After all, energy stocks across the board had been beaten down during the last two weeks. Yet if there was one thing we were confident about, it was that oil prices couldn't fall too low before the panic set in.

As you know, if crude prices fell below $65 for a sustained period of time, we would lose vital investments dollars in future production. OPEC has repeatedly stated it was comfortable with a price range of $70-$80 per barrel.

Once Monday finally rolled around, everything began to work out as expected. Crude oil jumped $1.54 per barrel, nearly reaching $75/bbl during trading that day. Things were even better on Tuesday as oil prices climbed another 3%.

But unfortunately, the good times didn't last...

By the end of the week, oil declined to a seven-week low when it fell more than 8%. Still, we couldn't pin the blame on the small inventory build reported by the Energy Information Administration. The EIA's weekly report showed an increase of 2.32 million barrels to U.S. supply on Wednesday and another drop in gasoline demand. U.S. demand for gasoline is now at its lowest level in more than five years.

This time, we can thank the dollar. This week, the U.S. Dollar Index surged over European concerns, as well as a better-than-expected employment report, which showed the unemployment rate dropped to 9.7%.

Although the bad news keeps rolling in, we're still confident oil will stay within the $70-$80 barrel range as the recovery continues.

I know how hectic it can get during the work week. So in case you missed any of the top stories from Energy and Capital or our sister publications, I've included them below.

Enjoy your weekend,

Keith Kohl

Energy and Capital

The Alberta Oil and Gas Royalty Change: Defusing Alberta's Royalty Time Bomb
The time has come for Alberta to sink or swim. Over the last few years, Alberta's political shenanigans have managed to scare away energy companies by the dozen. Energy and Capital's Keith Kohl explains how Alberta might turn the tables to attract future investment.

The Louisiana Land Rush: The Largest Gas Find in U.S. History
At times, it feels like nothing can go right during this economic turmoil. But that's not the case for this small area in Louisiana... In fact, they've been practically immune to the recession. Energy and Capital explains why their fortunes lie in a massive natural gas deposit that is finally being unlocked — and why perhaps it's time you joined the shale boom.

The Oil Export Crisis Has Arrived: Venezuela and Mexico: The Point of the Exports Spear
Energy and Capital Editor Chris Nelder warns about the upcoming export crisis faced by both Venezuela and Mexico... and more importantly, how their troubles will affect the U.S.

The Death of Death: Overlooking an American Biotech Fortune
It's the number #1 killer in the world — even more deadly than the natural disasters which flood media headlines. Learn how you can take advantage of the breakthrough in biotechnology that could save millions of lives every year, with this latest report from Energy and Capital.

Nuclear Energy Stocks: Nuclear Hurdles & Profitable Leaps
Energy and Capital's Nick Hodge gives readers the ins and outs of the upcoming nuclear revival, including the best way for investors to play this growing trend.

T. Boone's Natural Gas Crusade: Pickens Looks to Profit from Compressed Nat Gas (CNG)
Analyst Adam Sharp discusses the latest in T. Boone's plan for energy dependence... and why his push for CNG may not play out as expected.

Seven Reasons to Invest in China: I'm with Jim Rogers on this One...
Wealth Daily Editor Chris DeHaemer offers seven reasons why investors should be looking to China for their future profits.

The possibility that Mexico's oil and gas exports to the U.S. could go to zero within seven years looked very real.

As I explained in that piece, rising domestic consumption coupled with declining supply puts an ever-tightening squeeze on imports. I have found no evidence that policymakers are paying any attention to this critically important dynamic, but it is the very point of the peak oil spear.

Were it not for the market meltdown and recession, it would have pierced our vital organs. Instead we felt a pinprick. Hardly anybody realized what it really was, and most ran off on a wild goose chase for evil oil speculators.

Now Venezuela has appeared on my radar for similar reasons... only this time, we're really going to feel it.

Let's begin with a review of Mexico's exports.

Mexico

Shortly after publishing that article, I casually remarked to my friend and fellow energy analyst Gregor Macdonald that Cantarell's production could fall to under 0.5 million barrels per day (mbpd) by the end of the year.

I arrived at this somewhat startling conclusion by calculating the effect of its decline rate — 38% at the time and accelerating — on production of 0.77 mbpd in January, down precipitously from its 2.1 mbpd peak in 2003.

Gregor's recent data sleuthing on Cantarell found its production in December 2009 was 0.527688 mbpd, just a hair above my estimate.

To update the data on Mexico, it's now our #2 source of imported petroleum because Saudi Arabia has fallen from #2 to #4.

As of November 2009 (the latest data available) the U.S. imported 1.08 mbpd of crude and finished petroleum products from Mexico. Its exports to the U.S. peaked at 1.46 mbpd in 2004, the same year as its production peaked. Net exports (production minus consumption) fell to 1.06 mbpd in 2008.

Mexico Petroleum Supply, Exports to U.S. and Net Exports. Source: EIA. Chart by Chris Nelder.

For the years 2005-2008, Mexico's exports to the U.S. declined by 0.51 barrels per day. In 2010, supply is expected to fall to 2.5 mbpd — nearly half a million barrels per day less than 2009.

Mexico nationalized its petroleum operations in 1938 in a constitutional amendment and handed over total control to the state oil company Petróleos Mexicanos (PEMEX), with predictable results.

Oil now provides more than 40% of the country's revenues, which have been used to pay for a vast array of public services and line the pockets of the oligarchy while starving investment in both upstream activities (new oil supply) and downstream (finished products).

Consequently, Mexico's oil reserves have decreased by more than 75% in two decades (owing partly to the correction of a previous, ridiculously inflated figure), production has begun to decline and exports are falling fast.

