But very soon, those detractors will likely be eating their words. I’ve said it many times in the past: Technology marches on, and the cost of manufacturing will come down.

Well the cost of manufacturing solar isn’t just coming down; it’s dropping through the floor. By the end of this year, solar will be so cheap it will compete with just about any other form of generation. It already does in some places, and at commercial scale levels. The best part? It will do it without subsidies.

You see, solar panel prices are about to cross a tipping point. It’s all due to the drop in price of a solar module’s most crucial ingredient: polysilicon.

The Polysilicon House of Cards

Polysilicon prices have collapsed 90% in the last five years. That translates directly into lower module costs, lower panel prices and ultimately into a lower installed cost per watt.

How did this happen? Way back in 2006, there was a run on polysilicon. It turns out it’s the same material used to make integrated circuits. But all of a sudden, the solar industry was booming, and competing for what was then a limited supply.

Its use for solar was rising rapidly, and 2006 was the first year that 50% of all polysilicon went into the manufacture of modules for solar panels. And panel manufacturers were clamoring for even more.

Polysilicon makers were laughing all the way to the bank, and then some. They essentially were an oligopoly, and were earning upwards of 40% margins on their product, according to a recent research report published by GTM Research.

Prices just kept rising along with demand, and by 2008 the shortage was so severe, polysilicon was selling for over $400 per kilogram on the spot market. Margins had risen to 70%.

Naturally, this lured new players into the market, and led existing makers to expand manufacturing capacity. But they overestimated how much was really going to be needed.

By 2011, much of this additional capacity began to come online, and polysilicon prices started falling. By March of 2011, the spot price had dropped to $80 per kilogram, and by this past December, it was all the way down to $30 per kilo.

This incredibly low spot price was all the leverage customers with long-term contracts needed to renegotiate lower prices.

GTM Research predicts that in 2012, these declining silicon prices will lead to even lower module prices. At the beginning of 2011, module prices were $1.80 per watt. By the end of 2011, they were halved to $0.90 per watt.

Closing in on Grid Parity

This year, GTM expects module prices to breach the $0.70-per-watt barrier and continue to head south. Of course, with other manufacturing costs and installation being relatively fixed, lower raw material means lower panel prices. And $0.70 per watt is below the magic $1.00-per-watt level that’s widely viewed as “grid parity” for solar.

That’s the point where it makes just as much sense to use solar as any other form of generation.

The system I installed at my farm is 10.08 kilowatts (KW). Over its 25-year lifetime, it’s expected to produce an average of 12,000 to 18,000 kilowatt-hours (kWh) per year.

I’m leasing my system for five years, and will then purchase it. My total all-in cost is about $27,000. (Since I’m leasing the system, I don’t receive any government subsidies or tax breaks.)

Let’s assume that the system produces the minimum amount per year, 12,000 kWh.

Multiplying by 25 and then dividing by the cost of the system, we come up with $0.08 per kWh. My current electricity from the grid operator costs $0.14 per kWh.

That’s almost a 50% savings. If I produce even more, my savings will be even higher.

And this system has panels that were manufactured in 2011. Panels made this year will be even cheaper, and so will the all-in cost.

Misinformation and Black Eyes

So what’s keeping solar from being widely adopted? Lack of information, for one…

The industry got quite a black eye over the Solyndra deal.

GTM Research Senior Analyst, Brett Prior, believes the industry will continue to grow at 10% to 20% per year for the foreseeable future. He had this to say about the polysilicon market today:

“After a half-decade of silicon demand outstripping supply, the aggressive expansion plans finally overshot.

“This supply/demand imbalance will push producers to lower contract prices closer to the level of manufacturing costs at $20 per kilogram, and will force higher-cost manufacturers to exit the industry.

“The end result is that the current roster of over 170 polysilicon manufacturers and startups will likely be winnowed down to a dozen survivors by the end of decade.”

I believe that as prices continue to drop, solar will continue to gain in popularity.

Big panel manufacturers like U.S.-based SunPower Corporation (Nasdaq: SPWR) will be around when the dust settles. They currently make the most efficient (19%) commercially available panels in the world. The stock is way off its highs of a year ago, but is up a healthy 22% since the beginning of the year.

So is it solar boom time? I don’t have a crystal ball, but with module prices continuing to drop, it becomes more attractive every day. That’s good news for panel manufacturers, as they’ll continue to improve as volumes ramp up. Investors certainly won’t find them any cheaper than they are right now.

Good Investing,

David Fessler

by David Fessler, Investment U’s Energy and Infrastructure Specialist
Friday, January 27, 2012

The Organization for Economic Co-operation and Development (OECD), headquartered in Paris, was formed in 1961.

Twenty countries are charter members. Fourteen more have been added since it was formed. You can see the entire list of 34 member countries here, and the dates they joined.

Its mission, according to its website, is to “promote policies that will improve the economic and social well-being of people around the world.”

Apparently, it’s accomplished its mission a little too well. You see, the “haves” (us) are about to switch place with the “have-nots.” If you’re reading this, you’re likely in the former, heading to the latter.

