An Infinite Source of Energy Resources

We didn’t run out of stone in the Stone Age. We didn’t run out of bronze in the Bronze Age, iron in the Iron Age or gold in the Golden Age.

So why do people keep saying we’re going to run out of energy resources like oil? We won’t, we’ll move on. Why? Because we want to consume. And we need energy to do it. Lots of it. So we will always look to increase the energy efficiency of what we currently use (oil, coal, natural gas …) and try to find efficient alternatives.

That creates a pair of investment opportunities for you.

The first is in owning rights to the energy resources that are growing increasingly rare, and therefore expensive. The second is placing bets on what’s up next on the path of human power consumption.

Our editors here at Port Phillip Publishing are well on top of both opportunities. It’s no coincidence that the ‘Oil + Energy’ section of the Australian Wealth Gameplan portfolio is averaging a gain of more than 82%. Including two triple-digit gains in about six months.

But before we get into how to make money from energy trends, there’s something else you’ve got to see first. You see, they can be counterintuitive.

Why Energy Efficiency is the Environmentalist’s Worst Enemy

Most people like the idea of energy efficiency. They believe if we could just make our coal power plants put out more power for every lump of coal, or if we could make solar panels convert the sun’s energy at a better rate, we’d be able to reduce our carbon footprint. We’d live much more sustainable lives.

I’m not so sure…

Every time there has been an innovation in energy efficiency, the human race has ramped up its activities dramatically. Burning coal instead of wood may be more efficient. But it didn’t exactly cause us to have a smaller impact on the environment. Instead we used the coal to transport more chopped-up wood than was ever used before.

The same goes for Boeing’s new Dreamliner, its most fuel-efficient airliner yet. Do you think it will reduce fuel consumption? Our bet is that more people will fly. And they’ll fly further than before. As each mile becomes cheaper, people will extend their reach. And we will pollute more than ever.

The reason for this counterintuitive reaction to energy efficiency is surprisingly intuitive if you think about it. As energy becomes more efficient, it also becomes cheaper. And cheaper energy makes more energy-using projects viable.

Think about it in terms of your Sunday drive, fishing trip or holiday. How far you go – and whether you go at all – is often determined by cost. If the cost falls, you might go more often or further than usual.

All this means that energy efficiency is a source of economic expansion and therefore increased energy use. Energy efficiency is an environmentalist’s worst nightmare.

Why We Never Run Out of Energy Resources, We Just Move On

The best thing about the free market is that it adjusts itself at exactly the right rate. As we run out of oil, it will become more expensive. That in turn makes more difficult oil discoveries viable. And it makes oil’s alternatives more viable too.

So just when people start to worry about running out of oil, we will move on to the alternatives. But only once those alternatives become viable relative to oil. Of course, it’s not an immediate switch. Energy alternatives slowly develop as oil slowly depletes. It’s a steady, calm changeover. Not like implementing carbon taxes or emissions trading schemes. Those are disruptive, unpredictable changes that endanger the efficient use of our existing resources. Unless, of course, they are implemented by a bunch of bungling bureaucrats. Then there’s no way of predicting what will happen.

According to analysts at UBS, the European Emissions Trading Scheme ‘is actually making coal more attractive than renewable energy.’ Oops. But don’t lose faith if you’re a nature lover. The free market will overcome government’s pro pollution policies.

Hoarding Energy Resources of the Past

What depleting energy resources can you invest in today, in the knowledge that they will become more expensive and therefore profitable for owners? The big one is obviously oil. Much has been written about peak oil – the idea that we are on the cusp of declining oil production. That’s an unfair misrepresentation of a more complex idea, but the investment implications are quite clear. Buy companies with impressive oil reserves and companies that specialise in oil that is hard to get.

Diggers and Drillers editor, Dr Alex Cowie tipped an oil stock just last month. It’s up 27% in only 31 days. (To find out more, click here.)

Some sources of energy are so plentiful, they fall by the wayside because of their lack of energy producing efficiency instead of their depletion. Coal is probably an example of this. We aren’t likely to abandon coal because of a shortage causing a price hike. And it’s not likely that coal will fuel spaceships in 50 years. But that doesn’t mean coal companies are a bad bet in the meantime. Especially if they are raking in cash.

Picking the Energy Resources of the Future

Trying to figure out what will power us into the next age is far more exciting. That’s usually a bad sign when it comes to investing, but the rewards will draw you in anyway. There are a couple of picks for the energy producing resources of the future. But first, a quick note on strategy.

Rather than thinking you know best, it’s probably a good idea to diversify your bets on future energy developments. A nuclear power believer would’ve had a tough time keeping the faith when the tsunami hit Fukushima’s nuclear power plant. Uranium stocks halved.

Australian Uranium Shares Index


This may be a brilliant buying opportunity. Dr Cowie thinks so. He wrote this in Money Morning on Wednesday:

So what I expect in 2012 is a steady recovery, with the uranium price around $60/lb by December. This would be a great result after last year’s massive fall in uranium prices. It would help bring uranium back onto the menu for investors.