It now imports $4.5 billion a year worth of gasoline, $10 billion a year in petrochemicals, and 25% of its natural gas, mostly from the U.S. This despite having nearly 13 billion barrels of proven oil reserves and more than 50 billion barrels of (unproven) reserve potential.

Mexico would be in a far better position, were it not for its hostile stance on foreign participation. PEMEX simply lacks the technical ability to develop its more difficult, remaining resources — particularly deep water.

Venezuela

As of November, the U.S. was importing 0.9 mbpd from Venezuela, making it our #3 source. Its exports to the U.S. peaked at 1.8 mbpd in 1997, the same year as its production peaked. Net exports (production minus consumption) have fallen 38% from the 1997 peak of 3.1 mbpd to 1.9 mbpd in 2008.

Venezuela's oil exports to the U.S. have been declining markedly since 2004, after a long period of relative stability. From 2004 through 2009, Venezuelan petroleum exports fell 0.7 mbpd.

Venezuela Petroleum Supply, Exports to U.S. and Net Exports. Source: EIA. Chart by Chris Nelder.

Like Mexico, Venezuela is endowed with enormous energy resources and could be producing at a far higher level. Estimates of its oil reserves range from 153 billion barrels of certified proven; to 513 billion barrels technically recoverable in the USGS' January estimate; to 1.5 trillion barrels in offshore potential, if you believe the effervescent Dr. Marcio Mello of Brazil.

Most of it is heavy oil, a low-grade which must be upgraded to synthetic crude.

And like Mexico, President Hugo Chavez has exiled the Western oil companies who might have made the investment to bring those resources to market.

A Nation in Free Fall

The good times rolled for Chavez in the first years after his election in 1998. His socialist programs to rebuild the country and raise its standard of living were popular but expensive, and soon began to fail under the crush of declining energy supply.

Oil revenues make up 90% of Venezuela's foreign earnings, so its dependence on oil exports is extreme.

Billions of dollars in profits from the national oil company, Petroleos de Venezuela SA (PDVSA) were diverted to welfare programs and into the pockets of oligarchs, while investment in future petroleum and power supply languished.

The precipitous drop in oil prices since mid-2008 only compounded the revenue shortfall.

Oil production has fallen 25% since Chavez was elected, and a long, devastating drought has cut into its hydropower supply, of which 73% comes from the massive Guri Dam.

Chavez responded by nationalizing most of its petroleum operations and its grid in 2007.

In 2009, another 76 oil services companies on the Maracaibo Lake were taken over. The projects now sit abandoned, waiting for PDVSA to compensate the displaced operators and put them back into operation.

Almost half a million hectares of land were seized in 2009 with the rationalization that it was underused.

Measures to counter the declining hydro supply have been implemented in a haphazard fashion, resulting in frequent, unscheduled blackouts, including seven national blackouts since 2007. Malls and government offices have had their hours of operation cut and water rationing has been imposed.

"Some people sing in the bath for half an hour,'' Chávez cried at a cabinet session in October. "What kind of communism is that? Three minutes is more than enough!''

In January, a wave of public protest erupted, prompting Chavez to implement a rapid series of desperate measures.

• Rolling blackouts were imposed in the capital city of Caracas. After a few days of protests, Chavez lifted the blackouts and fired the electricity minister. Blackouts are expected to be reinstated in an effort to keep hydro reservoir levels from falling to the point of collapse.
• A recent report gave the power shortage a paradoxical twist, indicating that power from one of the state refineries may have to be diverted to the grid, cutting distillate output by 200,000 barrels per day — or more. This will result in less heating oil for China, who will make up the loss by burning more coal.
• Chavez devalued Venezuela's bolivar currency by half; the president went on to nationalize a chain of French-owned supermarkets over alleged price gouging.
• He ordered cutbacks in the operation of state-run steel and aluminum manufacturing operations, which account for up to 20% of the country's power demand.
• This week he turned to Cuba for help on how to cope with the power shortage, since Cuba has been through similar problems. The island nation is providing tens of thousands of energy-efficient lightbulbs and cloud-seeding technology to Venezuela.
• Last weekend, he forced six television channels off the air for failing to broadcast one of his speeches — up to six hours in length — in a continuation of his campaign for "communicational hegemony." Since December, all radio and television networks are required by law to broadcast his speeches live, whenever he chooses to make one.
• Nationwide student marches have been met by troops armed with rubber bullets, and at least two deaths have been recorded.

Chavez has said he's prepared to take "radical measures" should the situation worsen, begging the unsettling question of what could be more radical than what he has already done.

Looking East, Not North

Now Chavez is turning east for help in developing his nation's oil and gas resources. Recent agreements include a $20 billion joint venture with Russia to develop the Junin 6 field in the Orinoco oil belt, with a potential top production rate of 450,000 barrels per day.

China has agreed to build a refinery and develop the Orinoco heavy oil fields, and Venezuela has guaranteed 560,000 barrels per day to China this year.

Venezuela has launched its first major auction for drilling rights in more than a decade, for access to areas east of the existing operations in the Orinoco. Developing the leases will be expensive because of their distance from the existing infrastructure, and winning bidders are expected to make offers in the $10 billion-plus range including early payments of at least $1 billion, financing plans, and commitments to build the necessary roads, pipelines, ports, and upgraders. Potential bidders include Spain's Repsol, Japan's Mitsubishi, the UK's BP, and Chevron.

Given the sheer size of its resources, it's too soon to declare the end of Venezuela's glory days in the oil patch. However, it does seem likely that the new barrels it brings to market will be headed east — not north — and Western producers will have very little stake in the projects.

Chavez will put exports to the U.S. on a short path to zero the first chance he gets.

Oh Imports, Where Art Thou?

The combined decline in imports from Mexico and Venezuela for 2005 through 2008 is 0.89 mbpd. If the trend continues in 2009, then over 1 mbpd will have disappeared from the U.S. import stream in the last five years — a decline of 8% from 2004 levels.