How do I know? Simple: One look at the chart below, put out recently by the International Energy Agency (IEA), tells all. Oil consumption from emerging market countries (have-nots) is just about to eclipse that of the old world (haves).

Check it out:

This is the only chart you need to look at to know that unless you have your own oil well in your backyard, you’re soon going to experience pain at the pump.

Global Oil Consumption is Changing

Oil demand from OECD countries (the haves) has declined for the fifth time in the last six years. It’s on track to decline again this year. On the other hand, demand from non-OECD countries (the have-nots) is up a whopping 15% in just the last three years. That rate of growth is expected to continue.

It may take a year or two, but it will be the likes of which you have never seen before. And that’s completely discounting any geopolitical events. They’ll make matters even worse and could cause it to happen much sooner.

How do I know? Simple: Economic growth requires energy. Transportation is a big part of economic growth, allowing goods produced to be moved around, and services required to be provided.

Most of the world’s goods in countries that are old world (us) or rapidly growing emerging market countries, move by trucks, ships, trains and planes. They all use vast amounts of oil.

So it stands to reason that an emerging market country – that’s experiencing rapid economic growth – is rapidly increasing its use of oil.

What a surprise; that’s precisely what’s happening. It’s clear as a bell when you stare at the above chart for a second or two.

Many economists figure oil is the culprit creating the global imbalances behind much of the world’s financial woes. If you understand the key role oil plays in any country’s economy, it’s hard to argue the point.

Bank of America Merrill Lynch sounded a dire alarm in its 2012 energy outlook, stating the current growth path of crude simply isn’t sustainable:

“Whether a recession in Southern Europe frees up some oil for China and India to grow on, or whether high energy prices rip through energy sensitive emerging markets such as Turkey, we believe the current path for oil is unsustainable and something has to give.”

A New World Oil Order

The bottom line is this: Right now, oil dictates countries’ fortunes. Without it, or if it becomes prohibitively expensive, economic growth grinds to a halt.

My prediction is that those countries that have oil are eventually going to realize this, and slowly start to curtail exports, just like China has with rare earths. They’ll want to keep an increasing percentage of what oil they do have for their own use.

What will it mean for OECD countries? Depending on fossil fuels for the future simply isn’t a sustainable path, regardless of one’s stance on the whole global warming issue.

In short, rapidly increasing oil prices will force these countries to switch to other sources of energy. Natural gas, solar, wind, geothermal and sustainable biofuels will begin to slowly replace dwindling supplies of oil over the next 10 to 20 years.

If OECD countries are smart, clearly a debatable point, they’ll squarely focus on securing domestic energy supplies for their future sustainability. Especially if they want to remain “haves.”

Good Investing,

David Fessler

by David Fessler, Investment U Senior Analyst
Tuesday, January 24, 2012: Issue #1693

There’s an old saying that goes something like this: “In the valley of the blind, the ‘one-eyed man’ is king.”

If you seriously consider what I’m about to show you, this old saying could well ring true for your investment portfolio at the end of this year. Perhaps even before. Let me explain…

At roughly $2.41 per million Btu, U.S. natural gas prices are in the dumpster. The truth is, they’ve been declining for years. But the recent shale gas boom accelerated their fall. Now they’re the lowest they’ve been in over a decade.

If it gets any cheaper, the companies that supply it will be paying you to take it. You see, they have a huge problem.

They have to keep producing in order to generate revenue, even in the face of declining prices. The problem here in the United States is that supply exceeds demand by a wide margin. And it’s getting wider all the time.

Why? Stores of natural gas at record levels… A mild winter… New wells coming online every month…

No wonder it’s eviscerating shares of explorers and producers. Take a look at the six-month chart for Chesapeake Energy Corporation (NYSE: CHK), for instance.

It looks like the first big drop on a roller-coaster. Shares are off 38% since last July.

Another producer, Cimarex Energy Company (NYSE: XEC), has a similar chart.

Its shares have virtually fallen off a cliff, dropping over 37% in the same timeframe as Chesapeake’s.

The fact is, even companies with minimal exposure to natural gas are getting hammered.

Our intuition tells us that the outlook for these companies – as long as natural gas remains at such low prices – is dismal at best.

In order to survive, some will be acquired by competitors. Shares of many will touch 52-week lows. For their decline to reverse course, the price of natural gas has to increase.

With a record supply glut firmly in place, demand has to increase dramatically. What could possibly cause that to happen, especially in the relative short term? Let’s ask the one-eyed man.

Back to the One-Eyed Man

The one-eyed man sees things no one else can. Author Nassim Nicholas Taleb coined the term “black swan event.” It’s a metaphor used to describe an event that’s a total surprise.

Now, I’m not the one-eyed man, but right now, low U.S. natural gas prices are clearly setting up several black swan events. All will singly – or, depending on the timing, collectively – increase the demand for natural gas.

Here’s the one-eyed man part: It’ll happen much faster than anyone currently thinks it can. This will have far-reaching economic impacts for the United States and, indeed, the world. Once these events take place, they’ll be rationalized in hindsight, as if everyone always knew they were going to happen.

These events will surprise most investors. But they’ll also make a few very wealthy.

