Modern Energy Monthly - Volume 3, February 2013

Special ReportIn this issue of Modern Energy Monthly. . .

A $500 Million Play on Car-Sharing

Is the TransCanada Pipeline Project at Risk?

China's Nuclear Surprise

New Discovery is FOUR TIMES Bigger Than the Bakken

Car-Sharing Industry Primed for GrowthBy: Jeff Siegel

Well, I was partly right..

Last year I wrote the following about the car sharing company Zipcar (NASDAQ: ZIP):

“... because Hertz and Enterprise are foaming at the mouth to tap the car sharing market, I wouldn't be surprised if one or both eventually made a bid for ZIP in a couple of years. Either way, I don't think Zipcar is under any serious threat in the near-term, and I may be looking to pick some up on dips.”

When I got to the office on the morning of January 2, I read the following headline.

Avis buying Zipcar in deal worth nearly $500 Million

OK, so I didn't nail it on which rental car behemoth would eventually acquire Zipcar — but I knew Zipcar was an early leader in a market that's destined to grow dramatically going forward, and that it was a prime target for acquisition.

Millennial Money

About six months ago, a new study was released that suggested Millennials (those born sometime between the early 1980s and the mid 2000s), had become so neutral about driving that they were starting to represent one of the many factors behind slower auto sales growth.

That particular study followed a similar survey conducted by Deloitte in 2010 which found Millennials have different attitudes towards cars (different from those shared by many generations prior), and are more likely to take public transportation, bike, walk, or utilize car sharing services like car2go and Zipcar.

If you're a regular readers of these pages, you know I've been quite bullish on the car sharing market since around 2006, and I continue to believe this is a powerful new industry with a lot of robust growth ahead of it.

In fact, a Frost and Sullivan report found that car sharing networks increased 117% between 2007 and 2009 in North America. And within five years, 4.4 million people in North America and 5.5 million people in Europe are expected to sign up for car sharing services.

Of course, I'm not suggesting car sharing services will have a massive impact on individual car sales anytime soon, if ever... although it is likely that car manufacturers offering superior fuel economy will continue to find additional buyers in car sharing companies.

The Next Zipcar

Because gas is often included with car sharing memberships, these services tend to seek out high-mpg vehicles. And increasingly, we're seeing these services focus their attention on hybrids and electric cars.

The latter made quite a spark back in March after Daimler's car2go registered 6,000 members for its electric car sharing program. Zipcar also placed some Toyota Plug-in Priuses in its Boston fleet, and recently introduced a few Chevy Volts in Chicago.

On the hybrid side, Zipcar currently has a ton of Honda Insights in its fleets, though I wouldn't be surprised to see a shift to the Prius or Ford hybrid models, now that Avis is behind the wheel. Avis currently rents the Toyota Prius and eight different Ford models. It also has no Hondas in its rental offerings.

But getting back to the recent Zipcar deal...

Avis agreed to to pay $12.25 per share to acquire the company.

That's almost a 50% premium to Zipcar's closing price the day before the deal was announced!

Those who picked up shares of ZIP near the bottom, which was around $6.00, are now sitting on gains in excess of 104%. Talk about a knockout score — and one of the fastest doubles I've ever seen inside of two months.

Not surprisingly, investors are now looking for the next Zipcar...

But unfortunately, there are none to be found. Zipcar was the only pure play on car sharing, and I don't expect to see another one again.

Zipcar boasted the lion's share of this market before the Avis deal. Now it's simply going to be unstoppable.

Could THIS Man Kill TransCanada's Pipeline?By: Jeff Siegel

The Keystone XL Pipeline is going to happen.

Those are the words I published back in November 2011, after the announcement that the United States would delay approval of TransCanada's Keystone XL Pipeline.

Here we are, more than a year later, and I still believe this to be true.

Because no matter how the spin doctors like to play it, the uncomfortable reality is that we have made little effort to aggressively transition away from the outdated conventional internal combustion engine. That alone is the reason that this nation — as well as the rest of the world — will continue to pay top dollar to produce the stuff.

Bottom line: The global economy implodes without a steady flow of oil. And with the Keystone XL Pipeline expected to bring in about 700,000 barrels per day, there's little chance this temporary delay will turn into a complete dismantling of the project altogether.