Since 2007, the loss of production from Cantarell alone was 0.7 mbpd, but the recession cut U.S. demand by 2 mbpd, effectively masking the decline. This raises the question: If U.S. demand rises from here, where will those barrels come from... and how much will they cost?

The U.S. is not only in first place worldwide in its demand for oil, but in paying the market rate for it. Nobody else buys 8.5 mbpd of crude at retail.

Drivers in Venezuela are still filling up for 25 cents a gallon, even as their exports decline.

Mexico's gasoline prices are more on par with the U.S., but its consumption has been rising steadily since 1997 and continues to cut into exports.

Saudi Arabia's domestic consumption is currently growing at the rate of 7% per year, following a trend of more than three decades. It uses a whopping 1.5 mbpd — 1.8% of total world oil supply! — to desalinate water, at the equivalent of 7 cents a gallon.

Before the OPEC cuts of 2009, its exports to the U.S. had essentially flatlined at 1.5 mbpd since 2004.

Exports from our #5 source, Nigeria, have also declined — from 1.17 mbpd in 2005 to 0.98 mbpd in 2008.

In fact, of the top five oil exporting countries to the U.S., representing 63% of our crude imports, only Canada posted an increase (of 0.2 mbpd).

The combined annual net oil exports from our top three exporting countries — Canada, Mexico and Venezuela — illustrate our situation:

Combined Annual Net Oil Exports From Canada, Mexico and Venezuela. Source: Jeffrey J. Brown, Samuel Foucher, PhD, Jorge Silveus.

Given the very modest increases from unconventional domestic production and Canada, the decline of imports from Mexico and Venezuela means the U.S. will be increasingly forced to depend on suppliers farther afield — the very same suppliers that China has been buying into in size. The "collision course with China" that I wrote about in July 2005 has nearly reached the point of impact.

It also means that when oil prices rise again, the pain will be far greater for the U.S. than it is for our top suppliers. Next time, the spear of declining oil exports will puncture a lung.

The oil export crisis has arrived... We just haven't felt it yet.

Production, consumption, and export data herein is the latest available from the EIA.

Until next time,

Chris

Thanks to the following individuals for their contributions to this article: Venezuelan oil expert Carlos Rossi for sharing excerpts from his forthcoming book, The Completion of the Oil Era: The Economic Impact; Gregor Macdonald for sharing his data on Cantarell; and Jeffrey Brown and Samuel Foucher, for their work on net exports data and the Export Land Model.

Investor's Note: While declining oil imports from Mexico and Venezuela paint a nightmare scenario for meeting future U.S. demand, all hope isn't lost... In fact, one U.S. oil play is developing at a breakneck pace. You're likely aware of the Bakken oil formation. But you may not realize fully how the Bakken has single-handedly thrust North Dakota into the international investment spotlight.

Of course, members of the $20 Trillion Report know how profitable the Bakken oil formation is. So far, they've raked in gains of 305%, 249% and 130%! We want you to share in their success. In this free report, you'll find out why underestimating the Bakken formation could make you a small fortune. Simply click here to learn more about this investment opportunity. 

The Texan billionaire was pitching his revised "Pickens Plan" for energy independence. The latest version advocates compressed natural gas as a replacement for diesel fuel.

Stossel — a libertarian — thinks T. Boone's plan is nothing more than dressed-up corporate welfare; Pickens says that CNG needs "help" from the government to get off the ground. The contrast made for a good show.

Pickens' plan relies on a big expansion in federal tax credits. The aim is to get trucking companies to switch their fleets from diesel to CNG. His goal — to eliminate America's dependence on imported diesel — seems like a pipedream... but I have to admit that the concept is compelling.

What's not to like?

Energy independence, less pollution, and cheaper fuel. The new Pickens Plan looks great on paper, at least. Major players are lining up behind it, from Harry Reid to Orrin Hatch. There's a bill floating around Capitol Hill to fund the tax credits (H.R. 1835), and Pickens says it could pass by May 2010.

Risks, Pitfalls, Conflicts of Interest

There are plenty of CNG critics out there. We heard from them last month, responding to a CNG article by my colleague Christian DeHaemer (founder and editor of Crisis and Opportunity).

Here are some thoughts from an Energy and Capital reader, Lou:

Do not hold your breath on CNG vehicles in general usage. Because of the high pressure tanks, such vehicles are or should be limited to use by fleets where trained technicians can fuel and maintain them. Ford and GM both gave up on their programs when 2 vehicles blew up during the fueling process because of tank failures. 6000 PSI gas, even inert nitrogen, is not something the general public is qualified to play with. Any new program for such vehicles will be instantly aborted when the first one blows. I know, because I was involved in those programs, trying to design fuel injectors for some. Very tricky business because one is dealing with a gaseous media.

Pickens may be smart, and he may be rich, but he's just proven that he does not understand the issues of alternate sources of energy. I knew the minute I first read of his scheme that he had not even been reading the papers re the NIMBY issues with wind turbines. Rich liberals that want this transition scream the loudest when anyone mentions wind turbines in their back yards. See: Teddy Kennedy.

Reader Wallace Henderson shared his first-hand experience running a fleet of CNG-powered airport shuttles:

Before you jump fully on the CNG bandwagon check the New Zealand experience. On my first tour of the country in 1988 almost every filling station had a CNG pump. On my last trip in 2007 very few had such pumps.

Personal experience trying to run an airport shuttle van service with CNG powered vehicles adds to my skepticism. To get about half the range of a tank of gasoline required a very large CNG tank pressurized to 3000 psi which was once the favored component in IEDs in the Middle East. Also filling time added about an hour of unproductive time on the clock for the drivers. After a very sincere try at being green we gave up after 9 months. Only government fleets where cost effectiveness is not a requirement are compatible with CNG.  