If you’re aware of them, understand them, and invest in companies that will benefit from them, and you’ll be just like the one-eyed man. What are they? I’ve identified three.

Power to the People

The first one is already quietly underway. It’s the use of natural gas to power new electrical generating stations, and to repower older coal-fired plants.

There are natural gas pipelines within reach of just about every major generating station in the country. With even more strict emission regulations for coal-burners on the horizon, the logical choice for a baseload replacement fuel is natural gas.

In 2010 (the latest figures available), the Energy Information Administration (EIA) said utilities used about 515 billion cubic feet (Bcf) of natural gas for power generation. That equates to 24% of all power generated in the United States.

That’s a 7% increase over 2009. Here’s a chart from the EIA depicting the breakdown of power generation types in the United States.

Take note of the amount of generation that’s currently supplied by coal. Most of the 594 coal-fired power plants are baseload plants, meaning they run 24 hours a day, 365 days a year.

Over a third of them are too old to meet the new stringent emission requirements due to take effect in a few years. Natural gas-fired plants will replace most of them. That represents a massive, additional source of constant demand for natural gas.

Cool it, Ship it, Re-Gasify it, Sell It

The second event has to do with selling natural gas to customers elsewhere in the world. Natural gas in the United States sells for a third of what it costs in Europe, and one-sixth of what it goes for in Japan.

The only way to get it to customers on other continents is to liquefy it and ship it. Once liquefied, it can be loaded into specially built, liquid natural gas (LNG) tankers to transport it to re-gasification terminals anywhere in the world.

The problem is that the United States, other than a small facility in Alaska, has no liquefaction facilities that can compress and cool natural gas into a liquid for loading onto tankers.

While there are a number of companies planning such liquefaction plants, Cheniere Energy, Inc. (AMEX: LNG) is further along than all the rest. The company has inked three 20-year long-term LNG supply contracts with GAIL India, Ltd., Gas Natural Fenosa of Spain and BG Group in Great Britain.

If it can keep its construction plans on track, Cheniere will be the only game in town when it comes to exporting LNG. Other companies proposing to build liquefaction plants are years behind Cheniere.

The Biggest Black Swan of Them All

We’ve saved the best for last. Right now, the United States uses about 18.6 million barrels of oil per day. We import about 11 million barrels, or about 60%. According to the Institute for Energy Research, a full 71% of it is used in the transportation sector.

Imagine replacing all, or even just part, of that oil with natural gas. While natural gas-powered jets might be a few years off, cars, trucks, ships and even locomotives all run just fine on it.

And given its current price, natural gas is the equivalent of buying gasoline or diesel for a little over $1.00 a gallon. Remember those days? So what on earth are we waiting for? Why isn’t someone designing engines that run on natural gas?

Someone is: Westport Innovations, Inc. (Nasdaq: WPRT). Headquartered in Vancouver, British Columbia, Westport manufactures engines, fuel delivery and fuel storage systems using gaseous fuels.

Westport has over 400 patents on 130 distinct inventions regarding gaseous-fueled vehicles. It’s partnered with the likes of Cummins, GM, Caterpillar, Kenworth, Freightliner, Peterbilt, Mack and Hyundai in the development of natural gas engines for their vehicles.

Most recently, it teamed up with Electro-Motive Corporation, an OEM maker of diesel-electric locomotives, to develop a natural gas-powered locomotive for the Canadian National Railway.

It’s a bit of an understatement to say that business is booming. Revenue for its second quarter ending September 30, 2011 was $81 million, up 80% for the same quarter a year ago.

But what lies ahead for the company could make a few astute investors incredibly wealthy. CEO David Demers sums it up the best:

“With strong growth in all areas of our business, we now expect consolidated revenue for 2011 to reach between $240 and $250 million, representing growth of approximately 70% over calendar 2010.

“A few years from now, we expect that, looking back, 2011 will be seen as the tipping point for the use of natural gas as a transportation fuel.

“We are working with three of the top four heavy-duty engine manufacturers around the world, and more than 60 OEMs. Our Light Duty business works with seven of the top 10 automotive OEMs.

“This quarter, we announced a co-marketing agreement with Shell, the largest and most sophisticated liquefied natural gas (LNG) production company in the world, that would improve the economic case for acquiring LNG vehicles along with the infrastructure, providing a complete, cost-effective solution for fleet owners who want to unlock the savings, price stability, and environmental performance advantages of LNG.”

The bottom line: Three events are going to upset the natural gas apple cart, and I’ve listed three great ways to play them all. As my good friend Rick Rule likes to say, “Will you be a contrarian, or a victim?”

Good Investing,

David Fessler

by David Fessler, Investment U’s Energy and Infrastructure Specialist
Monday, January 23, 2012

No, this isn’t another investment primer to add to the thousands already out there. It’s actually about nuts and bolts. Real ones. Billions of them. As well as hundreds of thousands of other types of fasteners, connectors and tools.

One of the hobbies I enjoy with my two sons is working on and restoring vintage automobiles. If you’ve ever “enjoyed” this yourself, you know it’s no secret that you need lots of nuts and bolts, and a myriad of other fasteners and connectors, too.