That being said, a change in President Obama's administration could realistically delay the pipeline for another few years. Certainly this isn't great news for TransCanada, but rest assured, every day this thing is delayed is another day one particular billionaire gets even richer...

Shake Up at the EPA

Word is EPA Administrator Lisa Jackson is leaving her post because of President Obama's support of the Keystone XL Pipeline. But I don't buy it.

Quite frankly, Jackson has been one of the most aggressive EPA administrators we've seen in decades. And while her letter to the State Department called the pipeline's environmental assessment “inadequate,” pointing out the project's poor spill-response planning, Jackson's priority list was not monopolized by this pipeline.

In fact, her agenda was so aggressive and so incredibly bolstered by dozens of different projects — from clean water programs to stricter regulatory enforcement on power plants — that she actually became a target for lawmakers on both sides of the aisle... even those who also had no interest in supporting this pipeline.

Some sources in Washington say that as a result, she simply came down with a very serious case of job fatigue. I agree.

In any event, I'm not convinced Obama is particularly enthusiastic about the pipeline, either. And while he knows at some point this thing will have to be approved, don't count on the approval process to be a fast and easy one.

Friends in High Places

Although it's no secret that Lisa Jackson was no fan of highly-pollutive oil sands operations in Canada, which would ultimately send their product to the U.S. through the XL Pipeline, the final decision rests on the shoulders of the State Department. And rest assured, Secretary of State Hilary Clinton has been a friend of this project for years.

As I pointed out back in October 2011, one of TransCanada's high-priced lobbyists was once a staffer on her presidential run. And employees from an outside lobbying firm called McKenna Long & Aldridge, which worked for TransCanada, donated more than $41,000 to Clinton's 2008 campaign.

Then there's another lobbyist from the same firm, one that was appointed by President Bill Clinton to serve as Chief of Staff to Gordon Giffin when he was the U.S. Ambassador to Canada: Maryscott Greenwood officially lobbied on TransCanada's behalf until 2008 on U.S. Pipeline permit policy.

And that's not all...

DLA Piper employees and PACs contributed more than $480,000 to Hilary Clinton's 2008 run. This was the single largest source of funding for a corporate entity to Clinton. And DLA Piper partner James Blanchard sits on the board of Enbridge, a major tar sands pipeline company.

My point: With Secretary Clinton making the final call, the XL Pipeline was in no danger of being rejected — regardless of any delays that may have occurred along the way.

However, those delays are likely to continue, because the new Secretary of State, John Kerry, has proven himself to be less of a friend to those behind the scenes of the Keystone XL Pipeline project...

The Lifeblood of Domestic Oil Production

Here's the deal: As reported in a recent piece in the Vancouver Sun, Kerry is one of the most vocal climate change hawks in Congress, and has long stressed the need for the U.S. to combat its addiction to fossil fuels.

In October 2011, Kerry vowed that no stone would remain unturned as senators examined the environmental impact of the pipeline, saying: “There's a lot at stake here and I'll do my best to leave no question unanswered including every possible economic and environmental consideration before a final decision is made.”

So, is Kerry going to put the kibosh on the pipeline?

Not a chance. But make no mistake about it; TransCanada's headaches are going to continue this year, and there will be plenty more hoops for the company to jump through.

Of course, there's a golden opportunity here for us...

You see, without the pipeline, all that oil must be moved via rail. This is why back in November 2009, Warren Buffett ponied up $34 billion for Burlington Northern Santa Fe.

This, my friends, is one of the primary carriers of North America's oil bounty absent any additional pipelines. And by the way, just last week we learned that Burlington Northern Santa Fe will boost crude oil shipments by 40% this year.

40 percent!

In other words, the one guy who couldn't be happier about a continued pipeline delay is Buffett.

China's Nuclear Surprise!By: Jeff Siegel

Beijing is choking on its own progress.

If you didn't hear about it last week, reports out of Beijing showed the city of 20 million had been hit with some of the worst air pollution ever recorded. We're talking about as bad as some of the toxic soup that used to blanket the streets of London during the early days of the industrial revolution.

