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The Price Tag for Clean Coal

I wanted to get the low down on clean coal (KOL) to see how clean it really is, so I visited some friends at Lawrence Livermore National Laboratory in California.

The modern day descendent of the Atomic Energy Commission, where I had a student job in the early seventies, the leading researcher on laser induced nuclear fission, and the administrator of our atomic weapons stockpile, I figured they?d know.

Dirty coal currently supplies us with 35% of our electricity and total electricity demand is expected to go up 30% by 2030. The industry is spewing out 32 billion tons of carbon dioxide (CO2) a year and the great majority of independent scientists out there believe that the global warming it is causing will lead us to an environmental disaster within decades.

Carbon Capture and Storage technology (CCS) locks up these emissions deep underground forever. The problem is that there is only one of these plants in operation in North Dakota, a legacy of the Carter administration, and new ones would cost $4 billion each.

The low estimate to replace the 250 existing coal plants in the US is $1 trillion, and this will produce electricity that costs 50% more than we now pay. In a gridlocked constrained congress, this is a big ticket that is highly unlikely to get picked up.

While we can build a wall to keep out illegal immigrants from Latin America, it won?t keep out CO2. This is a big problem as China is currently completing one new coal fired plant a week.
In fact, the Middle Kingdom is rushing to perfect cheaper CCS technologies, not only for their own use, but also to sell to us. The bottom line is coal can be cleaned, but at a frightful price.

Coal once had a huge price advantage over other energy sources that disappeared when the price of natural gas (UNG) collapsed for $17 BTU to $2/MM BTU. Yesterday, gas closed at a feeble $2.70.

Cost savings aside, virtually every utility in the country would love to get out of the coal business because of the litigation it invites. Read the prospectus for new securities issued by any of them, and you will find a litany of lawsuits over diseases caused by Sulfur Dioxide (SO2), Nitrous Oxides (NO2), and a host of other asthma and cancer causing pollutants.

Burning natural gas only emits carbon dioxide (CO2) (only half the amount that crude oil derived bunker fuel does) and water (H2O). Sorry, but my inner chemist is speaking.

California closed its last coal-fueled power plant a dozen years ago, switching to natural gas, accidently creating a windfall for consumers. Much of the money saved was used to modernize the grid buy installing statewide smart meters which allow customers to both buy and sell electricity back to utilities generated from home solar installations and charged up 1,000 pound 85 kWh lithium ion Tesla batteries.

These moves are expected to save our local Pacific Gas and Electric (PCE) the capital cost of building two new major generating plants. This is not your father?s utility.

Although it is unlikely that another coal fired power plant will ever be built in the US again, don?t expect coal giants like Peabody Energy (BTU) and Joy Global (JOY) to disappear anytime soon. There is still a massive export business to China, as the Burlington Northern freight trains that rumble near my home testify (love that midnight whistle).

But don?t ever confuse a stock price that has gone down a lot with ?cheap.? The shares of these companies could remain in the dumps for a long time and possibly forever, creating a classic value trap. That is, until the Chinese buy them out for pennies on the dollar.

These are jobs I don?t mind exporting to China. They can have them.

KOL 3-2-15

NATGAS 3-2-15

BTU 3-2-15

JOY 3-2-15

 

 

Smoke StacksCoal?s Popularity is Fading Fast

Another Home Run with Natural Gas

It looks like I hit the nail on the head once again with a major short position in the United States Natural Gas Fund (UNG).

After my followers bought the July, 2014 $26 puts at $2.16 on Monday, the (UNG) suffered its worst trading day since 2007, the underlying commodity plunging a breathtaking 11%. The puts roared as high as $3.05, a gain of 42% in mere hours. I wish they were all this easy!

If the (UNG) returns to the February low of $22.50 in the near future, you can expect these puts to soar to $5.00. That?s an increase of 130%, and would add 6.53% to our 2014 performance. Please pray for warmer weather, and dance your best weather dance.

It took a perfect storm of technical and fundamental factors to trigger this Armageddon for owners of the troubled CH4 molecule. One of the coldest winters in history produced unprecedented demand for natural gas.

This happened against a backdrop of a long term structural conversion from coal and oil fired electric power plants to gas. Not only is natural gas far cheaper than these traditional carbon based fuels, burning it generates half the carbon dioxide and none of the other toxic pollutants.

