How Solar energy and oil are creating opportunities for investors
Newsletter #140  /  22nd December 2012
Energy Intelligence Report
Dear Michele,
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Greetings from London.

This is our last newsletter for 2012, so along with wishing you Happy Holidays, we’d like to leave you with a few notes on what we expect for the New Year—a year full of risk and fuller still of opportunities. A New Year and a New Era for energy.

Two key issues to be addressed in the US for 2013 will be whether to export natural gas and whether to go ahead with the Keystone XL pipeline.

There are some who think it imprudent to export US natural gas; others who think we have a lot to lose if we don’t. Here, we will square things off with a few snippets from across the dividing line.

According to Michael Lynch, president and director of global petroleum service at Strategic Energy & Economic Research, “while there are projections that liquefied natural gas exports could become quite large, the reality is that they will almost certainly be minimal for the next several years, and unlikely to affect prices any time soon.”

Then we have economist Chris Martenson, whom we had the privilege to interview earlier this week. Martenson is categorically opposed to exporting US natural gas. Why? Martenson believes we should use our remaining natural gas as “a bridge fuel to get us to a new energy future that's durable and provides us with a high quality of life.”

Exporting, he says, is a massive waste of resources: “Fully 25% or more of the energy contained within the natural gas is expended just in the process of liquefying it. That's what you get to do with 25% of the units of work. You get to turn the gas into a liquid.”

And then we have Keystone XL--that beleaguered behemoth of a pipeline project that is becoming a widening frontline in America’s proxy energy war. We cover this extensively because it is symptomatic of the underlying question of US energy strategy—even if it is not so important in and of itself. In Texas, the situation continues to intensify, most recently with another round of arrests of activists. But in Montana, there is forward movement. On Monday, Montana approved easements to let the Keystone XL pipeline cross state-owned land, including the Missouri and Yellowstone rivers. Keystone will have to be decided on once and for in 2013.

Against the backdrop of these issues, the chatter in DC is who will be the next figures to assume the energy-driving posts of Secretary of Energy and Secretary of the Interior. Rumor has it that Energy Secretary Steven Chu and Security of the Interior Ken Salazar have one foot out the door. Over the past four years, these two figures have played key roles in reshaping US energy strategy, so everyone’s wondering who (and what) will replace them.

For now, all we have is a short-list. Former Colorado Governor Bill Ritter and California hedge-fund manager Tom Stever are two names being bandied about for Chu’s potential replacement. Other names on the shortlist include former North Dakota Sen. Byron Dorgan; Susan Tierney, a former assistant energy secretary; and Steve Westley, a California businessman.

There seems to be a great deal of focus on Ritter, director of the Center for the New Energy Economy at Colorado State University. He also is a member of the board of directors of the Energy Foundation and is a senior fellow and board member of the Advanced Energy Economy Institute. He’s a big name in “new energy”—at least in Colorado.

Beyond the “issues”, we have opportunities. For 2013, East Africa is the place to be. The New Year will finally let us know if those massive oil finds in Kenya earlier this year are actually commercially viable. If they prove to be so, and on the scale that everyone is predicting, we should see a major restructuring of the playing field as juniors give way to majors. If you want to play around with stocks here, you have to watch this restructuring closely. In the meantime, the discoveries just keep coming …

For gas, Algeria is set to rival Tanzania and Mozambique as the hottest new venue. Europe is eyeing it greedily, thanks to its massive reserves, existing pipeline infrastructure, relative stability and closer proximity to the European market.

Turkey, too, is a worth keeping an eye on for 2013. While it doesn’t have impressive proven reserves, its unexplored Black Sea territory is highly promising. This territory adjoins some major discoveries by Israel and the industry is hedging its bets that there’s a black gold mine under those waters. Plus, everyone likes working with the Turkish government, while the country itself is poised to become a major energy hub at an important crossroads.

And then we have the Bakken and Eagle Ford shale plays in the US, which contain impressive proven reserves and plenty of untapped acreage. For 2013, these plays will remain very active.

On a geopolitical level, the most visible energy-related conflict of 2013 will be that between the Iraqi Kurds and the Iraqi central government. More than any other in recent times, this conflict demonstrates how oil drives geopolitics. Oil = Kurdish independence. And that equation won’t be calculated without bloodshed. But you can read all about this in our new premium newsletter, which launches on 11 January 2013.

