Last week’s terrorism news hides an elephant in the room: Everyone applauds the arrest of the two dozen terror suspects who plotted to blow British airplanes out of the sky … and they cheer as banks freeze their private accounts … but they ignore the fact that much of al Qaeda’s money comes from Saudi Arabia.
Although the Saudi government is very active in fighting terrorism, Saudi money also supports the spread of the radical version of Islam espoused by Osama bin Laden.
Heck, some Saudis directly finance terrorists. Earlier this month, for example, the Treasury Department said it would freeze assets belonging to Abd Al Hamid Sulaiman Al Mujil, a Saudi national, because he provided financial support to the al Qaeda terror network.
The sad outcome of all this is that, indirectly, Americans are funding al Qaeda every time we fill up our gas tanks. After all, gasoline is made from oil, some of which comes from Saudi Arabia.
Consider this: Saudi Arabia will earn more than $203 billion from oil exports this year, an all-time record and up 25% from last year’s record $162 billion. Even if just a small fraction of these earnings go to radical Islamists, that’s a heck of a war chest.
Why doesn’t our government take the Saudis to task? Because, as even President Bush has said, America is addicted to oil.
So whether the goal is to fight terrorism … fight inflation … or just keep the economy going, we’ve absolutely GOT to kick the oil habit. Whether we like it or not, the end of the oil age is near because the world is running out. [Editor’s note: "See "The Oil Horror Picture Show," "OPEC Showdown," and "Investing for Peak Oil."]
Just a quick look at simple supply and demand tells the story:
- The world used 31 billion barrels of oil in 2005. That’s the most oil used in a year … ever!
- And yet, despite the highest oil prices in decades … despite the fact that every rig available was put to use … less than nine billion barrels of oil were discovered last year. That means we’re using up 3.4 barrels for every one we find.
- Plus, global oil demand is expected to rise by 1.2 million barrels per day (mb/d) to 84.8 mb/d this year, and by another 1.6 mb/d next year, according to the International Energy Agency.
Bottom line: In the near future, we’re going to have to find something besides oil.
How do we kick the oil habit? The answer is not to develop something entirely new. We don’t have time for that.
I think we need to make use of an existing technology that has often been shunned: Nuclear power.
If we don’t, we could wind up in the same soup as the Roman Empire. In fact, it just so happens that the Roman Empire made the same mistake that we’ve been making: It shunned a major technological breakthrough and ignored its potential.
We can’t afford to make the same mistake. So it behooves us to learn from theirs …
Ancient Rome’s Big Blunder
When you ask most people who invented the steam engine, they would say, “James Watt, a Scottish inventor, in 1769.”
If they’re feeling really clever, they might say, “Thomas Savery invented a steam pump for use in mining in 1698 — that was the first steam engine.”
Either way, they’d be wrong.
The first steam engine was invented in ancient Roman times by a guy named Hero of Alexandria. Hero was, as I like to say, “A frickin’ genius.” He was nicknamed Michanikos, meaning “The Machine Man.”
His inventions included the “Cheirobalistra,” a device that hurled large arrows over long distances … the “Palintonon stone-thrower,” which flung rocks and iron balls … and a surveying device that used triangulation — about six centuries before the English reinvented it.
So why haven’t you heard of him? Because he was something of a state secret …
The Roman authorities who ruled Alexandria recognized that many of Hero’s inventions could be used against them.
In response, Hero “went Hollywood,” churning out inventions that added “oohs” and “ahhs” to theatrical and religious events.
For example, he made a machine that produced thunder on cue and a device that automatically opened a temple door when a fire was lit on an altar.
Another of these devices was called an Aeolipile, or “wind ball.” It generated steam and turned it into rotary motion! In other words, it was a steam engine.
But because Hero was in his full-blown theater phase, his wind ball was relegated to an amusement and nothing else.
What does all this have to do with today’s energy crisis? Well our hero just might be …
A New Twist On
Steam Engines
I’m not recommending you run out and buy a classic steam locomotive, though it would look awfully cool in your driveway.
Instead, I think we could kick our oil habit with a more modern take on the steam engine: Nuclear power.
A nuclear reactor doesn’t directly generate electricity. Instead, it heats up water and creates steam. Then, the steam turns a turbine, and away we go!
Right now …
- Demand for uranium, the raw fuel for reactors, is far outstripping present supply. Production from world uranium mines now supplies only 62% of power utilities’ requirements.
- About a third of annual demand for uranium was met by Russia’s highly-enriched uranium weapons de-commissioning. But we’re reaching the end of that source because inventories are declining quickly.
- Until recently, no new mines had been built outside of Canada for 20 years.
No wonder uranium prices are up 61% in the last year alone!
But don’t worry: Uranium prices aren’t deterring utilities from building more nuclear power plants. In fact, there are currently 442 nuclear reactors in operation, 28 under construction, 38 planned, and 115 more proposed!
Why? Because nuclear energy is still cheap compared to the alternatives.
For example, Westinghouse claims its Advanced PWR reactor — the AP1000 — will be able to generate electricity at 3.3 cents per kilowatt-hour, including the cost of constructing the plant. That’s a bit more expensive than coal, but less expensive than natural gas.
Plus, unlike coal, nuclear power doesn’t generate greenhouse gases. With the world getting warmer, that’s an important factor.
I think the current supply/demand squeeze in uranium will last at least five more years. And that’s plenty of time to make a pile of money in undervalued uranium stocks.
Two Ways to Play It
I’m so bullish on nuclear power, I’ve already got two uranium plays in my Red-Hot Canadian Small-Caps portfolio … and I’m adding a third today!
But if individual stocks aren’t for you, here are two exchange-traded funds to consider …
An Oil ETF — Oil prices are going to trek higher for years to come because alternatives like nuclear aren’t even close to filling the gap yet. That makes the Energy Select SPDR (XLE) a good bet. It owns ExxonMobil, Chevron, and others. These companies are ridiculously profitable — five of the world’s largest oil companies (BP, Chevron Corp., ConocoPhillips, ExxonMobil Corp. and Royal Dutch Shell PLC) reported combined second-quarter earnings of $34.6 billion, up 36% from a year earlier.
An experimental energy ETF — If you have a higher tolerance for risk, consider the Powershares WilderHill Clean Energy (PBW) ETF. This fund invests in companies that are concentrating on experimental technology. These companies should benefit not only from higher oil prices, but also from government subsidies and a rush of investment money into alternative energy. In fact, venture capitalists invested a whopping $843 million in alternative energy and other clean technologies in the second quarter — a 64% increase.
PBW is certainly a volatile fund — it’s down 28% from its highs earlier this year. But it could really pay off in the long run. It has a total expense ratio of 0.7%.
I think these investments will kick butt.
Yours for trading profits,
Sean Brodrick
P.S. For the latest on metals, energy and other commodities, check out my blog at redhotresources.blogspot.com.
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