The result for traders was one of the boldest short squeezes in history. The incredibly $6.50 Monday opening we saw in natural gas, and the $28 print for the (UNG) was purely the result of distressed margin calls and panic stop loss covering.

At one point, the February natural gas futures, set to expire in just two days, were trading at a 40% premium to the March futures. Extreme anomalies like this are always the father of great trades.

The extent of the industry short position is evident in the cash flows in the underlying exchange traded notes (ETN?s). As prices rose, the long only (UNG) saw $366 million in redemptions, about 36% of its total assets. The Natural Gas Fund (UNL) has lost more than a third of its capital.

On the flip side, the Velocity Shares 3X Inverse Natural Gas Fund (DGAZ) pulled in some $449 million in new investors. Since the rally in natural gas started in November (DGAZ) has cratered from $18 to $2.5. This is why I never recommend 3X leveraged ETF?s.

This all adds currency to my argument that the natural gas revolution is bringing the greatest structural change to the US economy in a century. The industry is evolving so fast that you can expect dislocations and disruptions to continue.

The current infrastructure reflects the state of the market a decade ago and is woefully inadequate, with a severe pipeline shortage evident.? Gas demand is greatest where supplies aren?t. Infrastructure needed to export CH4 abroad is still under construction (see my piece on Chenier Energy (LNG) by clicking here).

The state of North Dakota estimates that it is losing $1 million a day in tax revenue because excess natural gas is being flared at fracking wells for want of transportation precisely when massive short squeezes are occurring in the marketplace. Needless to say, this is all a dream come true for astute and nimble traders, like you.

The question is now what to do about it.

I just called friends around the country, and it appears that a warming trend is in place that could last all the away into March.

It is time to get clever. It would be wise to enter a limit day order to sell your $26 puts right now at the $5.00 price. Since the first visit to these lower numbers usually happens on a big downside spike, the result of stop loss dumping of panic longs accumulated by clueless short term traders this week, you might get lucky and get filled on the first run.

These happen so fast that it will make your head spin, and you won?t be able to type an order in fast enough. If you don?t get filled keep reentering the limit order every day until it does get done, or until we change our strategy.

This has been one of my best trades in years, and it appears that a lot of followers managed to successfully grab the tiger by the tail.

Good for you.

NATGAS 2-24-14

UNG 2-25-14

DGAZ 2-25-14

Natural-gasNow We?re Cooking with Gas

Now We?re Cooking With Gas (UNG)

Now We?re Cooking With Gas (UNG)

Those who followed my advice to buy the United States Natural Gas Fund (UNG) July, 2014 $23 puts at $1.68 yesterday are now in the enviable position of owning a security that is running away to the upside.

At this morning?s high the puts traded at $2.40, a one day gain of an eye popping 43%. I am getting emails from a lucky few that they got in as low as $1.55 after receiving my Trade Alert.

The question is now what to do about it.

I just called friends around the country, and it appears that a warming trend is in place that could last all the away into mid February. It is starting in Florida and Texas and gradually working its away north, although they are still expecting eight inches of snow in Chicago this weekend.

Mad Day Trader Jim Parker is confirming as much with his proprietary trading model chart, which I have included below. He says that we put in an excellent medium term high in the UNG on Thursday at $27. This morning we tested daily support at $23.26 and it held the first time.

But with warmer weather, this is almost certain to break on a future downside push. Then we train out sites on the 18-day moving average at $22.25. After that, $22.07 is in the cards, the top of the gap that we broke through only as recently as January 27, only four days ago.

There, our United States Natural Gas Fund (UNG) July, 2014 $23 puts, with a present delta of 40% (forget this if you don?t speak Greek), should be worth $2.83. You might get more, if implied volatilities for the puts rise on the downside, which they almost always do.

That would be a one-day profit of 68%, adding $3,000 to the value of our notional $100,000 model trading portfolio, or 3% to our performance this year, which I would be inclined to take.

Now it is time to get clever. It would be wise to enter a limit day order to sell your $23 puts right now at the $2.68 price. Since the first visit to these lower numbers usually happens on a big downside spike, the result of stop loss dumping of panic longs accumulated by clueless short term traders this week, you might get lucky and get filled on the first run. If you don?t, keep reentering the limit order every day until it does get done, or until we change our strategy.

