Print This Post
Final Newsletter: October 21, 2009
I’ve decided to stop posting to the Energy Investment Strategies web site and to take the site down eventually. There are two reasons. One is that I need to concentrate my efforts on fighting my cancer. The other is that I think to a large extent my original aims for this site have been accomplished. The site was started to educate investors about “peak oil”, its implications for potential future energy shortages, related increases in the importance and value of energy-related equities, and ways investors can best participate .
It’s hard to remember what enormous change there has been in public energy-awareness since the EIS site was begun in June, 2007. It’s not that I deserve any credit for that, which I don’t. Rather, I no longer have any “new news” to offer. Over the past 28 months the public saw the price of oil go from $30 to $140, energy suddenly become a source of great public awareness and anxiety, and Peak Oil theory become well known and widely understood. So the original message of EIS has been received.
The other reason I started EIS was for my own education, and in that regard the site has been a huge success. The commentary and information provided to me by many EIS readers has often been fascinating and sometimes even financially rewarding for me. I also feel like I’ve made some “internet friends” in the process. I’m delighted that some readers have found information on the EIS site to be useful and interesting and I’m deeply appreciative of the many messages readers have sent me indicating they found value at the EIS site. I’m also gratified with a degree of professional recognition the site has received as various web sites having chosen to cite my writings, including Seeking Alpha, where my readership has been robust. So writing and operating the EIS site has been a great joy for me.
At some point, we’ll take down the EIS site. I’ve removed the part of the home page where people can sign up to get e-mail notices of new posts and I will soon destroy the e-mail list of which you are a part.
Let me sign off with a brief discussion of some of my current thoughts on energy equities:
Rare Earth Elements
The popular press suddenly focused on rare earth elements over the past few months in response to China’s most recent reduction in its REE export quotas and the growing understanding among western governments and investors of the strategic importance of REEs, particularly for energy conservation, communications and military applications. As you know, China currently supplies 95% of global REE demand.
Demand is growing rapidly for REEs. Industry is working hard to find alternatives to scarce REEs, but often that’s not possible. New mines will be opened but that process takes many years so new supply coming to market is not likely to be rapid. If China grows 10% a year - or 33% in three years - and if China is now using the great bulk of it’s production domestically and if China is working to shut down and/or re-engineer small, environmentally toxic REE mines which are an important share of their total REE production, then it seems pretty likely that there will be a global shortage of REEs at some point in the foreseeable future.
One impact of the increased REE-awareness has been a dramatic spurt in the price of many REE stocks. Some have increased by seven-fold, all have increase greatly. There is some thought that the REE equities are now ahead of themselves, and I would not argue with that. Nonetheless, I think the attractive supply/demand outlook for REEs over the intermediate term of, say, the next four years justifies being invested in the sector.
My favorite is Lynas (LYSCF) which has the world’s largest REE supply and has now secured sufficient equity financing without Chinese domination. I also like Avalon (AVARF) which has North American reserves that emphasize the especially valuable “heavy REEs.” I also own some Great Western Minerals (GWMGF). It would not be surprising to see some additional pullback in these stocks beyond the 10% or so we’ve seen lately. But over a two or three year holding period I think they have room to be rewarding.
Natural Gas
My initial view of natural gas was wrong. Back in June, 2007, I believed that natural gas would peak some time after oil did, but not that much later. I was thinking that such a peak would come in perhaps 20 - 30 years. But recent developments in shale gas and new horizontal drilling techniques have radically changed the outlook for natural gas. There now appears to be enough natural gas for at least another 100 years - if not a lot longer - before any shortages begin to appear. Therefore, I now think gas prices will trade in a fairly narrow range and I would expect natural gas E&P equities, as a general rule, to be not very interesting as long term value plays.
As natural gas prices stabilize and as gas becomes ever cheaper than oil (per BTU) demand for gas will probably rise - both for electrical generating and for transportation. Increased demand for natural gas could well be a positive for gas pipeline and processing companies. Such stocks could be of particular interest to income-oriented investors. It could also be a positive for drilling and service companies.
