Of Earth and Isotopes
Energy Investments for the Modern World
INTRODUCTION
Since Colonel Drake’s heralded “discovery of oil” in Pennsylvania in 1859, crude oil and it’s by-products have been a primary catalyst for our global economic engine, transforming the landscape of our planet, improving our lives and proving to be one of the most impactful discoveries for the human race.
Politicians the world over continue to disagree about the best way to move toward a sustainable future. Ironically and most unfortunate is that the majority of political thinking on this matter fails to include the immutable laws of physics, most notably that no new energy infrastructure will be attained without massive increases in the use of both fossil fuels and raw materials mining. So if you think the earth is polluted now… this is the time to pause and think carefully.
While we have no intention of making a political statement here, we are very much interested in engineering, physics and the truth when it comes to the best way to invest in our future.
As the world moves forward, three things are absolutely certain:
The need for oil and natural gas will not end for the foreseeable future — the creation of a new energy infrastructure will itself require a lot of energy, most of which will come from fossil fuels for decades to come
A massive amount of new raw materials will need to be extracted from the earth if a new energy infrastructure is to be pursued — wind, solar, batteries and power plants themselves requires an extraordinary amount or materials, some of which are quite rare
While wind and solar power can serve as wonderful complements to a primary energy infrastructure, currently the only plausible replacement for fossil fuels as a primary energy source is atomic energy
When we say it’s time to think carefully we look at estimations such as these:
By 2050 with current plans, the quantity of worn-out solar panels — much of it may be non-recyclable — may constitute double the tonnage of all today’s global plastic waste, along with over 3 million tons per year of un-recyclable plastics from worn-out wind turbine blades.
By 2030 more than 10 million tons per year of batteries may become garbage.
With all this in mind we continue working to seek and build practical long-term investment positions, particularly as relates to the three certainties above.
CRUDE OIL & NATURAL GAS PIPELINES
The energy equivalent of 100 barrels of oil is used in the processes to fabricate a single battery that can store the equivalent of 1 barrel of oil.
Within our total return portfolio, one tranche of our core equities allocation is dedicated to investing in the oil and natural gas midstream market, particularly focused on companies that own pipeline and regasification facilities.
In fossil fuel lingo the upstream market is where you find exporters and producers, while the down stream market is where you find refiners and sellers of finished product.
While we like the entire fossil fuels space for investing, we currently have a lean toward the midstream market in our portfolio for a few simple reasons:
As opposed to the upstream market, the midstream facilities are primarily a pass-through facility with far fewer moving parts and management decisions involved
As opposed to the downstream market, there is no real competition, per se
Midstream company stock prices tend to be a bit less volatile relative to the stocks in the other parts of the the fuel chain
We currently own shares of five companies in the oil and gas midstream sector, all of which have low forward-P/E (price to earnings), low price-to-sales, strong balance sheets, solid cash flows, pay great dividends and are trading with desirable technicals.
We are more than happy to share those company names with you via email if you’d like to drop us a line.
While we can’t be sure how the price of fossil fuels will be affected if we do enter a deeper global recession, we continue to build positions over time using the charts as our guide.
To get some idea of how this sector trades, we can take a look at the chart below. MLPX is an ETF composed of stocks from the midstream sector.
In the Illustration above, we can see that with the exception of the covid lockdown period, this sector generally traded around it’s longer-term mean going back to mid-2016. During the lockdown period shown above the price of oil actually went negative for a brief period — we believe that will not happen again.
In addition to the stocks we own in this sector we are also looking for an opportunity to buy the oil & natural gas commodities themselves should a buying opportunity present itself — particularly if a coming recession brings the prices significantly lower for a period. To gain exposure to these commodities we would likely use one of the more popular futures-based ETFs.
MINING FOR NEW RAW MATERIALS
Replacing hydrocarbons with green machines under current plans — never mind aspirations for far greater expansion — will vastly increase the mining of various critical minerals around the world.
For example, a single electric car battery weighing 1,000 pounds requires extracting and processing some 500,000 pounds of materials. Averaged over a battery’s life, each mile of driving an electric car “consumes” five pounds of earth. It’s interesting to note here that an internal combustion engine consumes only about 0.2 pounds of liquids per mile.