This has been one of my best trades in years, and it appears that a lot of followers managed to successfully grab the tiger by the tail.

If there was ever a time to upgrade to Jim Parker?s Mad Day Trader service, it is now. He will see the breakdowns and the reversals with his models faster than I, and get his Trade Alerts out quicker. Why wait for the middleman, who is me? These fast, technically driven markets are where Jim really earns his pay.

If you want to get a pro rata upgrade from your existing newsletter or Global Trading Dispatch subscription to Mad Hedge Fund Trader PRO, which includes Mad Day Trader, just email Nancy in customer support at nmilne@madhedgefundtrader.com.

Do it quick because she is about to get overwhelmed.

NATGAS 1-30-14

UNG 1-31-14

S.UNG 1-31-14

Natural-gasNow We?re Cooking with Gas

Time to Sell Natural Gas

Time to Sell Natural Gas

I received a crackly, hard to understand call late last night from one of my old natural gas buddies in the Barnet shale in Texas. Chances are that CH4 peaked in price last night with the expiration of the front month contract. It was time to sell.

I spent five years driving a beat up pick up truck on the tortuous, jarring, washboard roads of this forlorn part of the country, buying up mineral rights from old depleted fields for pennies on the dollar.

The sellers thought I was some moron hippie from California, probably high on some illegal drugs. “You want to redrill these fields and throw dynamite down the holes?” It was a crazy idea. Since I was offering hard cash, they couldn’t sign the dotted line fast enough.

During the late nineties nobody had ever heard of fracking. Even in the oil industry only a few specialists were aware of it. My old buddy, Boone Pickens, claims he was doing it in the fifties, but then nothing the wily oilman ever does surprises me.

Only a few reckless independent wildcatters were experimenting with the new process. The oil majors wouldn’t touch it with a ten-foot pole. It was unproven, dangerous, and could never deliver sufficient volumes to get them interested. With the deep pockets a trial lawyer could only dream about, they couldn’t afford the liability risk of polluting a town’s drinking water. So it was left to small fry like me to finance this ground-breaking technology.

I ended up developing a couple of fields, riding gas up from $2 to $5 MMBTU, then selling them off to the gas companies. My partners and I made a fortune.

We have remained in touch over the years. Whenever something indecipherable happens in the international capital markets, they call me for an explanation. When something special sets up in the natural gas market, I get the first call.

On Election Day we all go out and get drunk because their conservative vote cancels out my liberal ones, so why bother? We do this at Billy Bob’s in Fort Worth, a favorite of former President George W. Bush, where the 24-ounce chicken fried steaks fall over both sides of your plate.

I didn’t reenter the gas market until the Amaranth hedge fund blow up took the price up to $17 in 2006, and then down like a stone. I figured out that the United States Natural Gas Fund (ETF) suffered from a peculiar mathematics that was death for long side investors.

The natural gas futures market often trades in a contango. This is when front month contracts trade at a big premium to far month ones, adjusted for the cost of borrowed money. This premium completely disappears at expiration, when the commercial buyers, like electric power plants and chemical companies, take physical delivery of the gas.

What (UNG) does is buy contracts three months out, run them into expiration, and then roll the money into new contracts another three months out. The premium they pay rapidly falls to zero. Then they repeat the process all over again. It is a perfect wealth destruction machine.

The same dilemma besets futures contracts for oil (USO), corn (CORN), wheat (WEAT), and soybeans (SOYB) to a lesser degree, and a lot of traders make their livings from these anomalies.

What (UNG) does is buy contracts three months out, run them into expiration, and then roll the money into new contracts another three months out. The premium they pay rapidly falls to zero. Then they repeat the process all over again. It is a perfect wealth destruction machine.

I have seen a period when natural gas rose 40%, but the (UNG) dove 40%, thanks to the costly effects of the contango. Needless to say, this makes the (UNG) the world’s greatest short vehicle in a falling market. It is a fantastic heads I will, tails you lose security.

There is another crucial factor making natural gas such a great natural short that few outside the industry are aware of. You cannot store natural gas to the degree you can semi liquid oil. Unlike Texas tea, natural gas wells can’t be capped without damaging their long-term production. It has to flow and be sold at whatever price you can get. If you don’t, it goes away. This means that when the price of natural gas falls, it does so with a turbocharger, also making it an ideal short play.

