Peak Oil Investing

Written By Nick Hodge

Posted September 14, 2011

I used to care about politics.

But then I realized if you have enough money, politics don’t matter. So I changed my focus.

Instead of focusing on what could or should be done, I focus on what’s best for me under present circumstances. And I try to help as many people as I can do the same.

To do that, I still stay as politically informed as possible. After all, policy is more intertwined with the markets than ever…

I just don’t put an emotional stake in it because I know I can prosper no matter the outcome. You should have similar confidence.

Generating enough wealth to be politically agnostic is a good thing. (I’m getting to how you can do that with energy, just give me second.)

We all know Social Security is an unsustainable program that won’t be here forever. So don’t get caught up in the debate. Instead, make enough money so that $12,500 per year pittance won’t matter.

Medicare? Welfare? I don’t plan on using those, either. Are those programs abused, ripe with waste, and in many cases, a handout for the uneducated, unskilled, and unwilling to change? You know they are.

But they aren’t keeping me down, and so I don’t waste time or effort worrying about them.

Allow me just one example from Monday’s Republican debate, and then I’ll share with you a few ways to increase your earnings in the energy market.

Here was the setup from the moderator:

A healthy 30-year-old young man has a good job, makes a good living, but decides, you know what? I’m not going to spend $200 or $300 a month for health insurance because I’m healthy, I don’t need it. But something terrible happens, all of a sudden he needs it. Who’s going to pay if he goes into a coma, for example? Who pays for that?

To which Ron Paul replied:

Well, in a society that you accept welfarism and socialism, he expects the government to take care of him. That’s what freedom is all about, taking your own risks. And we’ve given up on this whole concept that we might take care of ourselves and assume responsibility for ourselves.

Brilliant. I love taking care of and assuming responsibility for myself.

Making plenty of money in the market is part of that.

Applying This to Energy…

After the debate, I decided to see which candidates had an energy plan. Of the eight on stage that night, only four mention energy policy on their websites: Bachmann, Gingrich, Cain, and Paul.

Bachmann and Gingrich are going after the low-information voters, telling them opening up all drilling and fracking in the United States would be a panacea. Bachmann has even promised a return to $2.00 gas.

Of course, that’s a mathematical impossibility. We consume over 19 million barrels per day and we only produce 5.5 million per day. The last time we produced 19 million barrels per day… Haha, I amuse myself — we’ve NEVER produced 19 million barrels per day!

The U.S. hit peak production in the mid-1970s at 9.6 million barrels per day.

Paul and Cain, however, are taking a market-based approach. Both men’s websites give a nod to ending subsidies and bureaucratic regulation that favor individual technologies and allowing the free market to solve the problem.

And while campaign websites are far from actual policy (just ask Obama how that works), admitting the free market knows best is certainly a step in the right direction.

It’s exactly the approach I use when evaluating energy investments.

I always ask myself, “Would this technology or company be viable and thrive if all subsidies and regulations were removed?” The game then becomes a function of time frame and accepting reality.

As we approach the peak (we’re approaching it, folks, let’s move past that nonsensical debate; the CEO of Total (NYSE: TOT), the sixth-largest oil company in the world, said this year we’ll reach the peak of oil production in five years), you’ll want to own the companies that stand to profit by recovering oil that will then be worth well over $150 per barrel.

That would be any company that accesses or helps access deepwater oil, arctic oil, shale and sands, and any remaining conventional deposits.

It’s why Bakken stocks were and are so hot. It’s why fracturing stocks are so hot. It’s why tiny companies with access to the last big African fields are so hot.

And as energy prices continue to increase as we move further into the peak, alternatives will start to become more and more competitive.

It’s not an either/or; it’s an and/when.

Case Study: Fukushima

Nuclear is done forever in Japan, right? They’ll never open another nuclear plant, let alone the ones that just caused catastrophe…

Not quite. That’s the emotion, which I spoke of earlier, talking.

Japan got a new Prime Minister less than two weeks ago. His name is Mr. Yoshihiko Noda. And do you know what his first public policy speech was about?

Of course you don’t, it’s the first week of football, and it’s my job to know that stuff.

It was about RESTARTING the nuclear plants that have been halted since the earthquake. That process is now underway.

Since the disaster, Japan’s power supply has been reduced by about 40%. It’s killing jobs, it’s killing businesses, it’s showing people just how important access to cheap, reliable energy actually is…

So much so that a mere six months after a near-meltdown, the country is ready to re-welcome nuclear with open arms. I said this would happen five days after the tsunami hit.

Do they want to lessen their reliance on nuclear? Of course.

Do they want to deploy more renewable resources? Who doesn’t?

But that can’t be done overnight. Like I said, this stuff is a time frame game.

So for now, I’m investing in nuclear. Specifically, there’s a new fuel I’m betting on because of its ability to help any nuclear disaster from ever happening again.

More importantly, the takeaway is this: Energy is entering a decades-long bull market. Oil investments will win. Natural gas investments will win. Coal investments will win. Renewable investments will win.

The hard part is casting aside all the nonsense, all the emotion, all the rhetoric, and all the wishful thinking… and putting your money in the right one at the right time.

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Call it like you see it,

Nick Hodge

Nick Hodge
Editor, Energy and Capital

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