This is the kind of buying opportunity you should wait for in other energy industries like solar and wind power. Just when they are most unpopular, it’s time to pounce.

Our favourite energy pick of the future is thorium. It’s like uranium, without the problems. But finding a more or less pure thorium investment opportunity is a bit of a pain in the neck. And the profits could be many, many years away.

So let’s focus on something a little more topical. The International Energy Agency asks ‘Are We Entering A Golden Age of Gas?’ Australian Wealth Gameplan subscribers certainly are. Dan Denning’s three gas tips on Thursday were up 106%, 215% and 198%. These days, you can tell an AWG subscriber from their swagger.

Is it too late for you to profit from these tips? We’re not so sure. The three tips are focused on a certain geographic area in Australia that’s seen most of the drilling action. But there are plenty of other regions set to come into focus now that companies have proven the gas boom isn’t just hot air. We wonder how many Australian Wealth Gameplan subscribers have taken matters into their own hands and are picking up similar stocks with claims in those other areas.

Then there’s the opportunity to pick up the larger companies that end up generating the cash from these new energy resources. The companies that will be acquiring, producing and selling the power you like to consume.

We’re thinking about adding one of them to feature in our speech at Port Phillip Publishing’s first investment conference in Sydney on the 14th – 16th of March. We’ll be talking about the world ‘After America’ and the investment opportunities it presents. It would be great to see you there. If you’d like to come along – and haven’t got your ticket yet – please click here.

Until next week,

Nickolai Hubble.
Markets and Money Weekend Edition

ALSO THIS WEEK in Markets and Money

What the Greek Debt Crisis is Really About
By Dan Denning

Greece isn’t about saving Greece. The only reason something so small and insignificant can matter so much is that it matters in a way no one is willing to say. It’s about the subversion of sovereignty and democratic processes by removing decisions from people and giving them to trans-national financial elites. It’s about preserving a global system that’s based on the accumulation of debt and growing government power because there are two groups of people who benefit tremendously from that system, even if most people don’t.

WTF, Warren Buffett?
By Tim Price

And yet, the rot set in (at least as far as this writer is concerned) when Buffett went from investing in private non-financial businesses to siding with the establishment, using his institutional heft to win sweetheart deals in dubious banking institutions way beyond the reach of regular Joes…And at the first sign of trouble, he simply wraps himself up in the American flag.

Greek Default Therapy
By Eric Fry

The newest austerity deal is not a rescue plan; it is a captivity plan. It provides the same kind of “rescue” that a circus provides an elephant: dance on a stool under the Big Top twice a day and we won’t forget to toss some hay into your cage. To change metaphors, the newest austerity plan is an imprisonment pan: it straps leg-irons onto a nation that is already shackled to a monstrous debt load and a deeply depressed economy. The country’s GDP is tumbling faster than Icarus into the Aegean Sea.

Borrowing Your Way Out of Debt and Other Normal Abnormalities
By Bill Bonner

The feds didn’t invent their EZ money theories. John Maynard Keynes came up with the goofy program many years ago. He met with Franklin Roosevelt and explained the idea. Roosevelt later confessed that he had no idea what Keynes was talking about. But he liked Keynes’ palaver. Because it gave him a theoretical justification for taking control of the economy.

Nick Hubble
Nick Hubble is a feature editor of Markets and Money and editor of The Money for Life Letter. Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like. He then brought his youthful enthusiasm and energy to Port Phillip Publishing, where, instead of telling everyone about Markets and Money, he started writing for it. To follow Nick's financial world view more closely you can you can subscribe to Markets and Money for free here. If you’re already a Markets and Money subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Markets and Money emails.

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4 Comments on "An Infinite Source of Energy Resources"

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Rod Campbell-Ross
Interesting article on energy. A bit more knowledge and realism, but still basically Economics 101 – the price mechanism will save us. Lets switch to another discipline: ecology. In ecology a population that outgrows its environment because of the temporary availability of some or other resource is said to be in overshoot. Overshoots are always followed by die backs. Normally we think of animals or insects when discussing die backs, but the principle is equally valid for humans and humans have suffered die backs several times in our past. The key assumption in the Economics 101 view on energy is… Read more »

“Arithmetic, Population, and Energy,” 45 mins (or so) out of your life if you choose to watch all 9.

Thorium. Free energy. Think OUTSIDE the “box”. Break the paradigm. Be in control of your OWN future.

Nathan Chattaway
Rod, nicely put! You’ve saved me a deal of time correcting Nick. Nick, the market can’t solve Energy Return On Energy Invested (EROEI) issues. Simply put, if you expend 1 unit of energy extracting 1 unit of energy, nobody will bother to do it. So, a rising price of oil will bring online attempts to extract oil from harder to get places, but only until EROEI approaches 1. As a strong indicator that EROEI is getting worse, look to deepwater drilling attempts. Why would you risk the cost, loss of life and damage to the environment unless you’d already used… Read more »

mine anti-matter in Atlantic Anomaly region…nuff said

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