To make a long story short, I made another fortune riding gas down from $17 to $2. I haven’t touched it for 2 years. Other hedge fund manager friends of mine made billions on this trade, and then retired to a sedentary life of philanthropy.

At this point, natural gas is up an unbelievable 56% in three months, thanks to Mother Nature’s brutal assault on most of the country, except here in balmy California. Demand is at an all time high, prices a 5-year peak, and speculative long positions in the futures market at an eight-year apex. Storage was taken down to a six month low of 1.2 trillion cubic feet with today’s 230 billion cubic foot draw down.

Expiration of the front month contract triggered a super spike in the (United States Natural Gas Fund to an astounding $27, while underling natural gas made it all the way up to $5.50, nearly triple the subterranean $1.90 low set in April, 2012.

This is happening in the face of one of the greatest supply onslaughts in history that will hit the market throughout the rest of this year. They’re still hiring and drilling like crazy in North Dakota.

The demand spike came hard and so fast that it caught many suppliers by surprise. That has created a bubble in the pipeline, a temporary shortfall in supplies, and triggered an incredible short squeeze in the natural gas market.

Winter can’t last forever. Eventually summer comes, and the shortage of natural gas pipeline will get more than made up by thousands of new fracking wells in the US.

If the UNG returns to the November, 2013 $17 low by July 18, the value of the (UNG) July, 2014 $23 put rises from our $1.68 cost to $4.72, a potential gain of 181%. That’s a fabulous risk/reward ratio, and we have six months to see it happen.

Keep in mind that liquidity could be an issue here. Yesterday, 1,549 contracts traded against on open interest of 2,297 contracts. The option market spreads here are also humongously wide and the volatility is of biblical proportions, which is endemic to the natural gas market.

Just to get a second opinion, I called Mad Day Trader Jim Parker, as I hadn’t been in this market for a while. He said it was warming up in Chicago, and he was venturing outside for a walk for the first time in three days. Out went the Trade Alert!

Below please find a chart for natural gas generated by Jim?s proprietary trading model. The bottom line here is that there is a high probability that we will drop from the current $5.17 down to $4.70, break that, go down to $4.17, break that, and possibly go as low at the November low of $3.40.

They don?t call this market the ?widow maker? for nothing, so expect a lot of heart wrenching volatility before you see a substantial payoff. So it best to enter a spread of small limit orders and hope for the best.

You can best play the short side through the futures market in natural gas. For those without a futures account, you can buy the 2X ProShares Ultra Short DJ-UBS Natural Gas inverse ETF (KOLD) or the 3x Direxion Daily Natural Gas Related Bear 3X Shares inverse ETF (GASX). The more adventurous can sell short the (UNG) outright, if they can find stock to borrow.
UNG 1-30-14

NATGAS 1-29-14

GASX 1-30-14

KOLD 1-30-14

NGEH4 1-30-14

Natural-gasTime to Sell Winter Short

Billy Bob'sBilly Bob?s in Forth Worth

Why I Sold Oil

I think that oil peaked last week with the Egyptian Army?s ferocious and bloody attack on the Muslim Brotherhood. I hate to sound cynical here, but count the daily bodies in the street, which has been trending down sharply since Thursday?s, 1,000 plus tally. Fewer bodies mean lower oil prices.
This has most likely broken the back of the fundamentalist opposition movement for at least the time being, which has accounted for the $20 spike in oil prices over the last two months.

This returns us to the longer term fundamental trend for oil, which is sideways at best, and down at worst. The US is flooding the world?s oil markets with energy in all its many forms. The driver here is American fracking technology, which will continue to upend the traditional energy markets for decades to come. It?s just a matter of time before fracking goes mainstream in Europe, especially in the big coal countries of Germany, Poland, and England. Then they can thumb their noses at Russia, a major gas supplier over the last thirty years. China will follow.

In a crucial news item that wasn?t reported nationally, the California legislature voted down a measure to ban hydraulic fracturing in their state. It was defeated in a democratically controlled body. As the Golden State is the most anti energy state in the country, this gives the state a flashing green light to move forward against environmentalist opposition. There is a ton more of new supply coming. This is what the weakness in the price of natural gas is telling you (UNG).