Oil and the Global Economy (you can’t know one without the other)
Over the next five years the price of oil is likely to rise due to three factors:
1. supply/demand: increasing decline rates for old fields (peak oil) and growing automobile-related demand from developing countries will outweigh new field production opportunities and consumption saving in developed countries from new technologies for high mileage vehicles.
2. higher marginal production costs: new supplies are overwhelmingly coming from increasingly expensive deep water fields. Such fields are a substantial challenge to drilling technology and some have cost structures that can only be estimated today, but which are clearly above the current price of oil. Also, from a longer term perspective, such deep sea fields tend to have higher decline rates and far fewer work-over possibilities than land-based fields.
3.the declining value of the U.S. dollar.
The recent global economic melt-down has created a temporary glut of spare oil capacity. My most recent supply/demand projection analysis posted last March incorporated an assumption that excess spare oil capacity will peak at 5.8 mb/d in 2010. That projection still seems to be in the ball park. If the global economy has begun to start growing as recent reports seem to indicate and if it continues to experience moderate growth, my projection of oil supplies becoming tight by 2012 and extremely tight by 2014 should still be valid. So I continue to think we’ll see $100+ oil prices within a year or two and perhaps $200+ prices within five years, based only on supply and demand considerations. Of course the fact is that speculators tend to expand price ranges in anticipation of trends, as we are currently seeing with the price of oil. So the above high range could be conservative.
The greatest threat to global economic growth, I think, is the potential of a currency crisis related to excessive government debt creation. The U.S., Japan, and Britain in particular are operating at unsustainable levels of public deficit and debt. Achieving a “soft landing” to the problem of expanding government deficits will be a substantial challenge. Success would require one or more, perhaps all, of the following conditions: higher economic growth, higher tax rates (particularly on the wealthy), or lower government spending.
I know many people believe higher taxes are not compatible with higher economic growth, but I doubt that such is always the case. The experience of the Clinton tax increases followed by outstanding growth is an important contrary example. Much of our current debt/deficit problem was caused by reducing taxes on the wealthy under Bush. There is no reason why bringing those taxes back to where they were in a previously healthy economy would not help restore fiscal balance and thereby improve the U.S.economic outlook. It would take some money out of financial markets (which is largely where the wealthy allocate their ample excess funds) but it would not impact consumption to a noticeable degree.
If U.S. deficit problems are not resolved in short order (maybe two more years to start turning the corner) - or if the currency markets come to believe they may well not be resolved in time - there could be a U.S. dollar free-fall that could have drastic negative implications for global growth. A dollar crisis could require higher U.S. long term interest rates to support the currency, and that would hamper or defeat economic growth. A dollar crisis could result in another global downturn.
I doubt there will be a dollar crisis or a U.S. debt crisis because I think the center of gravity in the global financial system has shifted from New York to New York/Beijing. A dollar crisis would not be in the interest of the Chinese because they are opposed to anything that could interrupt their own steady and solid growth rate. If the dollar were to begin a precipitous fall, I suspect the Chinese would likely step in to support it both directly and by altering the exchange rate of the yuan. In return they would pressure the U.S. Congress and President to work toward reducing deficits through spending and taxing policies. I believe the Obama team would welcome such Chinese pressure and with or without Chinese pressure the administration will work hard to reduce government spending as soon as the U.S. economy starts to produce job growth. I think they believe, as Clinton did, that a balanced budget is a vital economic goal.
Even if there is no dollar crisis, the dollar is headed lower. One result will be to bring some jobs back to the U.S. Such an outcome will be acceptable to the Chinese in part because the Chinese have started to see the success of their own policies to stimulate domestic demand. Their economy is now growing at 10%+ in the face of falling exports because their domestic demand has become so strong, e.g. car sales up 85%.
There are two hiding places for people who are concerned about a falling U.S. dollar. One is gold. The other is all other commodities, primary among which is oil. Therefore, it is likely that over the next five years higher oil prices in terms of dollars will be aided by investors fleeing a lower dollar, adding impetus to the impact of tighter supply/demand conditions. One can see the process of investors fleeing the dollar for oil starting to happen in the behavior of China. That very canny country is trading as much as it can of its huge vault of dollars for stockpiles of commodities, including a plan to double its strategic oil reserve capacity over the next few years.
