | and Simple), it uses a bath of molten sodium to |
| explode by 73% over the next 20 years. That’s | | | | produce steam twice as hot as steam from |
| the largest projected percentage increase of all | | | | water-cooled reactors. The 4S can crank out as |
| energy sources. | | | | much as 50 megawatts of power, easily enough to |
| As you might suspect, China and India use 45% of | | | | fire up a small factory, or to service an entire town |
| world’s coal and will be responsible for 80% of | | | | that’s located off the main power grid. |
| that increase. China, alone, uses more coal than the | | | | |
| United States, Japan and Europe combined. China is | | | | On top of that, the mininuke can go 30 years |
| utterly dependent on coal to run its factories and | | | | without refueling, as opposed to typical reactors, |
| assembly plants, with coal supplying 80% of its | | | | which must be fed every 18 months. And the 4S will |
| electricity. The Red Dragon also is the world’s | | | | be safer, because the reactor core is deep |
| top producer of steel, a process that’s also a big | | | | underground, well protected against a terrorist attack |
| burner of coal. | | | | or earthquakes. |
| But while China is coal’s largest consumer and | | | | |
| producer, the United States controls 27% of the | | | | China and South Africa are working on so-called |
| world’s proven reserves, the biggest-single | | | | “pebble-bed reactors,” one version of which |
| percentage on the planet. That puts this country | | | | is filled with 100,000 billiard-ball-sized spheres of |
| front and center on the worldwide coal stage, and | | | | coated uranium that are cooled by helium. That |
| President-elect Obama’s energy policy in the | | | | eliminates the need for enormous pressurized |
| spotlight. | | | | water-cooling systems and million-dollar containment |
| The president plays a pivotal role in shaping the | | | | domes, making them virtually meltdown-proof. |
| nation’s energy policy, naming top officials at the | | | | |
| U.S. Environmental Protection Agency (EPA), the | | | | U.S. firms are also on the trail of smaller and safer |
| Office of Surface Mining Reclamation and | | | | designs. A Santa Fe, NM company called Hyperion |
| Enforcement and the U.S. Army Corps of Engineers. | | | | Power Generation Inc., is working on a hot-tub sized |
| Obama has proposed an economy-wide | | | | design, which eliminates the need for the notoriously |
| cap-and-trade system to reduce carbon emissions by | | | | unstable uranium control rods. U.S. giant General |
| 80% by 2050. His system – which would set an | | | | Electric Co. (GE) is working on new, more efficient |
| overall emissions limit, then require polluters to buy | | | | designs, as well. |
| allowances at public auction – would increase | | | | |
| electricity rates and discourage coal consumption in | | | | No matter how you slice it, the fuel for the reactors |
| the U.S. market. President-elect Obama even has | | | | in those plants all depend on a scarce commodity |
| stated that any utilities building coal-fired plants could | | | | – uranium. Flat out, there’s just not enough |
| go bankrupt buying pollution allowances. | | | | “yellow cake” to go around. It takes seven |
| And on Capitol Hill, newly emboldened Democrats | | | | to 10 years to transform a uranium discovery into a |
| recently tackled global warming and other | | | | fully operational mine. With that kind of lag time, |
| environmental problems by choosing Sen. Henry | | | | it’s clearly almost impossible for supply to keep |
| Waxman, D-Calif., to head the House of | | | | up with demand. |
| Representative’s Energy and Commerce panel. | | | | |
| Waxman has already signed onto legislation that | | | | Until recently, the market reflected the scarcity, rising |
| would ban any new coal-fired power plants that | | | | as high as $137 a pound in 2007. But lately, despite |
| aren’t built using new technologies that capture | | | | the global shortages, uranium prices – in |
| carbon dioxide and store it underground, a key part | | | | sympathy with other commodity prices – have |
| of the Obama energy plan. | | | | nosedived. |
| Luke Popovich, a spokesman for the National Mining | | | | |
| Association, said he believes Obama will be pragmatic | | | | Prices have fallen 40% this year, leading to a sharp |
| about the need to keep coal in the nation’s | | | | decline in the share prices of mining companies, and |
| energy mix. | | | | eviscerating the financing for extraction projects. In |