We also received a new negative for oil this month, the collapse of the emerging market currencies, stock markets, and bonds, especially the Indian rupee. This reduces their international purchasing power in US dollar terms, thus raising the cost of oil in local currency terms. You see, oil is priced in dollars. As the emerging markets have seen the largest growth in demand for oil in recent years, this can only be bad for prices.

In terms of my own trading portfolio, I want to have a ?RISK OFF? position, like an oil short, to hedge my two existing ?RISK ON? positions in the Euro (FXE) and the yen (FXY) shorts. US stock markets could be weak into September, and they will take oil down with them.

The energy inventory figures released on Wednesday were another tell. Oil came in line with a 1.5 million barrel weekly draw down. But gasoline showed a precipitous 4 million barrel drop in supplies, meaning that more people are driving to their summer vacations than expected. Texas tea should have rallied at least $1 on the news. Instead it fell $1.50. It is an old trading nostrum that if a contract can?t rally on surprisingly positive developments, you sell the daylights out of it.

Below, you will find another chart that you should wake up and take notice of, the Powershares DB US Dollar Bullish Index Fund (UUP). Commodities traditionally are weak when the dollar is strong. Both the chart and the fundamentals suggest that we are close to a multiyear low for the greenback and are about to enter a prolonged period of dollar strength. This is also grim tidings for oil.

Finally, there is that last resort, the charts. Check out those for the (USO) and oil and it very much looks like we have a triple top in place. That is the straw that breaks the camel?s back. Time to sell.

The only way I am wrong on my oil call is if the Chinese economy is about to take off like a rocket. They are the marginal big swing player in this market. But there is absolutely no sign of that happening in the economic data. If anything, the collapse in emerging markets suggest that conditions in the Middle Kingdom are about to get worse before they get better.

USO 8-21-13

WTIC 8-21-13

NATGAS 8-21-13

UUP 8-22-13

Camel Ouch! That Hurt!

Why We Need Six New Saudi Arabia?s

I recently spent an evening with Ambassador Richard Jones, the Deputy Executive Director of the International Energy Agency in Paris, who had some eye opening things to say about the energy space. The IEA was first set up as a counterweight to OPEC during the oil crisis in 1974, and has since evolved into a top-drawer energy research organization.

World GDP will grow an average 3.1%/year through 2030, driving oil demand from the current 84 million barrels/day to 103 million b/d. That means we will have to find the equivalent of six Saudi Arabia?s to fill the gap or prices are going up, possibly a lot. His conservative target has crude at $190 in twenty years. Some 39% of that increase in demand will come from China and 15% from India.

A collapse in investment caused by the financial crisis means that supply can?t recover in time to avoid another price spike. More than 1.5 billion people today don?t have electricity at all, but would love to have it. The best the climate negotiations can hope for is for CO2 to rise until 2020, and then plateau after that, because once this greenhouse gas enters the atmosphere it is very hard to get out.

This will require a massive decarbonization effort reliant on nuclear, hydro, alternatives, and carbon capture and storage. Up to half of the needed carbon reduction can be achieved through simple efficiency measures, like ditching the incandescent light bulb, driving more hybrids, and closing dirty, old coal fired power plants. Natural gas will be a vital bridge, as it is cheap, in abundant supply, and emits only half the carbon of traditional fossil fuels. The total 20-year bill for the rebuilding of our new energy infrastructure will exceed $10 trillion.

Richard, who comes from a long diplomatic career in Kuwait, Kazakhstan, and Israel, certainly didn?t pull any punches. I have been a huge fan of the IEA?s data for 35 years. Better use any weakness in oil prices to accumulate long term positions in crude through the futures, the ETF (USO), the offshore drilling companies like Transocean (RIG), and oil and gas plays like ExxonMobil (XOM)? and Occidental Petroleum (OXY). When oil comes back, it will do so with a vengeance.

WTIC 6-21-13

NATGAS 6-21-13

Camel21-1 I?ll Take Another Six Please

The High Oil Mystery

American oil imports from the Middle East are in free fall, down 35% in two years. They are quickly being replaced by tar sands imports from Canada, which are ballooning to 2 million barrels a day and at all time highs. American energy production is surging, thanks to new finds of natural gas showing up in everyone?s back yard, taking the country rapidly on its way to energy independence.

