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Is wind a trojan horse for natural gas
Started Sep 11 at 10:33 ET (By ContraryOne)
Very interesting take on the wind craze initiated by t. boone pickens and his friends in the WSJ this morning. If you have access to it the read is fascinating...and explains more than a couple of items in the news lately. Here is the link:
http://online.wsj.com/article/SB122107824722120577.html?mod=opinion_main_commentaries
And here is a quote:"The problem for the natural gas industry in the U.S. is that gas is still relatively inexpensive compared with market prices elsewhere in the world. There are no facilities for LNG export. This may explain why Shell, BP, Chevron and t. Boone Pickens are investing in wind power. It's a clever strategy to add value to their gas assets by boosting demand.
These gas players can afford to lose money on wind power in the short term to reap huge profits in the long term. In fact, this was the strategy first implemented by Ken Lay of Enron in 1990s. Enron was the power and gas company that started the first large-scale manufacturing of wind power in the U.S. It also brought up the ideas for a cap-and-trade system, to increase the competitive edge of gas over coal."
Basically, the point is that due to the need to supply capacity into the grid during hours that the wind don't blow...natural gas is going to profit because it is the most efficient way to run turbines that need to be geared up and down quickly...coal plants have to run at a certain level all the time. So...wind energy is actually a proxy for natural gas...and since Europe import the vast majority of their nat gas...for LNG (not Cheniere Energy, the commodity LNG)
I have taken a beating in commodities the last week. I guess I am just not nimble enough to get out of the way of these market moves so my strategy is that as long as energy is being sold...I am buying.
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guliamo
Sep 11 at 11:12 ET
I did not know this. makkes a lot of sense.
Logic is there, but why would BP be your nat. gas play?
I would say Chesapeak is much better priced and much more focused on the gas business than BP.. BP just bought 25% of CHK's find last week.
As for wind.. I don't think this is a good time to invest in wind companies.. betting that large energy companies will invest in wind power and bring their price up isn't something I would do..
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ContraryOne
Sep 11 at 11:38 ET
Sorry for the confusion. This is from the WSJ article and is not my opinion:
And here is a quote:"The problem for the natural gas industry in the U.S. is that gas is still relatively inexpensive compared with market prices elsewhere in the world. There are no facilities for LNG export. This may explain why Shell, BP, Chevron and t. Boone Pickens are investing in wind power. It's a clever strategy to add value to their gas assets by boosting demand.
These gas players can afford to lose money on wind power in the short term to reap huge profits in the long term. In fact, this was the strategy first implemented by Ken Lay of Enron in 1990s. Enron was the power and gas company that started the first large-scale manufacturing of wind power in the U.S. It also brought up the ideas for a cap-and-trade system, to increase the competitive edge of gas over coal."
I found the report on possible ulterior motives on the part of t. Boone a bit dissapointing....I know...like it should be a surprise. I agree on CHK and will be adding this to my portfolio in the next trading day or two.
Another question...LNG (the company) is obviously poorly managed and heading to nada (a little spanish lingo there). But, they do have lots of infrastructure and the need to move and store LNG (the commodity) ...seems to be critical to the natural gas story. Who else are the major players in this space.
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ContraryOne
Sep 11 at 11:41 ET
Wow. Energy just turned on a dime. I am glad I am in this for the long term and not a trader.
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guliamo
Sep 12 at 5:16 ET
If a company is badly run, I would say stay away in the biggest way - the market is competitive enough as it is..
As for energy - I view this as a Hold & Hold strategy.. I've owned CHK for a long time and am sure the long term projection for this company and sector is as solid as it gets. Can you imagine Nat. Gas not being in demand?