| | | | | the last month alone, six uranium mines in western |
| | | | | Colorado and Utah were either put on hold or closed. |
| "He presumably would be sensitive to the impacts of | | | | |
| energy policies given the perilous state of the | | | | Some experts lay the blame for this current credit |
| economy," Popovich said. | | | | squeeze squarely at the feet of hedge funds – |
| | | | | who they blame for buying up uranium – and |
| But while U.S. utilities may eventually be forced to | | | | banks no longer willing to lend money. |
| tighten emissions rules and increase rates, | | | | |
| Obama’s renewable energy plans will have very | | | | “Hedge funds were selling off their uranium to |
| little impact on U.S. coal producers in the near future. | | | | raise cash, and the prices just plunged,” said |
| | | | | George E.L. Glasier, chief executive officer of Energy |
| The world needs coal. We have it. And we’re | | | | Fuels Inc., a Canadian junior miner that recently put a |
| going to sell it. | | | | Colorado mine project on hold as part of a |
| | | | | “capital preservation” strategy brought on by |
| In the first half of 2008, U.S. coal exports increased | | | | the credit crunch. |
| by 13 million short tons, or 50%, over first-half 2007 | | | | |
| shipments, according to the IEA. Strong global | | | | Uranium prices fell to $75 early this year, and fell as |
| demand for coal, combined with supply disruptions in | | | | low as $44 this fall. The spot price now is $55. |
| several key coal exporting countries (Australia, South | | | | |
| Africa and China), were the primary factors behind | | | | With the worldwide growth in the industry – and |
| the increase. | | | | a classic supply/demand imbalance in the making |
| | | | | – someone is eventually going to have to pay |
| But lately, coal prices, along with the prices of other | | | | the price. History shows when uranium prices move |
| fossil fuels, have suffered from the global economic | | | | higher, uranium stocks almost always hitch a ride |
| crisis, and from a resurgent U.S. dollar. An 80% | | | | North. So when uranium prices advance – most |
| decline in global shipping rates has also fostered | | | | likely to new highs – expect mining stocks to rise |
| competition from other exporters, like Australia, | | | | in virtual lock step. |
| which can now ship farther and compete with U.S. | | | | |
| exporters. | | | | But notwithstanding global growth – for now, at |
| | | | | least – Obama’s energy plan and the |
| As a result, the price of Appalachian Coal on the New | | | | mothballing of mines makes any uranium play a |
| York Mercantile Exchange (CME) has fallen to less | | | | long-term proposition. |
| than $80 a ton from $143 in July. | | | | |
| | | | | Besides Toshiba (PINK:TOSBF), the stocks to |
| This will have a negative impact on coal producers | | | | consider include Cameco Corp. (CCJ), the largest U.S. |
| until the world economy is able to gather itself back | | | | producer; and General Electric, which has a presence |
| up and build up a new head of steam. | | | | in the commercial nuclear power market here and |
| | | | | overseas. Also, take a look at Rio Tinto PLC (RTP) |
| But don’t expect the slump to last long. | | | | and BHP Billiton Ltd. (BHP), huge international mining |
| China’s economy is getting a shot in the arm | | | | firms with large uranium deposits. Each of these firms |
| from a gigantic $586 billion stimulus package, | | | | would stand to reap substantial profits from a |
| cementing growth expectations for 2009. Expect | | | | resurgent price in yellow cake. |
| U.S.exports to accelerate when that kicks in, probably | | | | Outlook 2009 – and Beyond |
| in the second half of 2009. | | | | |
| | | | | However, regardless of what uranium does, coal is |
| Since the stock market usually leads economic | | | | still the 800-pound gorilla in the energy world. In the |
| indicators by six-to-nine months, right now is a good | | | | United States, no matter how lofty our |
| time to be looking at candidates for your investing | | | | environmental intentions may be, it’s unlikely coal |
| dollar. But you should be cautious about pulling the | | | | will be regulated out of existence anytime soon. |
| trigger. Watch construction activity in China – | | | | That’s especially true overseas, where coal is |
| especially steel demand in the late spring – for | | | | playing a crucial role, fueling the transformation of |
| the first signs of a rebound in coal prices. | | | | such countries as China and India from “emerging |
