Latest Energy Bull Market Won’t Be Confined to Crude Oil

One interesting aspect of this latest energy bull market is that it won’t be confined to crude oil. Coal might be loathed. But it’s hard to imagine the modern power grid supplying base load electricity without coal. Anyone who tells you that base load power needs can be met with alternative “clean” energies is living in fantasy land.

That said, coal stocks stand to lose the most from cap-and-trade or emissions trading schemes that put a price on carbon dioxide. Even so, there ARE plenty of unconventional hydrocarbons out there that can provide transportation fuel or gas streams for turbines to generate electricity.

Turning stranded coal seams into liquid fuel is a kind of “energy mining,” a hybrid industry that’s capital intensive but also sensitive to global oil prices. Australia is full of these “energy mining” projects that could benefit investors. Today’s Age has a story about underground coal gasification. It’s a story we first covered in the Australian Small Cap Investigator in June of 2007, which, by our reckoning, was about two years ago.

Since then, editor Kris Sayce has looked at the coal-seam-gas industry brewing in Queensland. He’s found a few recommendations that have zoomed up with the interest of major international oil and energy players. And as we mentioned last week, the newest aspect of the “Long Aftershock” is the development of gas-rich shale formations. We’re on that story in this month’s Diggers and Drillers.

Our main point in all of this is that you don’t have to take the coming implosion of the U.S. bond market and soaring interest rates lying down. Oil, gold, gas, silver…precious metals and energy projects…these are all investments that ought to do well in an inflationary boom.

The big risk to all of these investment ideas is that deleveraging of global balance sheets sends all stocks down to new lows (lower than 2003) and sucks the global economy into a deflationary depression.

The only reason we doubt the deflationary depression scenario is that central banks have an unlimited capacity to print money to buy assets or finance fiscal deficits. Granted, this will ruin their economies if they do so. But it’s what they always seem to do. It’s part of that body of lies currently circulating that says it is always and everywhere appropriate for governments to run ‘temporary’ deficits in order to ‘support demand’ during a recession.

That’s a load of rubbish.

Dan Denning
for Markets and Money

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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Greg Atkinson

“But it’s hard to imagine the modern power grid supplying base load electricity without coal” Well I guess you are talking about Australia only because much of the OECD is going Nuclear again. Why Australia is not building a few Nuclear Power plants with Rudd’s $300 billion is beyond me, we have Uranium to spare and plenty of space to park those nasty looking cooling towers. I guess we will need to settle for pink bats and “clean coal”….

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