Here are some estimations regarding the materials needed in various applications:
Photovoltaic (solar) cells require aluminum, copper, silver and steel as well as other elements such as indium, selenium and tellurium, depending on the type of technology; a solar array that can power one data center uses more glass than 50 million phones
Wind energy demands steel, copper, aluminum, zinc and lead as well as neodymium for turbine magnets; the blades on a single wind turbine have more plastic than 5 million smartphones
Hydropower needs concrete and steel for basic infrastructure, alongside copper and aluminum for power transmission
EV batteries, depending on the type, require nickel, manganese, cobalt, lithium, graphite, aluminum and copper, just to a name a few; a single electric car contains more cobalt than 1,000 smartphone batteries
In our Portfolio we continue to build positions in several mining companies while also taking advantage of favorable buying opportunities to accumulate positions the material commodities themselves.
For stock positions this area, we look for companies that pay a great dividend, have clean balance sheets, operate in politically favorable regions and have a strong market position. In addition we diversify our holdings to include a wide variety of materials.
We are more than happy to share our company holdings with you via email if you’d like to drop us a line.
ATOMIC ENERGY
“If you want a cleaner earth, but you are anti-atomic energy, then you are anti-human beings.” - Doomberg
While wind and solar-based solutions can serve as wonderful complements to a primary energy infrastructure, there is only one known source other than fossil fuels that can produce sufficient power to fuel our modern society across the globe: Atomic energy.
Think E=mc2 (E equals m c-squared)The logic for use of nuclear energy as a replacement for fossil fuels starts with Uranium’s energy density. In terms of MegaJoules per Kilogram, the comparison is roughly as such:
Coal: 30 MJ/kg
Oil: 42
Lithium: 43
Natural gas: 53
Uranium: 35,000-80,000,000 depending on reactor type
The amount of nickel, manganese, cobalt, lithium, graphite, aluminum, copper and dozens of other rare-earth materials that may be needed to create new energy sources dwarfs the relatively small amount of uranium that would be needed to fuel our society.
This probably comes as a shock to no one though we do understand there are hesitations around the construction of nuclear power plants, however logical or illogical those hesitations may be.
While US politicians (both parties) continue to argue over nonsense, the laws of physics are even more stubborn and much of the world is beginning to embraced the most magnificent energy discovery in history.
For example, India and France are currently discussing ways to speed up the building of six new nuclear power reactors with a total capacity of 9900 MW at Jaitapur in the Ratnagiri district of Maharashtra. India's current nuclear power capacity stands at 6780 MW. The government plans to more than triple this to 22480 MW by 2031.
Below is a list of nuclear power plants currently under construction around the world.
In our Total Return Portfolio we look for opportunities to add to our positions in uranium and uranium mining companies, as well as companies involved in the engineering and construction of nuclear power plants.
For those interested in learning more about this space, here are a couple links that may interest you:
Doomberg on nuclear energy (YouTube)
OUR TOTAL RETURN PORTFOLIO
OUR PERFORMANCE YTD
As of November 5, 2022 our portfolio is -2.1% YTD compared with the S&P 500 -21.2%, the Nasdaq composite -34.1% and the Russell 2000 -20.7% for the same period.
We continue to hold a large cash position as we expect that a coming global recession may create opportunities to add to positions at more favorable prices over time.
PLEASE NOTE WE ARE NOT SUGGESTING YOU TRY TO MIMIC OUR PORTFOLIO AND WE ALSO DO NOT EXPECT OUR READERS’ PORTFOLIO PERFORMANCE TO MATCH OURS IN ANY WAY.
WE PROVIDE OUR PORTFOLIO ONLY TO ADD CONTEXT TO THIS POST. PLEASE DO NOT BUY OR SELL ANY INVESTMENT PRODUCTS BASED ON THIS PUBLICATION!
IN CLOSING
If you have any questions or if you want to continue the discussion about this post please Comment or join our free Chat, and visit our “About” section to learn more about FiNiche.
DISCLAIMER
FiNiche and it’s team members are not licensed investment advisors. Nothing produced or discussed under the FiNiche brand should be construed as personal investment advice. We do not benefit from, nor do we make solicitations related to, the buying or selling of securities or any other investment products. Information provided by FiNiche is intended for general informational, educational and entertainment purposes only. Please do your own research and be sure you have a solid plan before putting a dime of your money into these crazy markets.
Hi Toolio, I just sent you an email with the information you requested. Please let me know if you have any questions.
You bet. Send me an email at Info@finiche.net