And even if you have tons of them like I do, there’s a real good chance that the one you need is the one you don’t have. I seem to run into this problem just about every weekend.

Home Depot and Lowe’s have many of the run-of-the-mill fasteners you’re likely to need, but if your project calls for an unusual one, or you’re a commercial contractor looking to buy a five-gallon bucket or a truckload of them, Home Depot and Lowe’s won’t help you.

The place that will is a Fastenal Company (Nasdaq: FAST) store. Fortunately for me, one just opened not too far away from our house. With 2,585 stores located around the country, chances are there’s one near you, too.

Fastenal wholesales and retails construction and industrial supplies, including nuts and bolts. It also sells other fasteners, hydraulic tools, cutting tools, plumbing, electrical supplies, chemicals, paints and janitorial supplies.

The company plans to continue opening new stores this year, with plans to add between 100 and 150 throughout the United States. The company’s stores chalked up revenue of $697.8 million, an increase of 22% year over year for the same quarter. Last quarter’s profits rose 34% to $87.5 million, or $0.30 per share.

While revenue was above estimates, profits were at the low end of the company’s expected range. It attributed vendor incentives and lower freight utilization to the slip in profits.

The company’s CEO, Will Oberton, believes this quarter’s results will be even better than last. “Overall it was a disciplined quarter on margin.”

Oberton believes margins will significantly increase in the coming quarter, and that the vendor incentives and lower freight utilization were seasonal issues.

Investors seem to believe the company, too. The stock recently eclipsed its 52-week high, and closed last week within a few cents of it.

Why would we be recommending a stock like Fastenal that’s up over 77% in just the last year? Two reasons:

• The first, it’s yet another backdoor indication that the construction industry is slowly recovering, and that’s a proxy for the housing market.

• Second, with plans to open over 100 new stores in 2012, there’s still plenty of room for growth. Stores become accretive to the bottom line of the company almost from the day they’re opened.

As the U.S. economy slowly recovers, the nuts and bolts of the economic growth will be supplied by Fastenal. It’s the perfect time to consider backing up the truck and adding this “nuts and bolts” growth stock to your portfolio.

Good Investing,

David Fessler

by David Fessler, Investment U’s Energy and Infrastructure Specialist
Thursday, January 19, 2012

Pull into any gas station in the United States, and you’ll find diesel fuel more expensive than regular gasoline. About $0.46 a gallon more.

In the United States, diesel and heating oil (known collectively as distillate fuels) have been higher than gas since 2004. Before that, it was the other way around. So what’s changed?

In a word, demand. Prior to six or seven years ago, the demand here for gasoline was higher than for distillates. The only time diesel and heating oil jumped above the price for gasoline was during colder-than-usual winters, when demand for heating oil soared.

Very little U.S. distillate production was exported, so prices fluctuated primarily based on the supply and demand equation here.

Today, it’s whole different ballgame. Diesel’s much higher than gasoline because, on a worldwide basis, the demand for it is greater than it’s ever been. Oil refineries, ever the opportunists, are producing and exporting as much of it as they possibly can.

It’s the exporting that upsets the supply demand equation in the United States. With more of U.S. distillate production headed for foreign shores, the dearth of supply makes it more expensive here.

When I travel to Latin America, diesel is the number one transportation fuel. Nearly every car, bus and truck you see runs on the stuff.

Consequently, gasoline is more expensive there than diesel. In some places, it’s the equivalent of $1.00 a gallon more. Once again, it’s all about supply and demand, and now it depends on where you live.

There’s another factor at work here, as well. The United States has imposed stricter limits on the sulfur content of diesel, whereas many other countries haven’t. The low-sulfur variety is more expensive to produce, and most of it stays here.

With a few key East Coast refineries shutting down over the next year, things could get even worse for diesel prices here. But there’s a light at the end of the proverbial tunnel.

Strict new government standards on emissions, as well as a pending 54.5 miles-per-gallon standard that’s supposed to be in place by 2015, could spell the beginning of a diesel-powered renaissance in the United States.

If demand for diesel here exceeds that of gasoline on a permanent basis, more refineries will start producing it. Those that already do will begin to export less, since the margins will be greater here. Distribution costs will be lower since there won’t be a ship involved.

As more and more manufacturers begin to offer diesel-powered vehicles here, it’s difficult to imagine that U.S. consumers will turn their noses up at them.

Volkswagen has offered diesel version of its most popular models here for decades, and has done very well with them. But now GM, Honda and Toyota are all planning to introduce diesel variants by 2014.

Even at $0.46 cents a gallon premium over gasoline, diesel will certainly make economic sense to a lot of cost-conscious consumers.

Will that bring prices down here? We’ll have to wait and see, but my bet is prices will stay elevated due to the global demand for crude.

The bottom line is that oil, in just about any form, is going to be a good investment for some time to come.

Good Investing,

Dave Fessler

by David Fessler, Energy and Infrastructure Specialist, Investment U
Wednesday, January 18, 2011

As I was standing at the pump yesterday morning, watching the dollar digits tick by, the outdoor speaker blared news about Iran’s latest threat to close the Strait of Hormuz.