Lou and Wallace highlight some of the biggest hurdles CNG needs to overcome. But with dozens of cities around America running fleets of CNG buses, the safety issues seem manageable — at least for larger fleets.

So far I'm not sold either way. Both sides make good points.

My biggest problem is that success of the plan hinges on tax breaks, at a time when the government is near-broke.

Conflict of Interest?

T. Boone could get even richer if his plan succeeds, thanks in part to the massive tax credits he's pushing. For example, he's the largest shareholder in Clean Energy Fuels Corp (NASDAQ: CLNE), a company poised to profit from the buildout of CNG fuel stations. Filling stations that add natural gas would also get up to $100,000 in tax credits under H.R. 1835.

This conflict doesn't mean the Pickens Plan is a scam, or that it won't work. But it does raise questions about T. Boone's partiality. So while the Pickens Plan is sometimes sold as humanitarian effort, we should remember that big business is the real driving force behind it.

Chesapeake Energy (NYSE: CHK), a natural gas giant, is also working with Pickens to promote CNG. They run CNGnow.com, which promotes expanded use of the fuel. They're also running TV ads in support of Pickens.

Like Stossel, I generally don't like the government meddling in markets. T. Boone argues that a tax credit is different from a handout, since it technically just reduces a company's tax liability... But it still comes down to the government playing favorites.

Here's the clip from Stossel's show. It's worth a watch.

Those words, even during a time of intense partisanship, brought both sides of the aisle to their feet during last week's presidential address. And they stood for a litany of reasons...

For starters, total electricity consumption will grow from 3,873 billion kWh in 2008 to 5,021 billion kWh in 2035 — an increase of 30% — according to the U.S. Energy Information Administration's (EIA) most recent Annual Energy Outlook.

But on a global scale, demand will surge much higher thanks to the coming-of-age of developing countries. A 100% increase in global electricity demand is expected in the next two decades.

And coal, while expected to remain the dominant fuel for electricity, isn't expected to expand all that much. According to the same EIA report: "The mix of investments in new power plants includes fewer coal-fired plants than other fuel technologies" because of "concerns about GHG emissions continue to slow the expansion of coal-fired capacity... even under current laws and policies."

Some areas have already banned the building of new coal plants altogether.

But nuclear is in for a bump, from 100.6 gigawatts (GW) currently to 112.9 GW in 2035. Some of that growth will come from new plants and some will come from upgrades to existing plants. What's more, there are no planned plant retirements in the next 25 years.

In fact, the EIA says "plant owners will apply for, and be granted, license extensions beyond the current 20-year extensions of operating licenses."

And that's just in the U.S. Plenty of other countries are pursuing ambitious nuclear plans, as well. Globally, the World Nuclear Association is projecting a 203% increase in capacity by 2060, from a current base of 373 gigawatts.

So those are the predictions.

But how are we to get there?

Nuclear Hurdles & Profitable Leaps

Of course, nuclear still has its fair share of issues to deal with. And solving these issues is turning into a billion-dollar business as the world races to secure energy for the 9 billion people that will be here by 2035.

Safety is at the top of the list.

As my colleague Keith Kohl touched on last week, Chernobyl still comes to mind for many when nuclear is mentioned. But a new generation of reactors is ready to change all that.

GE (NYSE: GE), Areva, Westinghouse, and Korea Electric Power (NYSE: KEP) are each offering reactors with new technologies that make safety a top priority. These reactors use proven concepts — like gravity and heat circulation — to ensure safety, rather than relying on pumps and valves that can fail.

The new reactors will add to a nuclear safety record that has been blemish-free for two decades, as operating experience increased from 4,000 reactor-years to more than 13,000.

Waste is also a key issue, especially with the fate of Yucca Mountain unclear. But looking to the international community can provide some answers.

In Sweden, where 45% of the electricity comes from nuclear, a small town recently struck a deal to create one of the world's first-ever long-term storage facilities for nuclear waste. The site will commence construction in 2016 and will be able to store nuclear waste for 100,000 years.

What's interesting is that several Swedish towns were actually competing to host the facility for its revenue and job prospects...

Finland and France are also pursuing this type of long-term storage. (For investment purposes, the Swedish Nuclear Fuel and Waste Management Companies is owned 36% by Vattenfall, 30% Forsmark, 22% OKG, and 12% E.ON Sweden.)

But the biggest advancement that will push nuclear forward — both as an energy source and an investment vehicle — is going to come from the fuel itself.

Nuclear Plays the Metal Game

Top universities have been toying with the idea of adding various metals to uranium to form a kind of nuclear superfuel that could solve many of the industry's problems. Metal oxides are already used as reflectors in nuclear warheads and reactors, but they're about to be added to the fuel, too.

Researchers have found that combining metal oxides with uranium oxides results in a fuel that is able to withstand much higher temperatures, greatly increasing the efficiency and safety of nuclear power plants.

And they've found that one metal, in particular, outperforms all others.

The company funding this research is about to enter the last of three test phases before the new fuel can be made available. And they're already in $100 million supply talks with major nuclear fuel suppliers.

What's more, the company owns the technology from soup to nuts. They own the process to make the fuel additive... and they own enough reserves of the rare metal to power the nuclear industry for 100 years.

The full report on this company — just out today — explains the process, the metal, and how the tiny company behind it is about to make a fortune.

Call it like you see it,

Nick

I'm not referring to U.S. politics, which are about as nasty as it gets. Today, my attention is fixated on Alberta: Canada's Energy Giant.

The Beginning of the End

I've been covering the ongoing debate over Alberta's oil and gas royalty changes for several years. In fact, I distinctly remember the day the Alberta Royalty Review Panel's report crossed my desk.

