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More Offshore Drilling Makes Sense
March 31, 2010
President Obama proposed plans today to open areas along the coasts of Virginia, the Carolinas, Georgia and northern Alaska for offshore oil and gas exploration.
This follows the president’s step to restart the nuclear power industry by making $8 billion in loans available for a plant in Georgia. Also today, the president said he wants to double the size of the federal fleet of hybrid vehicles, and federal funds have been allotted for a range of alternative energy projects.
Diverse sources of energy are important, but the administration also recognizes reality – that oil and gas will be the foundation of U.S. energy demand for many years to come, and for that reason, we have to boldly seek out new sources of domestic supply.
Offshore drilling has been banned since 1981 for most of the U.S. coastline, but it seems that’s where the deposits are. The outer continental shelf (mostly Gulf of Mexico) now accounts for nearly 30 percent of U.S. oil production, up from 11 percent in 1990.
Today’s announcement will elate those who have been pushing for more offshore production, but it’s important to remember that any drilling in these waters would not begin for years.
The impact may be felt sooner in certain segments of the oil and gas sector. Jack-up drill rigs and offshore platforms — in high demand and short supply less than 18 months ago — may see renewed demand. In addition, new pipelines and other infrastructure would be needed to make production in these new areas economically feasible.
By clicking the image link, you will be directed to the New York Times website. U.S. Global Investors does not endorse all the information supplied by this website and is not responsible for its content.
Natural Gas on the Big Screen
March 12, 2010
What would you do if someone offered you $1 million for the right to drill for natural gas under your land?
That’s the sort of Jed Clampitt scenario playing out in the piney woods of north Louisiana, under which lies the Haynesville Shale, perhaps the largest natural gas field in North America.
What happens when cash-poor landowners hit the natural resources lottery is a theme in the documentary Haynesville, which make its North American premiere as the main feature at next week’s South by Southwest (SXSW) Film Festival in Austin.
Along with the social aspects, the film also discusses the environmental and financial impacts that the Haynesville and similar shale deposits may have while supplying the U.S. with desirable clean energy in the decades ahead.
Haynesville may contain as much as 250 trillion cubic feet of gas. The documentary pegs its regional economic impact at $1.75 trillion over its lifetime – as one person says in the film, “Now that’s a gas field!”
Shale fields (notably the Barnett in north Texas, the Eagle Ford in south Texas, the Marcellus in eastern Pennsylvania and the Haynesville) now account for 20 percent of U.S. natural gas supply.
A study released this week by energy consultancy IHS CERA sees cleaner-burning gas becoming more important for electric power generation – 19 billion cubic feet per day now becoming 35 billion cubic feet daily by 2035 as plants burning coal and other fuels are replaced.
The documentary’s director said he tried to reflect the many facets of a modern-day gold rush tale.
“What I had to do was walk a very fine line. It’s the line of not being preachy and not being pro-industry,” Gregory Kallenberg told the Houston Chronicle. “This is a piece that shows in a very balanced way where energy comes from and what effect it has on the people at the ground level. We all use energy, and using energy, it’s important to know how we get it.”
You can watch the trailer for Haynesville at www.haynesvillemovie.com.
By clicking on the link, you will be redirected to the Haynesville movie website. U.S. Global Investors does not endorse all the information supplied by this website and is not responsible for its content. #10-179
“Extreme” Hurricane Forecast – Energy at Risk
March 11, 2010
The private forecasting firm AccuWeather predicts an “extreme” Atlantic hurricane season in 2010, and if true, that could have a significant impact on energy prices this summer.
In fact, AccuWeather says 2010 will be look a lot like 2008 in terms of hurricane activity. In 2008, there were 17 storms big enough to get a name – the biggest was Hurricane Ike, which killed nearly 200 people and did more than $6 billion in damage as it tore through Haiti and flattened Galveston Island, Texas.
By comparison, last year was the mellowest hurricane season since the late 1990s – only two storms reached land along the Gulf Coast.
The Gulf Coast, of course, is an important energy region – it accounts for a quarter of U.S. oil production, 15 percent of domestic natural gas and 40 percent of the nation’s refining capacity.