For investors, this week we take an in-depth look at solar EOR—which is gaining ground as a cheaper and more effective method of coaxing heavy crude from played-out wells. In the next three years, EOR is set to go from a $3 billion market to a trillion-dollar market. Solar was given the boost it needed last week to win a significant share of this market. Most of the world’s current oil production comes from played out wells—so it’s no small thing. On a broader level, it’s a brilliant marriage of fossil fuels and renewable energy, which is a good start for a New Energy Era.

Happy holidays.

James Stafford


The Investment for 2013: Solar Oil Extraction

Customize Two words can change everything when they are combined: solar and crude.

We’re just getting started with this in earnest, but what we’re talking about is solar technology that can extract heavy crude from played-out wells cheaper and more effectively than natural gas processes.

First, let’s look at the process, and then we’ll get to the investment opportunities.

As much as two-thirds of every well’s crude oil is left behind, unproduced. These are “aging” or “played-out” wells. More to the point: most current oil production actually comes from these “mature” pools. Enhanced oil recovery (EOR) is the process of extracting these significant leftovers.

Most commonly, EOR is conducted through three separate process: natural gas EOR, carbon dioxide (CO2) EOR and chemical EOR—to a lesser extent nitrogen and oxygen are used.

Carbon dioxide (CO2) injection is one of the most common methods of EOR, and there are over 100 CO2EOR projects currently in process in the US—the bulk of them in western Texas. One problem with this method is that there are often challenges to finding suitable CO2 volumes. This can get expensive, especially if CO2 has to be piped to the location. If there are no nearby supplies, a pipeline has to be built to pump it in.

While nitrogen and oxygen can also be used and can be produced on site, they also require the use of huge compressors to inject the gases into the well—so this is only feasible if we’re talking about a massive reservoir. Likewise, chemical flooding, which is combined with water flooding, is costly depending on water sources and the type of chemicals used. So we’re talking about a cost of anywhere between $2-$40 per barrel. So, it’s economically feasible—sometimes.

Natural gas EOR is increasingly attractive because of low gas prices and high availability. Natural gas is used to boil water into pressurized steam to flood the well and make the oil more fluid for pumping. But still, this requires diverting natural gas that could be used elsewhere.

Enter solar. The production of this leftover oil and natural gas ultimately requires ENERGY to lift the fluids to the surface. EOR was already a $3.1 billion market way back in 2005. By 2015, analysts think the market will be worth $1.3 TRILLION. Those figures are set to look even nicer as solar makes major gains in the EOR market.

How does it work? That’s easy. Solar technology uses the heat from the sun to coax heavy crude to the surface.

Recent studies show that solar EOR may be better than natural gas EOR. Specifically, solar EOR can produce 16% more oil from a played-out well than natural gas processes—and there is no fuel cost. So the process works better and is more economically viable.

It’s an idea that is gaining ground with—and investment from—big oil companies like Shell. And the US and Middle East are the two current venues of choice for this EOR method.

Here’s who you need to look at:

GlassPoint Solar Inc.

• This month, Royal Dutch Shell Plc. (RDSA), RockPort Capital and a few others invested a total of $26 million in this California-based upstart. The investment will spur the company’s expansion in the Middle East.

• GlassPoint is showcasing its Enclosed Trough Concentrating Solar Power (CSP) enhanced oil recovery process, which uses solar to tap into played-out wells

• GlassPoint already has a 300 kilowatt solar EOR project in Kern County, California, and another project close to completion in an oil field south of Oman.

• It is now seeking to expand to Kuwait and Bahrain where its technology will reduce oil production costs. (The Middle East is excited because this means it can export that natural gas instead)

• GlassPoint is the clear driver of large-scale solar EOR

BrightSource Energy (BSE)

• BSE has taken the technology to new heights and taps into aging wells for Chevron (NYSE:CVX) in the Coalinga oil field.

• BSE has spent $67.3 million on this project, which began in earnest last year.

So we’re talking about a new (and old) option for EOR, which is already set to become a trillion-dollar market in the next few years. We’re talking about a proven technological process that can access billions of barrels of oil from played-out wells around the world. And it’s cheaper and more effective. It’s a win for investors, and a win for the marriage of fossil fuels and renewable energy.

By. Analysts
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