Monday, July 07, 2008

No Way Out -- Doors Are Opening Wide

I'm at Myrtle Beach and the parking lot is less than half full. The energy crunch has reached a clearing price. People are staying home, rather than paying $4 for gasoline.

A lot of people can see no way out of the current energy crunch. The contrary evidence is everywhere but mostly under reported and ignored. The battering ram that is breaking down the door is the flood of announcements in regard to nuclear power.

A lot of fingers, trying to find an easy scapegoat for our energy crisis, point toward China. The pundits talk about the increase in demand coming from China without talking about the increase in supply in China. China plans to add 100 Westinghouse Nuclear plants by 2020! These are the new style plants that can be built quickly. If 100 by 2020 is not a big enough number for you, by 2025 China expects to produce more than double the amount of nuclear power currently produced by the USA!

It is well known that France produces 80% of its electricity with nuclear power but it is less well known that the USA produces more nuclear power than any other country. We currently have 104 nuclear plants. Applications are in progress for 31 more. The McCain Presidential Campaign is morphing into a referendum of producing more energy supply. For the first time in many years, the majority of the American people put new energy supply as a higher priority than the environment. Even democrats are moving toward favor for more supply.

Readers wonder why I have focused on long term solutions. Seeing that long term solutions are in progress helps us from the point of view of sentiment. A major part of the current oil price is based on the fear that the world is running out. In the same way, a major part of a stock price is its PE ratio. It cost a lot of money to store oil but there are currently more than 4 billion barrels held in national storage facilities and all sorts of businesses are "insuring" their business by storing even more. Oil will come out of storage driving prices lower and stock PE ratios will expand as the future brightens. In the short run, abundant new supplies of oil are coming on line just as a world wide economic slow down is causing demand to crash. The see -- saw of commodities and stocks is ready to tilt.

India is all set to join the new "nuclear power system". The preparation to make this move has increased the pressure on Iran to join the new system. Today, the oil market tumbled more than $5 per barrel when an Iranian spokesman said just a few moderate words. The markets are ready to go haywire as soon as it is more clear that Iran is ready to negotiate in good faith. It has been demonstrated to Iran that the world can embargo all of Iran's oil if necessary. More oil is currently stored in reserves than ever before, just as new fields are coming on. Iran needs to make its best deal while it can maintain the appearance that the country is not being forced to its knees.

The leaders of Iran have repeatedly offered counter proposals with indications that they are offering the biggest of break troughs. It is clear that the leaders want the people to know that they are working hard tooward settlement. Iran must move soon or be eclipsed by the wealth and power of Iraq. Iraq is going to see a doubling of its oil revenues in less than 5 years. Iraq will soon be behind only the Saudis in Middle Eastern production. The wealth and prosperity in Iraq is a potential great embarrassment to Iran. Time is short. The deal with India must go through several hoops. It requires votes by the IAEA, the NGS, and 90 days for review by the US Congress. With progress being made toward a deal with North Korea and Syria, Iran is at risk of being left out in the cold. A lot of doors are opening. 100 new Westinghouse Nuclear Reactors in China in 12 years!