Here we go again. I can see it coming. Another war. But this time, it’s going to be fought over what I’m pumping into my tank. How stupid is that?

Perhaps it’s not stupid at all. Could the Obama administration be doing it on purpose? Part of me thinks so. Perhaps it’s the administration’s way to get the country refocused on alternative energy…

“No country in the world can manage the shock that results from 15 to 17 million barrels of oil not entering the market,” said Mehr, Iran’s state-run news agency. Truer words have never been spoken.

The fact is, we aren’t going to wean ourselves off of oil any time soon. Like it or not, we’re a fossil fuel-based society. Can the world stand to have a fifth of the daily oil flow cut off for any length of time?

It’s more of a rhetorical question than anything else. The answer is, “No, of course not.” The real question is: “What would it do for oil prices?”

Short-Term Mayhem

In the very short term, they would likely double to $200 a barrel as soon as the news of the Hormuz closing hit the wires. That translates to $7.00 a gallon gasoline, and even more expensive diesel.

It would have devastating impacts on the nascent economic recovery we’re experiencing here, and it would kill economic growth just about everywhere else.

The United States, along with its oil-dependent allies, will quickly reopen the Strait of Hormuz, taking out Iran’s coastal military installations in the process. While they’re at it, they’ll likely bomb the daylights out of Iran’s nuclear installations just for good measure.

My guess is they’ll leave Iran’s oil export facilities untouched. That would ultimately be like shooting oneself in the foot. But I could be dead wrong on that one, too.

How long would Hormuz have to remain closed for a disruption to have an impact? That depends where you live. Here in the United States, the President would immediately open the Strategic Petroleum Reserve, but that’s less than 30 days supply.

If Hormuz gets reopened in a week or so, prices would start to stabilize, and begin to drop in a couple of weeks. Expensive crude would absolutely hammer profits for refiners like Valero Energy Corporation (NYSE: VLO), Sunoco, Inc. (NYSE: SUN) and Tesoro Corporation (NYSE: TSO) for the first quarter of 2012, if it happens sometime in the next month.

It also means prices at the pump will remain higher longer, until the expensive crude works its way through the system all the way to your tank.

Almost lost against the backdrop of the Iranian threat is the fact that Chinese GDP growth came in higher than expected at 8.9%. That’s extremely bullish for oil prices, as that implies crude demand continuing to increase for the Red Dragon.

Long-Term Refocus?

Longer term, prices will eventually drop back to levels in the $4.00 a gallon range, and probably stabilize there.

But we might also witness a redoubling of efforts towards natural gas. It’s never been cheaper, and we have so much of it. It’s almost criminal we aren’t doing more with it.

Alternatives like solar, wind and electric vehicles will all-of-a-sudden seem like great ideas. Nothing like $7.00-a-gallon gasoline to get Congress’ attention refocused on a national energy plan, and consumers focused on alternatives.

Right now, the whole situation is very slippery, no pun intended. With the United States and Iran, it’s a dangerous game of chicken that could send oil prices soaring. We’ll be watching.

Good Investing,

David Fessler

by David Fessler, Investment U Senior Analyst
Tuesday, January 17, 2012: Issue #1688

If you poll 100 people and ask them, “What fuel did the first cars run on?” An overwhelming percentage of them would naturally pick gasoline.

But they’d be wrong.

Over 100 years ago, most cars ran on electricity. It’s a little-known fact. Alas, drivers quickly wanted more range than the electric vehicle (EV) batteries could deliver. Thomas Edison, actively involved in the nascent EV industry, began working on improved battery designs.

But out in Detroit, Michigan’s Henry Ford had other ideas.

In 1908, his Ford Motor Company drove the nail into the EV coffin, when it introduced the $250 Model T. All of a sudden, gasoline-powered cars were available to the masses. But the real killer was they could travel 10 times farther than their electric counterparts.

Ford ultimately sold over 15 million “Tin Lizzie’s,” as the car was colloquially known. At the time, that was more cars than all other manufacturers combined. And the world has been running on gasoline and diesel ever since.

But that simply can’t continue.

The Automotive Industry Comes Full Circle

Crude oil is a finite resource, and some industry experts believe we may have already reached the peak of world production. I’m not going to debate that here. Much sooner than anyone is anticipating, another means to power automobiles will have to be found.

The automotive industry is doing just that. It’s come full circle, and it’s reintroducing EVs.

Let’s face it, if you could buy a car that:

• Had no engine, gas tank, or tailpipe…

• Never had to visit a gas station…

• Cost the equivalent of $1.20 a gallon to fill the “tank”…

• Could go 100,000 miles between brake jobs…

• Never required an oil and filter change…

• Never needed a tune-up…

You’d buy one in a heartbeat, wouldn’t you? Of course you would. So would a lot of other Americans, Chinese, Indians and just about anyone else who’s experienced “pain at the pump.” Not to mention the endless auto repair bills and maintenance costs.

Well, you can purchase EVs today that meets those specs. So why aren’t people rushing out and buying them in droves?

Range Bound: The EV Show Stopper

There’s just one glaring problem: Most EVs travel 100 miles or less between charges. That’s fine for errand running, but forget long-distance commuting and weekend outings.