Of course, China is experiencing its own industrial revolution today, and as a result, it's also at risk of condemning itself to repeat some of the same environmental problems of the past.

This, along with the fact that the Middle Kingdom is desperate for the power generation it'll take to keep its economic

machine running, is why the Chinese aren't debating the need for a well-diversified power portfolio.

Although China is the largest consumer of coal on the planet, the government has poured billions of dollars into developing its solar, wind, and nuclear resources as well. By 2020, China is expected to have 150 gigawatts of wind energy installed. That's the equivalent of 13 Three Gorges dams.

In the solar space, China will have 50 gigawatts by 2020 — and in the nuclear space, 200 gigawatts by 2030. This is roughly the equivalent of all the nuclear and hydropower that the United States generates today...

And its all expected to be developed in less than 20 years.

But here's the most interesting part of China's nuclear expansion: The whole thing is going to be facilitated by what the World Nuclear Association calls the world's most advanced reactors ever created.

China Loves Thorium

Although it didn't get much attention, a report was released a few weeks ago by a Labour member of the House of Lords in London. Bryony Worthington, the Labour's climate change spokeswoman, announced China is moving to thorium as a nuclear fuel.

Word is, after a trip to China, Worthington discovered that the son of former leader Jiang Zemin was charged with developing thorium power. He currently has 140 scientists on staff, and is expected to hire an additional 600 this year.

Now last year, China's Academy of Sciences announced it was building a thorium reactor. But it looks like the higher ups are looking to expedite this project. In fact, Zemin's son recently landed a cool $350 million in additional funding for his program.

Bottom line: If China's looking to land 200 gigawatts of nuclear, it's going to do so using the most advanced technology it can get its hands on. And when it comes to safety and efficiency, thorium is a serious contender.

Of course, China's not the only game in town when it comes to thorium...

Overstated?

India has been working on thorium for years.

As a continued lack of coal resources inhibits its growth, India is seeking to expand its nuclear fleets. And interestingly enough, the Asian nation boasts the second-largest thorium resources in the world, thereby making thorium an excellent solution to imported uranium reliance.

Norway has major thorium deposits as well, and has been working closely with Westinghouse to develop thorium reactors. And not surprisingly, after Fukushima, Japan is now actively studying thorium alternatives, too...

Truth is, while thorium has been an afterthought for decades, it's finally starting to get some serious attention.

And why not?

According to thorium advocates, thorium reacts much more efficiently than uranium. As well, thorium produces waste that has a shorter lifespan, and its melting point is much higher, which theoretically makes it “meltdown proof.”

But then again, there are also those who say thorium's advantages are overstated...

The Union of Concerned Scientists states thorium can be used in conventional light-water reactors, but cannot sustain a nuclear chain reaction by itself, and must be combined with a fissile material such as enriched uranium, uranium-233 (an isotope created from thorium), or plutonium.

Meanwhile, the DOE has said reactors fueled with thorium and uranium do not provide any clear advantages over uranium-only reactors in terms of waste management, proliferation risk, safety, economics, or sustainability. In fact, a liquid fluoride thorium reactor that operated at Oak Ridge National Laboratory back in the 1960s still has highly-radioactive spent fuel on site that is proving very costly and difficult to clean up.

Of course, it's not the 1960s anymore, and technology has come a long way. That being said, I'm also not a nuclear engineer, and I have no interest in turning this into a debate about nuclear physics...

All I'm interested in is finding an opportunity to profit from what looks like the eventual development of thorium. And right now, it's still very limited — and quite risky.

FOUR TIMES Bigger Than the BakkenBy: Brian Hicks

On October 15, 1542, Spanish explorer Juan Rodriguez Cabrillo entered the Santa Barbara channel off the coast of California.

According to his captain’s log, he noticed “long, colorful slicks of rainbows” and “black balls” floating in the ocean for miles...

He didn’t know it at the time, but these were oil slicks that were coming from natural seeps in the seabed and from surface seeps onshore.

Cabrillo recorded that the Native Americans along the Santa Barbara Channel used the tar-like substance (known as asphaltum) to caulk their canoes. Cabrillo followed the Native Americans' example, using the substance to waterproof two of his own ships.

