How Obama Will Influence Energy Stocks

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"Natural gas is set to push to the forefront of the electric world."

One might think the United States would be charging hard on energy security, as well as border and other kinds of security in its Global War on Terror campaign. Not so. America imports some 12 million barrels of oil per day, yet maintains a Strategic Petroleum Reserve (SPR) whose maximum is 727 million barrels (with current inventory at only 701 million barrels). America is completely unprepared for any worst-case scenarios. The U.S. has the capacity for domestic energy production; however, the administration is simply choosing to legislate it away. Let's look at each power-generation technology from an investor's view.

Coal. This industry is in for a hard time under Obama. He proposes a tough 100% cap-and-trade system that will make coal plants uneconomical to run at almost any electricity or coal price around now. Did we mention that coal generates almost half of America's electricity? We expect coal prices and coal utilities to trade well below their worth for the next few years. As time goes on, America will realize how overambitious Obama's targets are and come back to coal.

Natural Gas. While a thermal-generation technology like coal, natural gas is less likely to feel pain under Obama because of its cleaner burning. And as natural gas is already one of the cheapest power technologies available, the industry would weather a cap-and-trade system better than coal. Natural gas is set to push to the forefront of the electric world.

Nuclear. Obama's stance on nuclear energy is decidedly neutral. Nuclear reactors currently in planning stages are likely to go ahead unimpeded by federal or state meddling. Another bullish influence coming for uranium is the sunset of America's current Highly Enriched Uranium (HEU) agreement with Russia in 2013. At best, Moscow will demand to renegotiate the bargain-basement price it's now obligated to offer under terms of the agreement; and eventually, the U.S. will return to sources within its own borders, then from Canada.

Wind. Wind energy has much to gain from Obama's plan, which, as it stands, has some $15 billion slotted for clean energy initiatives. His target of "25% by 2025" would require roughly double or even triple growth for the wind industry. Obviously this growth is achievable only through government subsidies, which may or may not be sustainable.

Solar. Sun-powered electricity is a great long-term energy provider. Despite advances in the technology, however, it continues to be one of the highest-cost producers. And while the Mojave Desert isn't as remote as China's Gobi, the incoming administration still needs to consider cost of infrastructure when promoting solar farms.

Geothermal. Many projects generating electricity from hot water would run into trouble if oil were to go below $50 per barrel; but oil is unlikely to stay this low for long. And geothermal's load factor - as high as 95% - pushes it far to the head of the renewables class and comparable to natural gas and nuclear.

Hydroelectricity. On the scale of energy-generation technologies, hydroelectricity tends to rate as reliable, generally cheap and environmentally benign. Like Europe, however, the U.S. has little hydroelectricity left to exploit.

Biofuels. Obama is fond of this stuff. Biofuels are both heavily subsidized and currently high-cost alternatives to reducing carbon - second generation (from non-food organic material) and third generation (using algae) included.

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