In sum, we should see higher oil prices resulting from higher marginal production costs for oil that are baked in and from sufficient global economic growth that demand for oil will rise to challenge the world’s ability to supply it. But if for some reason global growth becomes weak or even negative, that would strongly imply that the U.S economic growth had failed, which would clearly exacerbate the U.S. debt/deficit problem and thus implies a significant likelihood that the dollar will have depreciated substantially. That would also drive up the dollar price of oil.
I am aware that during the most recent period since the fall of Lehman, U.S. economic weakness and global risk-averseness actually resulted in a higher dollar as funds sought the “safety” of the dollar. That may not always be the case. With the U.S. debt and deficits approaching a dangerously high level, the world may start to change its mind as to the “safety” of owning dollars. That change would become a moving fault line in global finance. It would require rapid international agreement on a new reserve currency, a Bretton Woods on steroids. Such discussions are already happening in public and no doubt more intensively in private.
Higher oil prices do not guarantee gains in oil related stocks. Either of two very general economic outlooks would likely result in higher oil prices over the next five years but they could have very different implications for oil equities. In the first case, decent global growth (3% - 4%), stocks are likely to be quite strong, particularly oil related equities. But in the event of poor global growth, which implies particularly poor performance by the U.S., the dollar may fall precipitously thus tending to increase the price of oil, but stocks in general, including oil stocks, might not do well at all.
I am inclined to the optimistic view, that we will see decent global growth and that the U.S. will come to grips with its debt and deficit problems. Of course it is possible that some other economic future awaits us. There are obviously no guarantees. So good luck to all of us. Best wishes for our health and our prosperity. I’ve enjoyed writing and editing Energy Investment Strategies. I could not have done it without the help and encouragement of many readers, so to you go my thanks, along with my
Best wishes,
Print This Post
56 responses so far ↓
1 Jimp // Oct 21, 2009 at 3:15 pm
Get well Jim K, I do hope one day you will return to write again. I appreciate all your keen insights. Take care.
Jim
2 Jeff // Oct 21, 2009 at 6:36 pm
I wish you a successful fight to rgain your health. Your site hasd been a primary source for me and I’ve always appreciated your blanced and well-informed presentations, it will be sorely missed. I’d hope you would create an addendum of a handful of sites your particularly recommend. Best, Jeff
3 richard // Oct 22, 2009 at 9:12 am
Jim, didn’t know about your illness…sorry to hear about it, and am wishing you the best of luck.
I’ve been a regular reader, and will miss your considered and informative articles and posts.
Hang in there….
Best regards,
Richard Schlecht
4 Gary // Oct 22, 2009 at 9:12 am
Jim,Get well soon. I am sorry to hear that you are fighting with cancer.
5 Jean-Claude Küng // Oct 22, 2009 at 9:14 am
Take all your time to fight this undesirable guest.
Your knowledges will miss us.
The day your are fit again, try to “reopen the store” with your brilliant experience.
All the best !!!
6 Carl Haefling // Oct 22, 2009 at 9:28 am
I wish you the greatest success of all–beating cancer. I have joyed your insights and hope you will once again return to writing about observations,
Carl Haefling
7 max carcavallo // Oct 22, 2009 at 9:30 am
Jim , Thank you for sharing your knowledge . Best wishes . Max Carcavallo
8 Edward Kaye // Oct 22, 2009 at 9:36 am
Jim,
many thanks for freely sharing so much insight and analysis with all of us. It has been a great pleasure to learn from your posts. I will pray and focus my intent on speeding your return to perfect health. In this regard, I recommend “conscious language now” by Robert Tennyson Stevens. Thank you for everything.
Eddie
9 Barry // Oct 22, 2009 at 9:36 am
I do hope that you will fully recover your health.
Thank you for sharing your thoughts. They have led me to new vistas.
10 James // Oct 22, 2009 at 9:45 am
Best wishes for full recovery.
11 Steve Sink // Oct 22, 2009 at 9:54 am
Thanks for your insight on energy. It has been very helpful to me. I wish you a 100% recovery from cancer and many healthy years forward.
12 Pat Woodruff // Oct 22, 2009 at 9:55 am
Wind to your wings, Jim. Not only have I appreciated the good info and knowing you put forth your best thinking, this was the first site on which I found consistent top tier intelligence.