So why is the price of oil so damn high?

Everywhere you go to seek a shortage, you find a glut. Storage facilities at the Cushing, Oklahoma hub are practically overflowing. The Strategic Petroleum Reserve is close to its 727 million barrel maximum capacity, or 36 days of national consumption.

Traditionally, the beginning of the summer driving season heralded higher crude prices. But gasoline consumption has been sliding for five years, thanks to the widespread adoption of hybrids and electric cars, and the improved mileage of conventional automobiles.

Even the Iranian election results auger poorly for the price of oil. The win by moderate Hassan Rohani, who boasts a doctorate from a Scottish university, promises to ease tensions with the United States over the nuclear issue.

More mysterious is the fact that the price of oil has been levitating in the face of the utter collapse of virtually every other commodity. Dr. Copper is handing out ?F?s? these days, the red metal down 30% this year. Iron ore is close to 50% down from its peak, to the deep distress of many Australians and their beleaguered dollar. Even the barbarous relic is off, gold falling 31% from its high. How come the Chinese economic slowdown is dragging down the price of everything except the one it needs the most?

The US decision to send weapons to Syria is, no doubt, positive for oil prices, but it is only worth a bump for a day. America has also announced joint military maneuvers with Jordan. How much do you want to bet that they accidentally leave their weapons behind?

Iran responded by sending 4,000 troops into the battered country to join Hezbollah from Lebanon, who are already there. Syria is turning into the Spanish Civil War of our age. But as it produces no oil, it shouldn?t materially impact prices.

Looking at speculative long positions held by hedge funds, I find them at multiyear highs. My guess is that investment demand, not consumption, accounts for up to $30 of the current $98 price of black gold.

Maybe we should just write all this off to another instance of prices moving the opposite direction of fundamentals, which has become so common this year. Or perhaps President Obama is right? Is it the work of evil speculators?

WTIC 6-14-13

WTIC(2) 6-14-13

USO 6-17-13

NATGAS 6-14-13

World in Oil How To Get a Price Rise From a Global Glut?

New Nuclear Demolished By New Natural Gas

Four years ago, the dreams of a nuclear renaissance seemed close to coming to fruition. President Obama supported it. Congress passed a raft of new subsidies, tax breaks, liability caps, and cost overrun indemnifications, to grease the works. The goal was to bring the private sector back in a non-oil, non-carbon energy source which had seen no new construction in 34 years.

For a while, things were looking good. The Nuclear Regulatory Commission was flooded by 24 new applications for plants to join America?s 104 existing ones, from utilities largely in the southeast. Then a development far more devastating than the most egregious environmentalist lawsuit stopped the movement dead in its tracks. The price of natural gas crashed (UNG).

In 2008, CH4 peaked at $14/MM btu in 2008 in the wake of the last big oil spike to $149. It then utterly collapsed to $1.90, a vaporization of 86%. It was like someone snuffed your pilot light, turned all you gas burners on, and let your house blow up. Much of the industry was decimated, and gas investors got wiped out in droves. It also became one of my favorite short plays. Although gas has since recovered to $4/MM btu, it has completely demolished the economics of new nuclear.

At current prices, analysts now peg operating costs for new gas fired power plants at four cents a kilowatt-hour, compared to ten cents for nuclear. And this turns a blind eye to other problems endemic to nuclear, like expensive waste disposal, environmental litigation, lender nervousness, consumer backlash, humongous capital costs, and a long history of spectacular cost overruns.

It?s not like gas is going away anytime soon. Over the last five years, a new 100-year supply has been discovered in the US. Another 100 years is there, but exploration companies basically quit looking. What?s the point, when you are already drowning in the stuff. It turns out that about half of the land area of the United States is sitting on an exploitable natural gas field.