In 2008, dozens of offshore natural gas platforms were destroyed and production fell 98 percent during Ike – it took months to bring production back up. Many gas pipelines and processing plants were shut down altogether and others operated well below capacity. Oil prices spiked more than 15 percent and gasoline inventories slid to 40-year lows after refineries were halted due to lack of electricity.
The prospect of a major hurricane season adds to other pressures on energy prices heading into the busy summer driving season. Gasoline prices in the U.S. are predicted to top $3 a gallon this summer, and that number came out before the hurricane forecast.
The International Energy Agency (IEA) has raised its global oil demand forecast for 2010 as a result of strong economic activity in Asia – nearly half of the additional demand this year will be from China, IEA says. OPEC is also predicting a demand hike in 2010.
In addition, demand has recovered to 2008 levels due to the improved economic conditions in North America, Europe and the former Soviet Union.
We have often pointed out that the long-term oil supply response has been weak around the world, so if AccuWeather lives up to its name in 2010 (like it did last year), the short-term impact of reduced Gulf production and refining could be a significant price driver.
Charts of the Week
March 02, 2010
From the latest edition of U.S. Global’s Weekly Investor Alert
If there is any doubt about China’s role in the global growth story, the chart above should clear things up.
Going back a decade, China has consistently been a major source of growth in infrastructure and other construction. The gap between the green line and the red line in the chart from Macquarie represents how much China has added to global construction.
Ex-China, the year-over-year drop in world construction was nearly 30 percent at the 2009 bottom – since then, China has been the heavy lifter in getting the trend back into positive territory.
This second chart also focuses on the China growth story, this time showing the breadth of wealth creation within its dynamic economy.
It’s not a surprise to know that luxury products from Cartier, Gucci, Louis Vuitton and Hermes are available in Shanghai, Beijing, Guangzhou and Shenzhen, all key financial, political and manufacturing centers in the eastern part of the country.
But the demand for these types of high-end goods extends deep to second- and third-tier cities in the Chinese hinterlands – as far west as Urumqi in the oil-producing Xinjiang region, south to industrial Kunming in Yunnan province and up to the trading center of Harbin in the northeast corner.
The government in Beijing has been working to spread the nation’s economic prosperity westward, and if this is any indicator, it is having some success.
To get more insights and perspective from the U.S. Global Investors investment team, subscribe to the Weekly Investor Alert.
None of U.S. Global Investors family of funds held any of the securities mentioned in this article as of December 31, 2009.
Global Water in Deep Trouble?
February 25, 2010
The world may be running low on its most precious commodity—water.
This map shows water scarcity projections for the world in 2025. Large chunks of Australia, Asia, Africa and North America are expected to have severe water issues.
Credit Suisse estimates that, by 2020, 37 percent of the global population will face severe water stress.
The problem is unrelenting demand for a finite resource. Since the 1940s, the global population has tripled to more than 6 billion people worldwide. Over the same period, global water use has quadrupled.
Water infrastructure has been slow to attract money from investors. The chart below from Credit Suisse shows that private sector investment in water infrastructure in emerging markets—where it is most desperately needed—is at pretty much the same level it was 20 years ago. Over the same period, investment in telecommunications has increased roughly 1400 percent and energy 5000 percent.
Even now there’s only a handful of investible companies that offer exposure to water infrastructure.
Credit Suisse thinks investment growth “should pick up substantially over the next 5-10 years,” with the bulk of this investment likely going to desalination and recycling opportunities.
Net Asset Value
as of 09/08/2010
- Global Resources Fund
PSPFX $8.78 +0.05 - Gold and Precious Metals Fund
USERX $17.44 +0.03 - World Precious Minerals Fund
UNWPX $20.18 -0.01 - China Region Fund
USCOX $8.61 -0.02 - Eastern European Fund
EUROX $9.11 +0.13 - Global Emerging Markets Fund
GEMFX $8.17 +0.08 - Global MegaTrends Fund
MEGAX $7.71 +0.04 - All American Equity Fund
GBTFX $20.02 +0.09 - Holmes Growth Fund
ACBGX $16.04 +0.15 - Tax Free Fund
USUTX $12.58 -0.01 - Near-Term Tax Free Fund
NEARX $2.26 -0.01 - U.S. Government Securities Savings Fund
UGSXX $1.00 No Change - U.S. Treasury Securities Cash Fund
USTXX $1.00 No Change