by Steve McDonald, Bond Strategist, The Oxford Club
Friday, December 7, 2012
In focus this week; very little fear in the market, gas drillers go green for big dollars and the sitfa
Schlumberger (NYSE: SLB) estimates that one million new gas and oil wells using hydraulic fracturing will be drilled worldwide between now and 2035. One million!
Each fracked well requires about four million gallons of water per fracture, and each well can be fracked multiple times. Do the math, that adds up to a lot of water – very dirty water.
When the water comes out of the well it is contaminated with all kinds of chemicals, rocks and sand that make it unusable for drinking or even irrigation. It can cost as much as $8 per 44 gallon barrel just to haul it away and dispose of it.
And, before fracking water can even be used it has to be treated with anti-bacterial and anti-fungal chemicals and then have trucks haul the treated water to the well. The cost of fracking water is enormous.
As you might expect the industry is scrambling to find a solution to the dirty water problem. A recent Barron’s article listed several companies that are working on just that; a way to treat and recycle water at the well site.
The names mentioned were Schlumberger, Halliburton (NYSE: HAL) and two small emerging companies, Thermo Energy Corporation (Nasdaq: TMEN) and ECOtality (Nasdaq: ECTY).
Thermo Energy looks the most interesting, it not only captures and filters used fracking fluids, but also concentrates the chemicals for re-use.
Fracking is how almost all of the world’s gas and oil reserves will be developed, and the company – or companies – that find the process to reuse the water will be worth billions.
This could be as big as the mouse was to the development of PC’s.
And, this is an area that most investors are only now beginning to recognize. You need to keep an eye on the water problems associated with fracking and the companies that are finding the solutions.
The VIX Looks Low
Next up, the VIX is way down and that’s usually not good news.
The VIX, a measure of volatility in the market, and is indicating there is no real fear of the fiscal cliff or anything else in the market. According to how options are being played, that’s what the VIX measures, everyone is assuming we will have a deal before we go off the cliff.
According to Barron’s, and history, this is a dangerous place to be.
The market is throwing hissy fits at the slightest bad news from the EU, to comments by the Speaker of the House and the President, but investors are continuing to take increasing amounts of risk in an environment of increasing complacency.
Not a good mix.
Currently the VIX is sitting at three dollars above its 52 week low of about $13 and both the S&P and the NASDAQ are hugging resistance levels. That means the markets are looking for a push up or down and there are plenty of places for bad news to come from.
If everyone is complacent, which the VIX says they are, it might be time to be fearful.
And Now, Maybe the Craziest SITFA to Date
Sven Yrvind, a Swedish sailor and boat maker is planning to sail around the world, no I’m sorry, not sail, bob around the world in a 10 foot boat. A 10-foot ping pong ball as he calls it.
This is for real.
He says he plans to take a stack of books, 880 pounds of sardines and granola, and I hope a lot of medical marijuana or at least some valium. He’s gonna need it!
Skeptics say he will go crazy in such a confined space for so long. I’m not sure if the isolation, the cramped quarters or the sardines will get to him first, but I have news for the skeptics; he’s already crazy.
Sven says he’ll be fine. He plans to spend his time reading, thinking and admiring the wonders of nature.
Sven, buddy, I have spent a lot of time at sea. Believe me, there is nothing out there to look at but water. After a few storms and an occasional 30 to 40 foot wave, it’s over. Nothing different for 24,000 miles!
He admits the boat, if you can call it that, will pitch and capsize, capsize, but he will be strapped into his 31 inch bed calmly reading. Calmly reading as he capsizes! Right!
Sound crazy enough? Wait! It gets better. This guy is 73 years old and plans to do it nonstop. No port calls!
I wonder how will his toilet works capsized?