The finds assure US energy independence within 3-5 years, and will change the economy beyond all recognition. The risk is that gas gets cheaper, yet again, rather than ease nuclear?s competitive predicament. Just to bring nuclear back to even, gas has to roar back to $10/btu

The utilities have read the writing on the wall and are scrambling to lose their plans behind the radiator, post haste. Duke Energy (DUK), the poster child for new nuclear, has said it is calling off plans to build six new behemoths. Dominion Resources (DRU), in Wisconsin, is closing a nuclear plant which still has 20 years remaining on its license because it is simply too expensive to run. NRG Energy (NRG) dumped plans to build two Texas plants after blowing $331 million on preliminary planning and applications.

The new malaise in nuclear has placed a giant black cloud over the sector?s beleaguered ETF?s, including Market Vector Uranium + Nuclear Energy ETF (NLR) and Cameco (CCJ). Not only did these securities get the stuffing knocked out of them in the wake of Japan?s Fukushima tsunami and nuclear disaster, they have also suffered from this year?s general antipathy towards commodities.

I always had my misgivings about the return of big nuclear, the constructions of plants based on 50-year-old designs. There are too many other intelligent ways to do this from an engineering point of view. On the short list are alternative, cooler, non-weaponizeable fuels, like thorium. Small, modular, and even portable designs that mitigate and distribute risk is another idea. We may have to wait a while until better, more competitive nuclear strategies hit the market.

In the meantime, there are too many better fish to fry. Shop elsewhere.

NATGAS 6-6-13

NLR 6-6-13

CCJ 6-6-13

Nuclear Plant What?s the Market for a Half Built Nuclear Plant?

Revisiting Cheniere Energy (LNG)

Occasionally, I so totally knock the ball out of the park that I qualify for a place in the stock picker?s Hall of Fame. That was the case when I put out a recommendation to buy LNG exporter, Cheniere Energy (LNG), a year ago (click here? for Take a Look at Cheniere Energy (LNG).

Since then, the stock has soared an eye popping 85%. The great thing here is that I think the stock is still a buy. An upside target of $30 is a chip shot, and the all time high at $45 is within range. So get a 10%-20% dip in the price, and you might shovel some into your long-term portfolio. I quote below the entire original piece:

?I am constantly asked if there are any ways investors can take advantage of the collapse of the natural gas market, where at $2.34/MMBTU prices are plumbing decade lows. I have recently made good money buying puts on the ETF (UNG), but these are not for the faint of heart. They call this contract the ?widow maker? for a good reason.

You don?t want to touch the gas producing companies, like Chesapeake (CHK) and Devon (DVN), because prices are probably going to stay down for years. Good firms that benefit from the increased volume of gas pumped are few and far between. Unless you are a large consumer of this despised molecule, such as an electric power company or a petrochemical plant, it is tough to find a profitable niche.

However, there is one company that delivers a narrow rifle shot that could do extremely well in coming years, and that is Cheniere Energy (LNG). I first started following (LNG) a decade ago when I was still wildcatting for CH4 in the Texas Barnet Shale.

Back when natural gas was trading at a loft $5/MBTU, Qatar invested $50 billion in in developing its own substantial gas resources. The plan was to liquefy the gas at -256 degrees Fahrenheit in the Middle East, ship it to the US in a fleet of specialized LNG carriers, and have Cheniere convert it back into gas at its Sabine River plant for distribution to an energy hungry US market through the Creole Trail pipeline. It all looked like a great plan, and (LNG) shares traded up to $45.

Then ?fracking? technology came along and blew up the entire model. The discovery of a new 100-year supply of gas under our feet caused gas prices to crash from a post Amaranth peak of $17/MMBTU down to $2/MMBTU. Any plans to import LNG from the other side of the world were rendered utterly worthless. Chenier?s billion-dollar investment in a gasification plant was now worth only so much scrap metal. (LNG) shares plumbed low single digits as the firm flirted with bankruptcy.

Enter China. The Middle Kingdom?s voracious demand for energy in this recovery has caused the price of oil (USO) to soar from a 2008 low of $30 to $110. Despite accounting for an overwhelming share of the world?s new energy purchases, Chinese cities are suffering from brown outs due to power shortages. This is why China is resisting immense American pressure to quit buying Texas tea from Iran.

Enter the arbitrage. While oil has been spiking, gas has been crashing. Gas is now selling at 15% of the cost of oil on an adjusted BTU basis. Another way of saying this is that you can buy oil for $16 a barrel instead of $110. It only takes a second with an abacus to understand the appeal of such a disparity.

