re: Canada oil sands regulation changes:
I've been studying energy industries daily, since the BP spill. I have been very impressed, by how dependent profits are, on regulation. Not just for oil and gas, but nuclear, wind, solar, everything. This adds a lot of risk, to all these stocks.
I've also been impressed, at how few countries have long-term energy goals, a long-term plan to achieve those goals, and consistent dependable regulation. Those few countries are: China, Brazil, northern Europe.
In the rest of the world, I see mostly short-term thinking, and lurches in policy. Regulatory changes respond to the latest crisis, and are often counter-productive in the long-term. I see regulation that has little relationship to stated goals. Decision-makers don't seem to be able to do simple math or simple logic. Routinely, companies have huge sunk costs, in infrastructure made uneconomic by capricious regulatory changes.
The drug industry is also heavily regulated. But in that industry, regulation today is very similar to the rules 10 years ago, and it is safe to assume the rules won't be radically different 10 years from now. Not so in energy.
The main cost of regulation, is not that they are strict. The main cost is, it makes it very difficult to predict the future.
I also think we are approaching a serious market correction or even a bear market, caused by high oil prices, government debt (U.S., Japan, Europe), per this scenario: Message 27212298
My conclusions:
1. All energy stocks deserve lower valuations, due to regulatory risk.
2. When possible, invest in companies whose business is in the few nations with consistent policy, or at least spread out among many nations.
3. Before investing, assess the range of possible regulatory environments, and only invest if the company will be profitable throughout that range.
4. Beware of making optimistic assumptions, like assuming governments will be rational or consistent or act in their nation's LT interest.
5. Eventually, the world will have no choice but to get most energy from renewables (solar, cellulosic biofuel are my guesses for the eventual winners). Renewables are growing fast, but from a very small base. These technologies aren't ready to replace fossil fuels today, so:
6. The "bridge" fuels, for the next 20 years, will be natgas, nuclear, and deepwater oil.
7. For the LT, I like:
BP: global oil, deepwater emphasis
XOM: global oil, lots of natgas
CCJ: uranium miner
FCG: natgas ETF
XES, OIH: oil service (XES fee 0.35%/y; OIH most liquid)
RIG, DO, NE, ESV, NBR: offshore drilling
FSLR, TSL, YGE: solars (1 American, 2 Chinese)
Cellulosic biofuel is not a mature enough industry to invest in yet.
When I understand the natgas and O&G service industries better, I might pick individual stocks in those industries.
disclosure: the only stock I currently own from the list above, is BP. This is a buy-list for the next market or sector downturn. |