The title of the report was "Our Fair Share." The conclusion was easy enough to guess... In a nutshell, the report stated that Albertans do not receive their fair share; it went even further, saying that the government had failed to collect royalties already owed.

From that moment on, I had this eerie feeling that Alberta was in for some trouble.

And sure enough, five weeks later, I read another report about the new royalty framework. The first sentence stood out: In the words of Alberta's Premier, Ed Stelmach, "I made a commitment and I delivered."

His commitment was to review the current oil and gas royalty structures in Alberta.

Well, he definitely delivered.

Unfortunately, he sent energy companies scrambling to get out of the province.

Trust me, the ball hasn't been dropped this bad since Edmonton sold Gretsky to the Kings... I'm sure my Canadian readers — especially those of you in Alberta — still have some anger issues over that debacle.

Of course, when it comes to politics, the approval of your constituents could mean the difference between another term and a plane ticket home... 

So how have things turned out for Mr. Stelmach?

Suffice to say you'd be hardpressed to find someone with lower approval ratings.

Okay, maybe it's not fair to compare Ed with U.S. presidents... but just to give you an idea, think about our pal G.W., who left the White House with a 22% approval rating — the lowest in history. Now compare that with the abysmal 14% carried by Stelmach at the end of 2009.

Sure, you can pin the blame on the economic turmoil. Or can you?

Remember how I said that these royalty changes have sent energy companies running? Well, you can take a guess on where those companies went. Don't worry — you won't need more than one. Saskatchewan Premier Brad Wall is enjoying a 58% approval rating — the second highest rating among the provincial leaders.

Then again, he's reiterated his stance on not changing Saskatchewan's royalty structure too many times for me to count.

Considering 30% of Alberta's revenue comes from royalties from non-renewable resources, driving away that oil and gas development certainly isn't helping matters.

The Competitiveness Review Report: Stelmach's Last Chance to Save His Job

Since I first read that report in 2007, it has changed approximately five times. But this is this simply a case of "too little too late" for attracting more energy companies.

Believe me, the new set of changes needs to sweeten the pot if Alberta wants to keep up with its neighbors.

Something else to consider is whether or not Alberta has burned its bridges with the energy industry.

Anyone else remember Chavez nationalizing Venezuela's oil industry? Do you find it surprising that their latest auction for oil-drilling rights only brought in two bids? Only three projects received offers.

Alberta hasn't dug themselves that far into a hole, but time is running out.

In a matter of weeks, we might have our answer. Alberta's energy department is expected to release a new competitive review report. The competitive review was first announced last summer, as a growing number of companies flocked to neighboring provinces.

Profiting from Inevitability

While there's no doubt the upcoming revisions in the competitiveness report will be favorable for Alberta energy companies, the terms may turn out better than expected. Offering more favorable terms is the only thing Alberta can do to save face with the energy industry.

How far the government is willing to go is another matter itself, but we'll know the conditions soon enough. I'd love to hear you weigh in on this subject — especially my Canadian readers. Just click on the Comment/Rate this Article button below to give me your two cents on the matter.

Judging from the latest conversations I've had with my readers living in Alberta, I'm not alone in pointing out Stelmach's failures.

It's time for Alberta to sink or swim.

You see, upcoming unconventional plays like the Horn River Basin in British Columbia, or even the mighty Bakken oil play in Saskatchewan, are constantly stealing the spotlight.

It's difficult for me not to talk about some of those plays.

Take my readers at the $20 Trillion Report, for example. They've made a small fortune from Canada's energy war. One play alone has given them gains of 241%, 300%, 127%...

If you haven't joined their success, take a few minutes to read over this free special report. Inside, you'll finally understand why the one of the hottest oil plays in North America has been grossly underestimated for the last fifty years. Just click here to access to the report.

Yet no matter how much Alberta's situation appears to be nothing but doom and gloom, don't think that Alberta is down for the count.

In fact, there's one very specific reason why Alberta getting back on track.

I like to think of it as the ace up Alberta's sleeve. Within the next few days, I'm going to tell you all about it — including several investments that are giving Alberta oil fever all over again.

Until next time,

Keith Kohl

Energy and Capital

Although the issue of peak oil has gained attention over the last several years (due mainly to oil prices skyrocketing to $147 per barrel in 2008), it's simply amazing that most opponents have no idea what "peak oil" means.

Even more stunning to my readers and I is that no matter how many times we try to explain it, the critics continue to repeat the same argument. No matter what you say or show them, they fall back on this excuse: "The world isn't running out of oil," followed by several denigrating remarks.

The only thing to do is to simply tell them that you agree. The world isn't running out of oil.

If nothing else, my readers know that peak oil doesn't come down to the world running out of oil. So, you can imagine our disappointment when the Saudis announce, "There is plenty of oil in the ground and the world should put aside fears about 'peak oil'."

I have yet to meet an advocate of peak oil that believes the world is running out of oil.

The latest slide in oil prices this week gives us hope that things will soon turn around. During trading on Friday, oil prices fell as low as $72.43 per barrel. If you've been following oil prices for the last six months, you know that oil prices have been stubbornly trading between $70 and $85 per barrel. So the latest move isn't a reason to panic.

Even the draw on U.S. oil stocks this week wasn't enough to stop the drop. On Wednesday, the EIA reported a modest 3.3 million barrel draw on U.S. inventories. The real problems will come if oil is unable to hold the $65 a barrel mark. Any lower, and we'll see a lack of investment in the sector — something which would be devastating to meeting future supply issues.

Of course, the dollar rising to a six-month high against the euro on Friday didn't help matters much, contributing to the nearly 2% slide in oil prices.

Then again, we're focusing our attention on an upcoming recovery. A recent report from the Commerce Department showed a 5.7% increase in GDP during the fourth quarter, beating previous estimates.