That’s the state of EVs today. It’s led to “range anxiety” among potential customers, who fear they might be left in the lurch somewhere without a really long extension cord. It’s the biggest stumbling block in the way of widespread adoption of electric vehicles.

I’ve decided to purchase a Nissan Leaf. Since I work mainly from home, most of my driving is local. Some days, I don’t drive at all. I’m not getting rid of my other vehicle, though. It’s a truck, and I’ll just use that for when I really need the utility of it.

But for millions of Americans, especially long-distance commuters, 100 miles on a charge just won’t cut it. A recent survey done by the U.S. Census Bureau estimates that of the 231 counties with populations greater than 250,000, the average commuter spends between 30 and 40 minutes driving each way to work.

Almost 6% of Americans who live near Baltimore and New York City spend 90 minutes or more getting to the office. EVs have been a non-starter for this group. But what if EVs could go 500 miles between charges?

Battery Technology Marches On

In a few years, if the research IBM (NYSE: IBM) has been conducting pans out, they’ll be doing just that. After three years of research, IBM’s developed what it thinks will make EV range anxiety evaporate: lithium-air batteries.

In theory, lithium-air batteries can store 1,000 times more energy than batteries made using current lithium-ion battery technology.

Checkout IBM’s diagram below, and you can get an idea as to how it works:

That three orders-of-magnitude jump in energy density could quintuple my LEAF’s range to 500 miles. Or if you’re lucky enough to have a Tesla Roadster, imagine being able to go 125 MPH for over 600 miles.

Now we’re talking. Who needs gasoline and gas stations when you’ve got that kind of range?

The reason these batteries aren’t in the LEAF I’m taking delivery of next month is that they’re chemically unstable. Right now, frequent charges destroy the battery in short order.

But IBM scientists believe they’ve found solutions that will fix both of those problems. They think they can have a working prototype by next year and commercial versions by 2020 or earlier.

Talk about a black-swan event. If IBM can pull this technology off, it could turn the automotive world upside down, and ultimately have gasoline and diesel vehicles headed the way of the Dodo bird.

And who wouldn’t enjoy the longer battery life in their cellphone and laptop computer, too?

Good investing,

David Fessler

by David Fessler, Investment U Senior Analyst
Monday, January 16, 2011

Oil prices have traded off a few dollars from their recent highs. The factors that will keep Brent above $100 a barrel for 2012 are the same ones that kept it above $100 all of last year.

Take a look at the graph below, courtesy of the Energy Information Administration.

Brent spot prices averaged $111.26 a barrel for 2011. That was the first time in the history of oil that Brent averaged over $100 a barrel for an entire year.

West Texas Intermediate (WTI) averaged $94.87 a barrel, up $15 a barrel from 2010. WTI pricing reflected a discount to Brent based on supply constrains emanating from the Cushing, Oklahoma storage depot.

What’s Going to Keep Crude High in 2012?

Let’s start with the Arab Spring that’s already turned into the Arab Year. If Iran goes ballistic (no pun intended) and Iraq comes apart at the seams, it could turn into the Arab Decade.

Any sudden supply loss resulting from the closing of the Straight of Hormuz will send prices soaring. Even if nothing happens, prices will stay high until the standoff settles down.

Now let’s talk about demand. In the face of all the unrest that threatens 17 million barrels per day of world supply, we have increasing demand. As I write this, China is negotiating with Iran for cheaper prices on oil.

The country gets about 11% of its oil from Iran, and now it can get it cheaper, since its oil is effectively isolated from the rest of the world. The boycott takes Iran’s 2.6 million barrels per day off the world’s supply.

But China, India and the Middle East all experienced increasing demand for crude in 2011. During the first six months of last year, crude demand for countries not part of the Organization for Economic Cooperation and Development (OECD) saw demand increase 4%.

Even with declining OECD demand, overall world demand for crude increased by 1.2% in 2011. That growth will continue in 2012, keeping upward pressure on prices.

The third factor keeping crude prices high this year will be continued transportation bottlenecks. The giant Cushing Oklahoma crude storage facility is capacity limited to get crude out to Gulf Coast refineries.

The reversal of the Seaway Pipeline this June will partially alleviate this. The real problem is that crude production is ramping in Alberta’s oil sands, and North Dakota (the Bakken) and Texas’ (Eagle Ford) shale plays.

More oil is flowing into Cushing than can flow out. The facility is adding storage at a frenetic pace, and should have the capability to store an additional three million barrels later this year.

The lack of access to West Texas Intermediate (the Cushing benchmark) caused it to trade at a significant discount to Brent last year. In September, that discount was nearly $30 per barrel.

You can see the price of the two benchmarks in the graph below.

Right now the spread is close to $10 a barrel, which is wide by historical standards. I expect that to continue to remain in the $10 to $20 per barrel range, since there’s little that will improve the accessibility of WTI in the short term.

The bottom line is this: Don’t expect oil prices to drop. Increasing demand and geopolitical unrest will keep Brent crude prices above $100 for a second year in a row.