In the interim I, too, suffered a bit of bad luck. I Was hit by a car while biking in Taiwan and now am a real spinal cord injury person, mostly in a wheelchair. No one thought I could get back on my feet, but many times a day I do just that. Why only this morning I fell down from the perilously high position of standing. Never give up.
Pwuff
13 David // Oct 22, 2009 at 9:56 am
Jim, my very best to you in your battle, and Thank you ever so much for your insight.
Dave
14 Tom Stakem // Oct 22, 2009 at 10:33 am
Jim, you’ve been a great & welcome teacher of important energy topics. You’re to be congratulated for your contributions. The site is a treasure trove of information and will sorely miss it. Here’s sending out a few high octane prayers for you as you battle your cancer. All the best…….tom stakem
15 Paul // Oct 22, 2009 at 10:34 am
Jim, I hope you get well soon.
With your research experience you surely know how to find the best treatment (center).
Thanks for all the good information
Paul
16 Robert Essian // Oct 22, 2009 at 10:36 am
Professor, this will seem like such a strong message from someone you have never met.
I will be to the point because it is how I feel. I expect you will understand.
You have created for me a world that is so exciting, rich, rewarding, and full of life that I am short in expressing all of this to you.
I have had the greatest life, the devotion of my family, the love of my Grandson’s but you gave me, me.
I love this stuff.
I cannot say enough what your site has done for me. The way you would write (offsite) critical messages, with class, when information I shared, was, well, not very well thought out.
I was taught that critisism, if fare, was constructive. Take advantage of it.
The Lord moves us in so many ways. I pray every day, thank him for leading me to you because in his infinate wisdom he knew you would motivate me best.
This goes beyond money, its about knowledge, seeing the world with a fresh sense of optimism.
So Professor when you fight your ass off with this challenge you are facing, know that someone other than your loving family thinks you have given more than you have taken. Your greatest accomplishment.
I’m with you in thoughts and prayers every day.
Thank you Jim
PS: Kingsdale is 110 pounds now, and huge. Almost a year old now. Will finish at about 125 pounds. He’s in great shape, and a wonderful friend. I’m so thankful he didn’t go under the ice last year. Remember?
17 Robert Berke // Oct 22, 2009 at 11:14 am
Hi Jim: Sorry to hear about your cancer. I’m a retired former energy analyst struggling with a case of prostrate cancer (so far, so good) and would be glad to assist you if you ever decide to keep the shop going. Thanks for everything. My best.
18 DR N // Oct 22, 2009 at 12:05 pm
As all the friends you created and deserved, I send the best of wishes. I truly enjoyed and appreciated your posts and commentary.
I’m an M.D., feel free to ask me to translate doctor talk or to bat around anything popping into your head.
19 rbblum // Oct 22, 2009 at 3:53 pm
may god bless
20 Simon // Oct 22, 2009 at 4:47 pm
Best Wishes Jim. Your work is very much in the tradition of some other great investors who’s curiosity, energy and generosity have overflowed into the role of educator and mentor.
Many Thanks,
Simon.
21 Donnie McGean // Oct 22, 2009 at 5:49 pm
Jim,
I am sorry to hear about your cancer. If anyone can beat it, it will be you. Thanks for all of your newsletters and I hope we hear back from you soon.
22 Mark // Oct 22, 2009 at 6:14 pm
Jim, I have so appreciated your site since spring of 2008. thank you for taking time to answer the questions of the novice.
I have perhaps had similar health challenges as you. I know that health is a personal matter. The following educational video might be interesting and helpful for you. It helped me.
http://www.youtube.com/watch?v=TQ-qekFoi-o
I wish you all the best.
Mark
23 Jim // Oct 22, 2009 at 8:03 pm
Thanks for your efforts in sharing your expertise with all of us the world over. Always looked forward to your posts, and I will miss them. Best to you and your loved ones.
24 CWD // Oct 22, 2009 at 9:14 pm
Best wishes on a swift and complete recovery.
Thanks for sharing.
Your posts will be missed.
25 Gary // Oct 22, 2009 at 9:53 pm
All the best to you, Jim. I have learned a lot from this sight, both about energy and about the high quality of your character. Thank-you. Hope to hear from you again after your complete recovery.
