1. Fuel cells are a complete boondoggle. Hydrogen is produced from either electrolysing water or stripping it from natural gas. Both are expensive and energy-intensive. The future of fuel cells could be as, effectively, ‘batteries’ in vehicles or heavy equipment, or in homes and buildings. This role could be enhanced and expanded, if they can use natural gas to produce electrical power. They are presently a sideshow, at best.
2. Solar power has some niche uses, but will take a long time to become economical, and by that time electrical demand even in North America will increase by more than the contribution from this source. Solar power satellites could be viable, but lifting costs to orbit are still too high. However, I can see more and more buildings, commercial, institutional, and family homes, start using solar panels. This sector is highly vulnerable to disappointment, and to the removal of government support and subsidies.
3. Wind power is unreliable, but big offshore installations in very windy areas like the North Sea and the Straits of Magellan could make some sense. Again, their contribution to the overall mix will take a long time to make any difference. Governments do not have the money to subsidize this industry to the extent it wants and needs due to highly constrained budgets.
4. Biomass has some promise. Farm, food processing, and forestry waste is being lost without benefit, and there are some new processes that can turn it all into either ethanol or hydrocarbons economically. They can start to contribute soon, but there are a number of issues, such as logistics, that need to be dealt with. Iogen, which is still a private Canadian company, has made a lot of progress in this area. U.S. companies which are dependent on ethanol-in-fuel mandates and protective quotas on sugar are artificially being kept alive. They may not be long for this world and political support for them has declined drastically in recent years.
5. Electric cars: Pure electric cars do not yet make sense for practical and economic reasons, but hybrid and ‘plug-in hybrid’ ones are becoming more and more attractive, particularly as it becomes more obvious and evident that oil and gasoline prices will remain elevated, and that natural-gas based electric power could remain economical for many years to come. It is interesting that Tesla Motors has made a viable business in this space.
6. Insulation; smart grids, smart buildings, and smart roads; LED and Organic LED lighting, televisions and displays, and new integrated circuits that are far less power hungry, all have good payback profiles at current energy prices, and using current best-technology. There are some institutional, cultural, regulatory, and practical obstacles to deploying this technology, and, while it could be useful, it does not seem likely to displace much energy use, but it can significantly slow down the increase in demand. Some companies like Emerson Electric, Honeywell, and ABB, are involved in devices and other products to make the power grid and transmission systems more efficient.
7. Energy storage is central to making alternative energy sources economically and practically viable. There have been some great leaps forward in battery technology. Lithium and secondarily vanadium seem to be central to these new products. There are no good large cap ways to ‘play’ this; there are some microcaps that are aggressively looking for these resources. Lithium is fairly common, but is usually dissolved in saline water bodies, or groundwater, and takes some expense to extract and purify.
8. The support and enthusiasm for the ‘Anthropogenic Global Warming’ (‘AGW’), or its successor thesis, ‘Climate Change’ seems to have peaked and has substantially declined, in the face of apparent fraud in the ‘Climategate’ scandal of late 2008, and several other incidents where AGW advocates at least appeared to squelch debate, smear or shut out skeptics, demonize or vilify opponents, lose whole historical records, and deliberately select or ignore data to support their positions. The politicization of the whole issue has tainted any true, objective examination of it. The economic crisis of 2008-2009 then made prosperity the priority over environmental objectives, in any case, just as it did in China, India, and other major not-fully developed nation greenhouse gas emitters, who cannot afford carbon sequestration and other expensive abatement methods. Once more, this favors natural gas; it can make AGW almost a non-issue, as half its energy comes from burning the hydrogen part of the methane molecule, only half from the carbon.
9. President Obama may or may not be reelected in 1 ½ years’ time. Whatever his fate, it appears likely that the Senate will be won by the Republican Party in November 2012, bringing the entire U.S. Congress under its control, meaning that Mr. Obama’s environmentally restrictive, anti-oil, and pro-alternative energy policies and agenda will no longer be supported or funded. Any such alternative energy sources will have to survive and prosper on their own merits, and they may initially have problems doing so. This could be a ‘good buying opportunity’ for the risk-loving speculator as the value of solar and other companies in that sector plummet. Any such companies will have to be low-cost and low-debt.
In conclusion, the world economy cannot withstand oil prices that are much higher than today’s. There is no shortage of oil or energy, except in the short term, and it is and will be exacerbated by political problems. Unfortunately, a major crisis cannot be ruled out, and it could easily cause another major recession. All of the major oil exporting regions are politically despotic, unstable, or both: Russia, the Middle East, Nigeria, Sudan, Algeria, Central Asia, Venezuela even Mexico. Alternative energy sources cannot fill the void, even in the best scenario.
Yet, there is still hope, as I outlined. Its other name is Gas.
Zacks Investment Research