Good Investing,

David Fessler

by David Fessler, Investment U Senior Analyst
Friday, January 13, 2011

On New Years Eve, President Obama dropped an “oil bomb.” He signed legislation that effectively prohibits anyone who’s doing business with the United States from doing business with Iran’s central bank.

The intent of the law is clear: prevent Iran from completing any oil-related transactions, effectively using its abundant oil as a weapon against itself. That’s a huge problem for Iran, since the revenue it gets from exporting crude fuels much of its economy.

Iran fired an “oil missile” back at the United States. It said that if boycotting its oil transactions was implemented, it would block the Strait of Hormuz to prevent shipment of any oil, Iranian or otherwise. Every day, about 14 supertankers pass through the Strait of Hormuz to fill up.

Would Ahmadinejad actually order his military to fire on one of these tankers? Highly unlikely…

The more likely scenario is that he has his six-shooters loaded, holstered and pointed at his own feet. Of course the mere threat of any conflict has caused oil prices to jump, and oil traders remain edgy at the prospect.

Who Loses if the Iranian Boycott Becomes Reality?

Who are the big users of Iranian oil? Here’s the top four, according to data from Reuters:

• Italy: 249,000 bpd
• Spain: 149,000 bpd
• Greece: 111,000 bpd
• France: 78,000 bpd

Those top four importers account for about 23% of Iran’s oil exports, estimated to be 2.5 million barrels per day (mb/d). How effective would a ban on Iranian crude be? Would the above countries immediately descend into chaos?

Probably not, but like everything with oil, it’s not a simple answer. It depends on a number of factors, many of which are in a constant state of flux. Let’s take a look at a few of the big ones.

Can Anyone Makeup a 2.5 mb/d Shortfall in Supply?

The Saudis say they can increase their 10 mb/d current output an additional 1 to 1.5 mb/d. But the real question is: Will they?

After all, they have a vested interest in keeping oil prices high. They’re increasing their own spending roughly 7% annually to keep the average Saudi citizen happy. They don’t want to become the next Arab Spring uprising.

Libya should be back at full capacity by the middle of 2012, about six months ahead of schedule. That’s another 1.6 mb/d on the plus side. So even if Iranian oil exports were completely blocked, Libya and Saudi Arabia supplies alone could conceivably make up the difference.

Iraq is also returning as a major world supplier of crude. According to Hussain al-Shahristani, Iraq’s deputy prime minister for energy affairs, Iraqi crude production is at a 20-year high of just over three mb/d.

Iraq is home to the world’s fifth-largest deposits of crude oil and natural gas. Shahristani indicated that by the end of 2012, crude production will be close to 3.5 mb/d. By the end of 2013, he expects to have port loading facilities in place that will allow exports of as much as 3.6 mb/d.

Of course, this scenario assumes nothing goes awry anywhere else in the world. That’s a big assumption. Nigerian rebels seem to take endless delight in blowing up oil pipelines. As much as 30% of Nigerian supply is offline at any given time.

The reality is, oil prices are set at the margins. That is, if a small amount of supply – as little as one million barrels per day – is knocked off-line for even a short period of time, it can (and will) have a profound impact on oil prices. Crude will quickly rise, as traders will leap before they have all the facts.

That impact is based more on perception and emotion than reality, as it turns out. History is ripe with examples of attempts to use oil as a weapon. Let’s take a look at a few, and the results in the aftermath.

The Six-Day War

Also known as the 1967 Arab-Israeli War, it was fought between June 5 and June 10, 1967. Israel launched an attack against its neighbors: Egypt, Jordan and Syria. Israel launched missiles against opposition forces, and ended up taking control of the Gaza strip and the Sinai Peninsula.

Arab states discussed ways to punish the West in response to the air strikes Israel conducted on Egyptian targets. They agreed to suspend oil sales to the United States and Great Britain.

The embargo backfired, however. The Soviet Union, desperately in need of cash but flush with oil, agreed to fill the supply gap. The lost revenue was such a financial shock to the Arabs, the embargo was lifted after only a few days. The first instance of oil as a weapon was a dismal failure.

The Yom Kippur War

After the outbreak of yet another war in the Middle East, in October of 1973, the OPEC cartel decided it would nearly double the price of crude from $2.90 a barrel to $5.11.

It also indicated it would cut production by 5% until Israel withdrew from the areas it occupied from the war discussed previously. I remember this one, as it was only a few years after I started driving.

The reaction in Western nations was nothing short of an oil panic. Gas lines and rationing were common. Germany banned driving on Sundays. Fortunately, the gas lines weren’t too long at the station near my house.

It turns out the fears over the embargo were greatly overdone, as the world remained well-supplied with crude from other sources. By December 1973, Saudi Arabia distanced itself from the embargo, and it crumbled just as quickly as it started. Using oil as a weapon failed once again.

Will it Be Different This Time?

The answer is: Probably not. Could we temporarily see $200 a barrel crude? You bet. But here’s the reality: The world’s oil supply is diverse and widespread. Don’t be fooled: Producing countries are all in it for the money.

If Iran oil is blocked, the shortfall will be quickly made up from elsewhere. There will be two big losers in this latest oil war if an “oil bomb” is dropped on Iran.