So why is the GDP number so important? Simply put, a stronger GDP number could lead to better recovery and stronger fuel demand in the latter half of 2010.

In other words, there isn't a better buying opportunity than right now.

Enjoy your weekend,

Keith Kohl

Energy and Capital

P.S. In case you missed some of our top stories this week from Energy and Capital or our sister publications, I've included them below.

"China's Pantry": The Asian Nation Soon to be Beijing's Top Growth Partner
Energy & Capital reveals to readers a chance profit in the country that Reuters estimates "will generate the highest rate of GDP growth in the world" over the next decade. But this insider info is urgent... because in just two weeks, this deal might be subject to a legal "gray area" injunction - and you will have missed out on the world's last mega-boom profit opportunity.

How to Profit from Energy Efficiency: The NYSE: Itself is Bullish on this Tech
Energy and Capital Editor Nick Hodge continues his discussion on energy efficiency, showing investors how they can profit off of this new trend is starting to gain attention.

The Bakken Oil Formation: Being Wrong Never Felt So Good
Readers take a moment to reflect on how one simple error has made their Bakken investments wildly successful. In this free report from Energy & Capital, you can learn about one company that's moving into the Bakken spotlight.

Nuclear Energy Stocks: Helium-3: An Energy Solution Only 238,857 Miles Away
Have the Chinese finally lost their minds? Energy and Capital Editor Keith Kohl shows readers why China is traveling 238,857 miles to solve its looming energy crisis.

Greenland's Gift: Owning Your Share of this $273 Billion Chunk of Arctic Tundra
It's not often that you find a tiny piece of land worth so much. A few weeks ago, the Kingdom of Denmark lost the mineral rights to a 500-mile piece of Arctic bedrock that will play a critical role to the future of modern circuitry. Energy & Capital reveals the one company that stands to control it all.

2010 Commercial Real Estate Forecast: No Spin Zone: CRE Plunge is Inevitable
Wealth Daily's Steve Christ explains why commercial real estate is an absolute disaster for investors. Be sure to read Steve's take on why CRE is doomed to fail.

5 Reasons the iPad Will Fail: Apple's Latest is a Bust
Wealth Daily Analyst Adam Sharp gives you an in-depth look at Apple's latest iPad, offering 5 reasons why this device is headed straight for the trash.

China's Huge Oil Demand: The Middle Kingdom Secures Future Energy Needs while U.S. Sits on the Sidelines
While many oil investors are fixated on the U.S., Wealth Daily Editor Christian A. DeHaemer takes a different approach by focusing on the real problem — namely, China's growing thirst for oil.

And yet the proof is in the return. Take a look:

The truth is you make the most money by going where no one else wants to go, for the simple reason that no one has bought yet — which means everyone is left to buy. The secret is to get there first with the most.

Tullow is an independent oil exploration company with interests in nineteen countries. A few years ago, the company discovered the world-class Jubilee oil deposit off the coast of the west African country of Ghana. The deposit is expected to have 1.8 billion barrels of oil. I immediately recommended the company and its partner, Heritage Oil; as you can see by the chart, the return has been substantial.

Tullow was once a small player in African oil that no one had heard of... They now have a market cap of 10 billion pounds and just recently raised $1.35 billion to buy out partner Heritage Oil's claims to the Jubilee field.  

According to the UK's Financial Times, "Tullow, which has a market capitalization of nearly £10bn, said it also needed the money to fund development of its Jubilee oil field in Ghana, which is on the cusp of production, and to launch a worldwide drilling programme."

Race for African Oil

The Heritage buyout (currently pending approval by the Ugandan government), is important because it preempts Italy's Uni, which was making an offer. Furthermore, Tullow has stated that it promised to sell half of the fields to CNOOC of China or France's Total.

My guess is that CNOOC Ltd (NYSE: CEO, $6.4 billion market cap) will be the big winner.

China just needs it more.

You see, the global economy has been in the dumps for the past two years. Most economists would say that this should translate into a smaller demand for oil. And that's true — for the U.S., where oil consumption fell by about 5% to 19 million barrels a day.
 
But in China, there was no slowdown.

In fact, oil consumption increased: from 7.83 million barrels per day in 2008 to almost 8 million barrels per day in 2009.

Even more significant is the fact that China now produces less than half of its oil consumption. Crude imports reached a record high of 4.1 million barrels per day. Furthermore, Chinese production actually fell 0.5% in 2009 over 2008.

The deputy director of the National Energy Board, Wu Ning, warned that "now the most acute problem in China is the increased importation of crude oil."

China's Burning Coal Needs

And it's not just oil that China is importing by record numbers...

China's General Administration of customs recently announced "that the country's net imports of coal in 2009 exceeded 100 million metric tons for the first time."

China has hit the continental divide and is now a net importer of coal. Up until last year, they were a net exporter of this energy source. According to Customs, China imported 125.834 million metric tons of coals in 2009. This was up 211.9 percent on over 2008.

China Wants Your Gold

China is after not only oil and coal, but everything in between. Including gold. The Middle Kingdom is now the number one consumer of gold.

According to preliminary statistics from the Bombay Bullion Association — the leading body of gold traders in India — China overtook India as the biggest consumer of gold last year. This is big news. India has held the position as the world's biggest gold consumer for many years.

Gold has now taken its place on China's long list of commodities for which the country is the world's largest buyer. China's rapidly growing economy, investment demand, and $2 trillion in foreign reserves have allowed it to become the buyer for many others, as well.

Feed the Dragon

Like something out of a Pink Floyd video, China is the factory of the world and needs to feed commodities to its vast maw of production.

Lucky for us, the largest untapped, unexplored, and unexploited resource country on earth borders China to the north. It's called Mongolia, a country with just three million people and a GDP of only $5 billion.

This is amazingly small. Heck, the TARP bailout was $700 billion — that's 140 Mongolias. The average net worth of the people on the Forbes 400 is $3.27 trillion.