| | | | | markets” into first-order powerhouse economies. |
| When you think things are ready to take off, | | | | Given that, the world market simply can’t |
| Peabody Energy Corp. (BTU) and Arch Coal Inc. (ACI) | | | | replace coal anytime soon, either. |
| – the largest U.S. producers – are worth a | | | | |
| look. For those who like to play a basket of shares, | | | | As for nuclear power, safety improvements and |
| the Market Vectors Coal exchange traded fund | | | | other technological solutions make nuclear energy a |
| (KOL), or ETF, provides the desired diversification. All | | | | viable energy source for the long term, eventually |
| three securities are trading at discounts of at least | | | | grabbing a bigger piece of the energy pie – |
| 80% from their July highs, and currently trade at | | | | especially overseas. |
| bargain basement multiples. | | | | |
| | | | | The bottom line: The economic outlook for both coal |
| If you want a coal play that bets directly on China, | | | | and nuclear power is upbeat. Investors might look at |
| Money Morning Investment Director Keith Fitz-Gerald | | | | both energy plays when considering how to allocate |
| likes Yanzhou Coal Mining Co. Ltd. (ADR: YZC), one of | | | | their portfolio – for the New Year and beyond. |
| China’s biggest coal suppliers. It produces lots of | | | | |
| high-grade, low-sulfur coal, which burns cleaner and | | | | [Editor’s Note: Money Morning’s |
| therefore fetches a premium price. The company | | | | “Outlook 2009” economic forecasting series |
| boasts profit margins of 22%, when the industry | | | | last looked at the outlook for retail sales in the New |
| averages half that. The company profits are up a | | | | Year. Next up: Latin America. Check out past series |
| blistering 364% in the year’s first three quarters, | | | | stories, which have underscored that uncertainty will |
| compared with a year ago. The stock trades at only | | | | continue to be the watchword for at least the first |
| three times earnings and has a dividend yield of 4.3%. | | | | part of the New Year. Little wonder, as the global |
| Nuclear Power: It Struggles in the U.S., but Thrives | | | | financial crisis continues to whipsaw the U.S. financial |
| Abroad | | | | markets in a manner that hasn’t been seen since |
| | | | | the Great Depression. It’s almost enough to |
| Nuclear power is attractive to the energy industry | | | | make you surrender. But what if you knew, ahead of |
| because it produces electricity on a predictable, | | | | time, what marketplace changes to expect? Then |
| 24-hour basis – earning it the industry sobriquet | | | | you’d be in the driver’s seat – right? |
| of “base load” power. Coal and hydroelectric | | | | You’d know what to anticipate, could craft a |
| plants are the only other power sources that also | | | | profit strategy to follow, and could then just sit back, |
| rate that label. Such alternatives as wind, solar or | | | | watching and waiting – and finally profiting from |
| biofuels do not. | | | | – the very marketplace events you anticipated. |
| | | | | |
| During its term, the Bush administration tried to spark | | | | R. Shah Gilani – a retired hedge fund manager and |
| a “renaissance” in the construction of nuclear | | | | a nationally known expert on the U.S. credit |
| power plants. And during his presidential campaign, | | | | crisis– has predicted five key financial crisis |
| Sen. John McCain stood firmly behind the | | | | “aftershocks” that he says will create |
| industry’s hopes of building 45 new reactors by | | | | substantial profit opportunities for investors who |
| 2030. | | | | know just what these aftershocks are, and how to |
| | | | | play them. In the Trigger Event Strategist, Gilani |
| Interest in new types of reactors seemed to hint at | | | | describes how investors can use these aftershocks, |
| least at the beginnings of a new start. But | | | | or “trigger events,” as gateways to massive |
| President-elect Obama has been lukewarm on nuclear. | | | | profits. To find out all about these five financial-crisis |
| He acknowledges that nuclear is one of several viable | | | | aftershocks, and about the trigger-event profit |
| components of the nation’s energy portfolio | | | | strategy they feed into, check out our latest report.] |
| – the current 104-plant fleet provides 20% of | | | | |
| America’s electricity – but has questioned its | | | | To read more click here. |
| safety while emphasizing a need to diversify the | | | | |