The first will be Iran itself. Without its main source of revenue, it will be forced to comply or to appear to do so with the terms laid down by Western powers.

The other big loser will be the American and other gas-buying consumers around the world. We’ll likely be paying sky-high prices for gasoline until the whole thing settles down. Here’s hoping whatever happens, it doesn’t last long.

Good Investing,

David Fessler

by David Fessler, Investment U Senior Analyst
Wednesday, January 11, 2011

It’s no secret that a number of companies – and their shareholders – are cleaning up in the shale oil and gas business. I’ve written about many of them right here.

However, I thought I’d stick my neck out (again) and make a few predictions regarding “green” products and services, and give you my take on them from an investment standpoint.

Last year we saw the demise of Solyndra and Beacon Power here in the United States. So much for the federal government picking winners. A more sound policy would be to incentivize private industry, but let the chips fall where they may.

While they’re falling, could there be some winners in 2012? Let’s see what could happen in the green space this year.

Prediction #1: EV Sales Continue to Accelerate

After a slow start in 2011, electric vehicle sales will continue to make inroads on their gas-guzzling counterparts in 2012. The Nissan LEAF and Chevy Volt have the early lead, but Toyota will be introducing a new line of its popular Prius model. Some will come with a plug and a larger battery, allowing for Volt-like range and performance.

The reality is that, this year, it’s different. Why? Just about every car manufacturer you’ve heard of – and some you probably haven’t – is producing, or has announced, some form of battery electric vehicle (BEV) or plug-in hybrid electric vehicle (PHEV).

It probably won’t be the United States that drives sales, as some politicians are already calling for the third demise of electric vehicles, and the elimination of the $7,500 federal tax credit.

Unlike the United States, other countries are aggressively jumping on the EV bandwagon. Europe is especially interested, as gasoline prices are nearly twice what they are here in the states.

Asia’s not far behind in its push towards electrics, as supplies of gasoline and diesel are expected to become scarce, and more expensive, as demand increases dramatically over the next three to five years.

Prediction #2: Smart Meters… Smart Bet

While not really a green product, smart electric meters are becoming more widely adopted around the world. Here in the United States, many utilities are slowly replacing all their old meters with new smart ones.

The advantages are that they can be read remotely and customers will have the option of programming “smart” appliances to operate when electric costs are lower, thereby saving energy.

Great Britain expects to have all of its meters replaced with smart meter technology by 2018. Smart meters will also spawn information technology companies specifically geared towards developing software to interact with them. Yes, there will probably be “an app for that.”

Prediction #3: Energy Catastrophe Will Strike Again

Three Mile Island… Alaska’s Exxon Valdez spill… Russia’s Chernobyl… BP’s Gulf disaster… Japan’s Fukushima… All of these incidents cite the fragile and sometimes careless attention the world gives to its energy supplies.

What’s next? Iran? North Korea? A terrorist bomb on a pipeline? I don’t know. But I do know this: Whatever happens, it won’t be good for oil prices. Oil traders have their trigger fingers poised to send oil soaring at the slightest hint of a disruption in supply, regardless of the source.

Prediction #4: The Future Lies Offshore

Despite the complete lack of it here in the United States, offshore wind energy is making great strides elsewhere, particularly offshore Europe.

As of June of last year, according to the European Wind Energy Association, there were 1,247 offshore wind turbines located at 49 farms in nine countries. These are fully connected to the grid, and provide a total of 3,294 megawatts (MW) of power.

This year, an additional 1,084 MW are due to be added, primarily in Germany and the United Kingdom.

Here in the United States, Maine, Rhode Island, Massachusetts and Virginia all have active projects in various stages of planning and approval. However, it’s still unclear when actual construction of the first offshore wind facility will start, and where it might be located.

Prediction #5: The United States Won’t Pass a Comprehensive Energy Plan in 2012

This one shouldn’t be too surprising. After all, it’s an election year. Little if anything of substance will happen on the energy front. Much of what happens in 2013 will depend on who gets elected. If Obama gets re-elected, green projects will continue to receive more attention than if he loses.

Oil and gas companies will fare just the opposite. It will be bullish for oil if Obama loses, and somewhat bearish if he wins (everything else being equal, which it won’t be).

There are a lot of intangibles affecting the price of oil right now, and that will continue to be the case for the foreseeable future.

As for Green investing?

Offshore wind? Not yet. EVs? Not enough traction yet (pun intended). Solar? Still too expensive.

Smart meters? Itron, Inc. (Nasdaq: ITRI) comes to mind, but its stock is off 33% over the last year. A better, but much more diverse, bet would be General Electric Company (NYSE: GE), which is actually up 3% in the last year.

In general, most green technologies are in their infancy. As such, they’re niche products and services, and not particularly well suited as investments. Unless, of course, you’re prepared to wait a long time.

The best green investment? Natural gas producers and pipeline transmission companies…

Gas is so cheap, power plants and vehicle manufacturers are switching over to it. The big truck transportation sector could begin a widespread switch to it in a couple of years.

That will give the other green technologies time to mature and become more mainstream. And just maybe the feds will have a comprehensive energy plan by then. Hope springs eternal.

Good Investing,

David Fessler