There is just one recently signed Mongolian gold deal that will double GDP every year for the next 30 years! And Mongolia has oil, gold, copper, molybdenum, uranium, silver, coal, natural gas — all of it left untouched, due to old Soviet bumbling and 20 years of political bickering.

But now things have changed. The government is working together...  Deals are being signed...  And China is on the commodity warpath...

And incredibly, Mongolia — with its vast mineral wealth right next door — is on sale for a fraction of what these assets command in the international marketplace.

If you think making 1,380% in Uganda in a couple of years was a good return... It has nothing on what you can make in Mongolia.

Read this free report right now.

All the best,

Christian DeHaemer
Editor, Energy and Capital
Editor & Founder, Crisis and Opportunity

Even though the company boosted production at its fields in Nigeria and Kazakhstan as oil prices justified an output increase, the company's Q4 profit dropped by 37% from the same period in 2008. That loss was attributed to losses in refinery operations.

Worse news for Chevron is developing now, because the government of Kazakhstan is essentially promising a reversal of its no-tax policy for foreign oil companies operating in that Central Asian nation.

Kazakh President Nursultan Nazarbayev said on Friday, January 29 that his country will establish a $90 billion fund with oil revenues by  2020. That money will be spent $8 billion per year on developing Kazakhstan's industrial base, which would lead the country's economy to be less reliant on oil revenues.

Good news for Kazakhstan's economic diversification is bad news for Chevron, Exxon, Shell, and other majors.

Energy Minister Sauat Mynbayev put it pretty clearly on Tuesday, Jan. 26 when he said, "If we abandon tax exemptions for these three or four projects [Chevron's Tengiz and one other unnamed project] ... then of course that means only annulling them because it's quite a radical review."

The first time I read that, I really did think it was a Chevron exec making that statement. The fact that Kazakhstan's leadership is upfront about the changes it's putting in place should send jitters through oil markets.

Production sharing agreements (PSAs) under which foreign oil companies operate in countries like Kazakhstan and Libya are the tenuous grip that those majors have on their operating costs on site.

Kashagan, Kazakhstan's largest oil field where several companies both foreign and domestic have a stake, was the largest oil field find in 40 years, and changing the terms on which that abundant new supply is pumped could severely impact oil prices in 2010.

-Sam Hopkins 

Unless you're a complete shut-in, energy efficiency has undoubtedly penetrated your day-to-day activities in some way.

From utility bill inserts to presidential pleas, it's hard to escape the efficiency mantra that has swept the nation — and the world.

And while small steps are helping millions of homeowners save on their energy bills, few realize the cumulative effect the trend toward efficiency is having on billion-dollar corporations and the broader public markets.

Indeed, the New York Stock Exchange (NYSE) has literally adopted energy efficiency, issuing the following statement after a big switch in its approach to data management:

Today's announcement means that NYSE Technologies and Voltaire can now offer customers the lowest latency and most energy efficient solution for accelerating market data applications. The performance and cost savings this solution provides is critical for financial services firms that rely on speed and performance to gain competitive advantage but also need to keep a close eye on data center power requirements and spending.

Obviously, the NYSE paid Voltaire for its services, as have numerous other companies looking to lower the power bill associated with data storage and processing. That's what I mean by the 'cumulative effect' of the trend toward efficiency...

The companies providing the solutions stand to make a killing. Look what Voltaire returned to investors as it racked up contracts in the IT efficiency space:

And that's just one company in one small sub-sector of energy efficiency. There are plenty more companies offering equally impressive gains as the layers of energy efficiency are peeled away.

Profiting From the Energy Efficiency Onion

If you think about efficiency as an onion, there are many layers from which to profit, some easily identifiable and others more hidden.

In addition to data storage efficiency, investors can profit from efficient lighting, cogeneration, insulation, smart glass, digital meters, smart thermostats, Energy Star appliances, and so on. And that's just off the top of my head.

The business world is currently in a frenzy to reduce energy usage, led by policy, incentives, and shareholder demand. Companies realize they can improve their bottom lines — and, therefore, value for shareholders — by reducing operational costs. And they're willing to pay upfront to do so.

Last week, I touched on the efforts of giant corporations like Wal-Mart, Johnson & Johnson, and Morgan Stanley to streamline their operations and reduce energy costs. Each example represented a unique layer of the efficiency onion... and each one had a unique profit angle for investors.

But this trend is only now embarking on a years-long journey.

PepsiCo just announced that seven of its plants went to zero waste in 2009 as part of the company's goal to shrink its footprint worldwide. Not sending tons of garbage to the dump adds to the bottom line.

And UPS recently added 245 compressed natural gas trucks to its fleet, bringing the total up to 1,900. Paying less to fuel a fleet of trucks adds to the bottom line.

Those are two more examples of efficiency layers. Of course, there are plenty more. But to drive home the point, take a look at the plays that benefit when Pepsi produces less waste or UPS adopts CNG vehicles:

Westport Innovations (NASDAQ: WPRT) develops heavy engines that run on natural gas and Casella Waste Systems (NASDAQ: CWST) offers solid waste management and recycling services. Expect these efficiency-related sectors to gain even more attention as fleets and factories try to optimize their operations.

Low-Hanging Layers

Right now, the low-hanging layers of the efficiency onion are being peeled away: replacing old diesel trucks, improving energy-hungry data centers, etc.

But there is plenty more to come. Nearly every building and electronic device on the planet is a target for efficiency. There are plenty of companies ready to make it happen... and they'll be profiting — as will their shareholders — for years to come.

An easy way to get in on the action is to buy the First Trust Smart Grid Infrastructure Index Fund (NASDAQ: GRID). It'll give you access to dozens of companies making money by making the use of energy more efficient.