In 1792, Captain Cook's crew reported the ocean near Goleta in the Santa Barbara Channel was covered with an oily surface in all directions. According to Vancouver, Cook’s navigator, the oil was so thick that the entire sea took on an iridescent hue.

Many other explorers reported similar sightings.

Fast-forward 215 years to 2007...

In February 2007, a large number of tar balls washed up on the beaches in Central California —from Monterey Bay north to Half Moon Bay and San Francisco.

Concerned California residents called state officials asking where these balls of tar might have come from, and whether they posed a threat to wildlife or affected the beaches. Overwhelmingly, people assumed the oil on the beaches was the result of an oil spill.

However, after taking several samples and analyzing the tar balls back in the lab, the U.S. Geological Survey concluded the oil came from fissures in the seabed off the coast of California.

You may recall in my recent article, "A Brief History of Oil," I wrote:

And ever since, oil and gas companies have used the observation of naturally occurring seeps to find massive oilfields.

That’s because typically where you see a seep, you find a highly-pressurized reservoir below. The high quality oil is literally being pushed out of the ground.

And you can see by this image from the USGS how seeps and oil fields are closely related:

A couple of weeks ago, CNN Money reported that “California could be the next oil boom state.”

Of course, we’ve been way ahead of the mainstream financial media covering this very issue. In fact, I talked about California’s oil potential back on February 10, 2012, in an article published in Energy and Capital 's sister publication, Wealth Daily — nearly a year ahead of the mainstream crowd:

You may remember when, late last year, California Gov. Jerry Brown pushed for a top state regulator to ease regulations for energy companies seeking to drill for California's oil. The official refused.

A week later, Brown fired the regulator — along with a deputy, Elena Miller.

The governor appointed replacements who agreed to stop subjecting every fracking project to a top-to-bottom review before issuing a permit.

Jerry Brown knows what's at stake... California could have more than four times the recoverable shale oil than the Bakken in North Dakota. It has more than 4.5 times the reserves of the Eagle Ford Formation in Texas. And it has nearly ten times the shale oil reserves in the Avalon and Bone Springs Formation in New Mexico and Texas.

According to the same EIA report:

The largest shale oil formation is the Monterey/Santos play in southern California, which is estimated to hold 15.4 billion barrels or 64 percent of the total shale oil resources shown in Table 1. The Monterey shale play is the primary source rock for the conventional oil reservoirs found in the Santa Maria and San Joaquin Basins in southern California.

The next largest shale oil plays are the Bakken and Eagle Ford, which are assessed to hold approximately 3.6 billion barrels and 3.4 billion barrels of oil, respectively.

This is important — because geologists have concluded that the Monterey Shale is the "source rock" for Southern California's oil production.

In other words, the oil was cooked and created in the Monterey Shale.

Over time, the oil migrated into surrounding oil reservoirs, where it's been drilled for a century.

Take a look:

For the past 100 years, California has been a major oil producer, and most of that oil was produced by the Monterey Shale.

Now oil companies are going to the source...

The results could be an absolute bonanza.

I say “could” because California doesn’t have the same friendly business environment as Texas and North Dakota... but we’ll see.

You can view the HTML version here: Modern Energy Monthly - Volume 3, February 2013

Energy and Capital , Copyright © Angel Publishing LLC . All rights reserved. The content of this site may not be redistributed without the express written consent of Angel Publishing. Individual editorials, articles and essays appearing on this site may be republished, but only with full attribution of both the author and Energy and Capital as well as a link to www.energyandcapital.com. Your privacy is important to us -- we will never rent or sell your e-mail or personal information. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or the solicitation of an offer to buy or sell the securities or financial instruments mentioned. While we believe the sources of information to be reliable, we in no way represent or guarantee the accuracy of the statements made herein. Energy and Capital does not provide individual investment counseling, act as an investment advisor, or individually advocate the purchase or sale of any security or investment. The publisher, editors and consultants of Angel Publishing may actively trade in the investments discussed in this publication. They may have substantial positions in the securities recommended and may increase or decrease such positions without notice. Neither the publisher nor the editors are registered investment advisors. Subscribers should not view this publication as offering personalized legal or investment counseling. Investments recommended in this publication should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company in question.