26 Mike // Oct 22, 2009 at 10:03 pm
Jim, Thank you for all the work you have put into this site and best of luck for a healthy recovery.
27 Philip // Oct 22, 2009 at 11:59 pm
Dear Jim, I am from France and have never posted a comment on your site, but I have read your newsletters over the last few years. I am always looking for people who have their own ideas and not just repeating what other people think. You are one of those few people. I have learned about peack oil from you, and I am very grateful for this. I will pray for your full recovery and wish you lots of happiness until the end of your days.
28 Darnell // Oct 23, 2009 at 7:11 am
Jim, Thanks for all the advice. No need to wish you luck. You will win, BELIEVE IT!! I will be praying for you.
29 David Traxel // Oct 23, 2009 at 11:04 am
This is one of the most valuable websites, not just for energy information and opinion that helped me make sense of the field, but also because it was a pleasure to watch a first-class intellect at work, with the resulting insights expressed through a classic dry sense of humor.
30 Jack Marino // Oct 24, 2009 at 2:40 am
Jim,
Our prayers are with you.
Thanks for your efforts.
31 Jimmy // Oct 24, 2009 at 12:57 pm
Thanks for all of your work.
May you be returned to robust health soon.
jimmy
32 Linda // Oct 24, 2009 at 4:03 pm
Dear Jim,
Every time I see an email that you have a new newsletter available gives a bright spot to that day. Your site is a treasure trove of information; thank you so much for the education you have shared with us. Please know that you are a shining beacon of light. You are in my heart. Blessings always.
33 GH // Oct 26, 2009 at 2:07 pm
Linda expressed my thoughts perfectly. Your analysis and writing have benefitted many. It has been an honor corresponding with you.
GH
34 Dave Bigos aka DuffBeer // Oct 26, 2009 at 5:30 pm
Thank you Jim !!!
with your positive attitude,pay it forward belief,sense of humor and our caring doctors you will be hiking those trails for a long time to come.
our prayers our with you too
Dave Bigos
35 isaac the terrible // Oct 26, 2009 at 7:35 pm
Jim,
Thanks for all the good thinking you shared with us. Eat well, and fight like hell. See you on the upside.
Isaac
36 George // Oct 26, 2009 at 8:27 pm
Sincerest wishes for a complete recovery and many thanks for sharing your valuable insights. EIS has been a steady source of practical information. Your views will be missed.
37 KV // Oct 27, 2009 at 9:02 am
Jim,
Based on my reading tealeaves, nearly 80% beat your condition and most are cured, that is, there is no change in life expectancy due to a minor detour. So, I do expect Jim Kingsdale to be back soon, posting stuff I would not connect or consider and challenge us all to go at it!
Best to you and keep us informed, we all care for you!
38 Allen // Oct 27, 2009 at 4:12 pm
Jim,
Best wishes and good luck with your health.
Thanks for putting up an educational site.
Allen
39 Tom // Oct 28, 2009 at 2:34 pm
Jim: I thought your posts were uniformly excellent and I learned much from you and your site. I hope you have a speedy recovery. Good luck. Tom
40 Roman // Oct 28, 2009 at 5:09 pm
Jim, Thank you so much for the web site. Your insightful articles have given me a solid foundation in understanding Peak Oil.
Get well soon.
Roman
41 aja8888 // Oct 30, 2009 at 7:17 pm
Jim, thanks for all your research and hard work. As many of us regular readers above have stated, I wish you the best and a speedy recovery.
Tony
42 Forrestine Sutton // Oct 30, 2009 at 11:09 pm
I wish you sucess in your fight with cancer. I lost my father and husband and 7 other relatives and only last month a dear friend to cancer.
So when I saw an ad about Dr Blaylock, a retired neurosurgeon, and
his newsletter on cancer and alternative medicine, I ordered his 2 newsletters on cancer and now I am reading “Knockout Interviews with Doctors Who Are Curing Cancer”.
All do alternative medicine. At least 2 do
chemo and supplements and nutrition. Never have I considered allternative medicine before, but I would now, I have lost too many loved ones.