Gas also has the additional benefits in that it is much cleaner burning than crude, lacks the sulfur and nitrogen dioxides, and produces half the carbon dioxide. That?s a big deal in Beijing where the air is so thick you can cut it with a knife on a bad day.

Enter the long-term contracts. During the 1960?s and 1970?s Japan entered into huge long term contracts to buy LNG from Australia and Indonesia to feed their own economic miracle of the day. Because very expensive and hard to get, offshore supplies were tapped, the price was set at $16/MBTU. Those contacts are now expiring. Do you think they?ll renew at the old price, or go to Cheniere for the $2 stuff? Gee, let me think about that one for a bit.

Enter Fukushima. The nuclear meltdown last March prompted Japan to shut down 49 of 54 nuclear power plants that accounted for 25% of the country?s electric power generation. The brownouts that followed forced a sweltering summer on millions as the government urged consumers to shut off air conditioners to save juice. Power companies there have been scrambling to obtain conventional energy supplies, and have been a major factor in driving oil up from $75 to $100 since the fall. Cheap gas supplies from the US would meet this demand nicely.

The trigger. Last May, Cheniere got US government permission to export 2.2 billion cubic feet a day for 20 years. That would require it to convert the existing gasification plant to a liquifaction plant, something that can be done with some expensive re-engineering. It has already found several large international buyers to take delivery of the new end product. All that was missing was the money to finish the plant. My hedge fund buddies have been accumulating this stock since October, when it bottomed at $3, expecting an angel investor to appear. But it was one of those ?someday, it might happen? kind of stories better left to long term players.

Then last week, Blackstone jumped in with a beefy $2 billion investment in Cheniere. That will enable them to obtain an additional $3 billion in debt financing needed to finish the first of two export facilities. They are now expected to come online in 2016.

How does Cheniere stack up as an investment? Frankly, it is kind of scary. The market cap is only $2 billion, and it pays no dividend. When the current spate of deals are done, it will have $5 billion in debt. The Stock has just run up from $3 to $17. And these facilities are dangerous to operate. One blew up in Texas in 1937 and killed 300 schoolchildren. As a result, local permits for these are very hard to come by.

But as you can see, a whole host of geopolitical, technology and economic strands tie together in this one company, all of which are positive for the share price. If the story comes true, as Blackstone hopes, then there could be a double or triple in the shares for the patient. To learn more about Cheniere Energy, please click here for their website at http://www.cheniere.com/default.shtml .?

LNG 3-21-13

NATGAS 3-20-13

WTIC 3-20-13

Homes - rubble

Did Somebody Light a Match?

Cheniere Energy (LNG) Gets the Green Light

I have been pounding the table on the attractions of Cheniere Energy (LNG) since last spring. Yesterday, the stock hit a new all time high of $21.50.

There is never any guarantee that a government agency will not do something idiotic. Last year it didn?t, thankfully. The Federal Energy Regulatory Commission (FERC) granted the final license needed by Cheniere Energy (LNG) to build the first of two liquefaction plants at Sabine Pass on the Texas Louisiana border on the Gulf of Mexico. These will be the first such plants built in the US in 40 years.

FERC gave to go ahead despite vocal opposition from the Sierra Club, which claimed that fracking caused environmental damage. This, of course, is complete bunk. MIT recently published a study of 50 incidents where gas made it into local water supplies. In every case, it was shown to be the cause of subcontractor incompetence and inexperience, not because of any fundamental flaws with the technology.

The move was a crucial step towards turning the US into a major natural gas (UNG) exporter. The company has already contracted to sell 89% of the plants? planned annual output of 16 million tons. Buyers include BG Group of the UK, Gas Natural Fenosa of Spain, Gail of India, and Kogas of South Korea. Initial deliveries are expected to commence at the end of 2015.

You may recall that I recommended this stock to readers back on March 7 when it was trading at $16.10 a share (click here for ?Take a Look at Cheniere Energy (LNG)? at http://madhedgefundradio.com/take-a-look-at-cheniere-energy-lng/). I think it is just a matter of time before the stock surpasses its next hurdle at $30, especially if natural gas continues to stabilize here around $2/MM BTU.

LNG 1-30-13

NATGAS 1-30-13

Gas Fire

Now, We?re Cooking With Gas