Wednesday, March 30, 2011

How To Profit From Obama's Energy Policy

President Obama spoke at Georgetown University this morning on US energy policy. Obama vowed to cut US dependence on foreign oil by 1/3 over the next 10 years. The president plans to do this primarily through a combination of:
  • increased domestic drilling,
  • alternative fuels, and 
  • electricity conservation.
Natural gas is the natural (no pun intended) choice to replace foreign oil in the short term. However natural gas prices have already seen close to a 20% jump in prices over the last month on the Japanese nuclear crisis. Given this recent rise, along with the fact that the US is currently oversupplied in natural gas and has virtually no capability to export the gas, I would avoid buying natural gas or the natural gas ETF (UNG) here as a long-term trade.

If you want to benefit from the longer-term expected rise in natural gas prices, I would rather play a name like Encana (ECA), or some of the better known shale plays like Petrohawk (HK), Devon (DVN) or Range Resources (RRC).

However, while warming up to natural gas, Obama is also talking tough on environmental concerns. This is a potential issue for the shale drillers. Hydraulic fracturing (fracking) involves pumping huge volumes of water, sand and chemicals at high pressures deep underground to break up rock formations to allow the gas to escape.

One company that may benefit from the increased environmental scrutiny is GasFrac Energy Services (GFS.V), a Canadian company with a proprietary fracking technology which is much more environmentally friendly than existing fracking methods. This investor presentation provides a nice summary. I picked up some shares in several accounts today at 12.46.

Obama also talked about using alternative fuels to power American vehicles. His plan includes stipulations that federal agencies buy only alternative fueled vehicles by 2015.

WPRT and CLNE both stand to benefit from a move toward natural gas powered vehicles. Both of these stocks have seen nice runs over the past 48-hours and rallied nicely ahead of the president's speech today. While technically they've both broken out, I used today's pop to take profit on CLNE and scale back my WPRT long by 50%. I'm looking for a move to 24.50 to cover the other 50% of WPRT.

Obama also specifically talked about electric cars and battery technologies as a key component of America's energy policy. Another Canadian company, Electrovaya (EFL.TO), not only develops proprietary electric car batteries but also batteries for electric power storage. Electricity storage will become more and more important as intermittent electricity sources such as wind generation grow as a percentage of total supply.

EFL.TO has a great long-term chart, with multi-year support in the 2.40-2.50 area on the weekly chart. I have been long this name for a while from around 2.65. I am looking for an eventual move to 6.50.

Ener1 (HEV) is another company in the battery sector which has been beaten down over the past couple months but looks like it could be putting in a bottom. I picked up a small number of shares today at 3.03.

Finally, the president also stressed energy conservation in his speech. With the expectation for more and more electric cars to hit the roads in the coming years he talked about the increased need for electricity conservation. A company like EnerNOC (ENOC) is poised to benefit in this space. ENOC provides demand response and energy efficiency programs designed to reduce electricity usage. I went long ENOC today at 19.47.

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