These MDs have a better cure rate than ‘ standard
doctors’. At least read the
book.
43 Diane // Oct 31, 2009 at 10:51 am
Thank you for all your thoughts and your insights. I will truly miss your website. It is one in which the “big guys” don’t control and there are few of those around. First and foremost take care of your health. Hope to see you back soon, until then you are in my thoughts
44 Art // Nov 1, 2009 at 11:13 am
Jim,
Many thanks for your insight. It has helped me a great deal. Best luck in your speedy recovery.
45 Nick in Denver // Nov 2, 2009 at 3:41 pm
Jim, I’ve loved your site for energy discussion. It should be a model for other such sites for just about any subject.
Best wishes to you and your family. I going to miss your “old school” approach to discussions using the latest modern convenience (internet). Sadly, these days we’re long on technology and short on thinking. That make you a rarity.
46 Thirdeyeopentrades // Nov 6, 2009 at 4:56 am
Jim, I wish you success in battling cancer and am sorry to learn of your illness. Your site is a wealth of knowledge and will be sorrowfully missed.
-Bob
47 Jim Anderson // Nov 8, 2009 at 10:17 am
Jim, I can’t begin to tell you how much your insights, commmentary, and analysis have helped so many of us. We’ll always be grateful. I wish you a complete and speedy recovery from your illness. And I pray that you’ll be among the many friends I have who been sticken with various forms of this terrible malady and thank God have now fully reovered. Know that you’ll be in our prayers. Good luck Jim!
48 Jim Kingsdale // Nov 8, 2009 at 4:37 pm
I cannot express the gratitude that I feel for the many kind words, wishes, and prayers sent to me on this thread and by email. You are a truly wonderful group of people. Knowing that my efforts have helped others is one of the best gifts in life. Thank you all so much. I’m fighting as hard as I can. Jim
49 Martin // Nov 13, 2009 at 8:53 pm
Jim, thanks for the great read. Best wishes.
50 JCL // Nov 17, 2009 at 3:55 pm
Jim, I have really enjoyed your site and your commentary. Wishing you a fast recovery and know that you will beat this.
51 Anita // Nov 18, 2009 at 1:47 am
Jim,
I’m late to the party here but please know that I too have benefited from your knowledge, analysis, intellectual independence, and wisdom. Thanks for all your efforts and know that I and mine have appreciated them. Best wishes for a gentle and swift recovery.
52 Bruce Dunlop // Nov 24, 2009 at 11:37 am
Jim:
Sorry to hear about you bout with cancer. I am confident that you will overcome. I had a slight glitch last year when I underwent 6 vessel bypass. I am back at work and looking forward to continuing to contribute. Please let me know how you are doing and give my regards to Nina and your family.
Best regards from your old colleague,
Bruce
53 Hugh MD // Nov 28, 2009 at 4:43 pm
I pray you will have the courage to confront the task ahead of you. I also hope you find the time to continue the good work and insights you have given to all of us if you feel up to it. If you start a new blog, there are a lot of us who would like to eavesdrop on your thoughts as you soldier on.Stay in touch if you can. Good luck, pilgrim.
54 Steph // Dec 16, 2009 at 3:50 pm
I just found your site today via Google. I landed on the “Playing Defense” post and was very impressed by your prescience. Best wishes for your health and for the future, and thanks in advance for the knowledge and insight that I will gain from your site.
55 Manpreet Singh // Dec 24, 2009 at 1:51 am
Dear Jim, I was really sad to read your post saying that Oct 21, 09 newsletter would be your final newsletter becuase of your illness. Well, I hope it is not and that you are able to win over your illness. I was researching on biodiesel and came across one of your articles on the subject posted in 2007. I found it very informative and simple to understand. I am sure that your other posts would be treasures of information as well. And I know when I say this that I speak for all, that the world needs people like you. So here is my prayer for you that you come back fitter and stronger, and your website gets bigger and better. Best wishes, Manpreet.
56 Michael // Mar 18, 2010 at 11:34 am
Just found your site, and wanted to complement you on what a great wealth of info and high level of analysis you have gathered and posted here. Excellent work. Hope you will be back at it soon! To a very speedy recovery! Best wishes. M.
Leave a Comment