For a more concentrated way to profit from this trend, you'll want to read my new report on the one company that could triple as its sales explode, thanks to the efficiency trend. Those who got on-board early have doubled their money in just a few weeks time...

But there's much more to come as this company's unique energy-saving device is installed in millions of homes across the country.

Call it like you see it,

Nick

Maybe it's the latest news coming out of Iran. After all, Russia just announced plans to start up Iran's Bushehr nuclear power plant in 2010. The new 1,000 megawatt plant is 15 years in the making, costing upwards of $1 billion. Of course, along with that news comes the accusations that Iran is simply trying to cover up some devious plot to build a nuclear bomb.

Then again, the idea of Iran wielding a nuclear weapon doesn't do much to boost nuclear energy's reputation, does it?

I'll confess that on occasion, those thoughts run through my mind when I read about nuclear energy. Rarely do I find someone that can look past the nuclear stigma, seeing it as one of the few clean energy sources with the potential of generating energy on a global scale.

But like it or not, nuclear energy is something we're going to have to deal with, especially if we plan on replacing oil's share of the energy demand. I'm always reminded of a quote from one of my readers, sent to me more than two years ago: "We can only ride fossil fuels for so long. Even if we make it to 2030 without any catastrophic problems in production, oil's time is coming to an end. And think about this: by the time we reach that point, our demand may be too much for most renewable sources to make up."

Now don't get me wrong... I'm not here to say we should abandon all hope for renewables. The fact is that if we stand any chance of lasting through the backside of peak oil, we'll have to develop every bit of energy we can get our hands on — including nuclear energy.

If you think demand will continue to drag over the next several decades, it's probably time to wake up. The world's growing population alone will ensure that fact.

At last count, there were 6.7 billion people on the earth. By the year 2040, that number is expected to swell to over 9 billion. Since the 1960s, that number has grown by a billion roughly every 13 years.

As you're probably aware, approximately 60% of the population is located in Asia. Nearly 20% live in China — another reason to learn Chinese. Does it really come as a surprise to you that we look at China whenever we talk about energy demand growth?

Hopefully not.

Meanwhile, China Decides to Mine the Moon

They're calling it the next race to the moon.

And this time, the U.S. will be the runner-up. Rather than a gold medal — or even the chance to stake a flag on the moon's surface — I believe China already has its eyes on the prize.

Now, it's been three years since I brought up helium-3.

Helium-3 is a light, non-radioactive isotope of helium that can be used as a fuel for nuclear fusion. Although it is rare on earth, there's approximately one million tons of helium-3 on the moon's surface. (Compare that to the 10 tons of that we can find on earth.)

Just to give you an idea of the potential it has, we'd be able to power the U.S. for an entire year on just 25 tons of this stuff.

Three years ago, China outlined the future of its space program. Part of that outline included a trip to the moon to explore the potential for helium-3. Over the next few years, I have a feeling you're going to hear a lot more about it.  

So is strip-mining the moon in the future?

I think the jury is still out as we let reality sink in.

At the very least, we're still decades away from making this dream a reality. It could take up to 40 years before we see commercial power generation. Then again, you don't have to wait that long to grab a few gains...

Nuclear Energy Stocks

Eventually, we're going to come to terms with nuclear energy.

China certainly has. With 11 reactors currently operating and providing only 2.2% of the country's total electrical generation, China's nuclear ambitions are clear. The country already has 20 new reactors under construction, with another 37 planned and 120 more proposed reactors on the horizon.

Perhaps the easiest way for investors to get a piece of the upcoming nuclear profits is through Market Vectors Nuclear Energy (NYSE: NLR). The fund invests 80% of total assets in companies which earns at least half of their revenue from nuclear power.

However, just because something is "easy" doesn't mean it's worthwhile.

Since May of 2009, NLR's chart looks more like a flat-lining patient in a hospital than a stock performer.

Take a look for yourself:

Thanks, but no thanks.

Of course, another way to play a nuclear revival is through uranium. My colleagues have recently mentioned Cameco (NYSE: CCJ), which is a strong nuclear bet.

In the past, Cameco was one of those plays that made me cringe. When its Cigar Lake mine was flooded in October 2006, uranium prices shot through the roof, reaching up to $145 per pound — one of the reasons some investors, including many of my readers, were all smiles.

Since then, prices have dropped considerably. It now trades at $43.50 per pound.

Cameco announced last week that they will have enough water pumped out of Cigar Lake to resume development as early as April. The company has a 50% stake in the mine, which is expected to produce 18 million pounds of uranium per year.

However, uranium isn't the only way to go... You can always play its biggest obstacle: waste.

Today, the largest obstacle for nuclear power is waste disposal. It's always on the top of the list when I ask my readers their thoughts on investing in the nuclear energy.

Companies like American Ecology Corp. (NASDAQ: ECOL) are one of the few companies in the U.S. which deal with the treatment and disposal of radioactive and hazardous waste.

Look, it doesn't matter which side of the fence you're on when it comes to nuclear energy. Once the mainstream realizes just how bad we're dependent on energy sources like oil, the outcry won't be for 'green' alternatives, but for 'clean' energy.

That includes developing nuclear energy to its fullest potential. Over the next few weeks, I'll give you scoop on a few more nuclear plays for your portfolio.

Until next time,

Keith Kohl

Energy and Capital

Editor's Note: As bullish as I am on nuclear energy, the harsh reality is that we're deeply dependent on oil. And while countries continue to develop every source of 'clean' energy available, the last few hot spots for oil will make investors a fortune.

I've found one oil play that is single-handedly keeping U.S. production steady. And the best part is that I was completely wrong about how big this play was going to get. In this free report, we'll tell you how readers of the $20 Trillion Report made gains of 50% and 18% in just a matter of days. Click here to learn more about this opportunity.