Obama’s budget proposal boosts clean energy at the expense of fossil fuels; the ethanol mandate comes under bipartisan attack; trader Dan Dicker’s predictions for Noble Energy come true; and a sneak peek at what’s to come next in our premium offers …
What of Obama’s 2014 $3.8 trillion budget proposal? Clean energy is certainly happy, but the oil industry doesn’t like the notion of being used as the country’s alternative piggy bank. The proposal would cut $4 billion in subsidies to fossil fuels but increase support for renewable energy projects, electric vehicles and energy efficiency programs.
To wit, the budget notes: “As we continue to pursue clean energy technologies that will support future economic growth, we should not devote scarce resources to subsidizing the use of fossil fuels produced by some of the largest, most pro?table companies in the world.”
Specifically, the budget proposal will raise $2.5 billion over the next decade by raising royalty rates for the industry for oil and gas produced on federal territory. This revenue will then be put into an Energy Security Trust earmarked for renewable energy projects.
What could happen is that the industry might balk at buying offshore drilling licenses for federal waters if they know that royalty payments will be increased. It might not be worth it and the plan could backfire with the budget losing billions in bids for drilling rights off the starting block. So it’s largely a question of timing.
Another budget savings targeting the oil industry is the $39 billion that will be accrued over the next decade through the removal of the fossil fuel tax preferences. This tax preference has allowed the oil, gas and coal industry to claim domestic manufacturing deductions and write off some costs related to drilling such as hauling and site preparation. The backfire here could be slowed investment in new well drilling.
The overall sentiment for supporters of this plan is that these century-old tax preferences have run their course and now it is the turn of renewable energy.
Finally, the proposal also calls for oil and gas companies to pay 1 cent more per barrel (they now pay 8 cents) into a trust fund for dealing with oil spills. This is a holdover idea from the 2010 Gulf of Mexico oil spill.
The only good news for the oil industry is that it won’t be approved this year. There will be too much opposition. If approved in its present form, which is not likely, it would take effect on 1 October.
The clean energy industry, of course, lauds the budget plan because it represents a 40% increase in spending in this sector.
Has the Obama administration’s clean energy policy worked so far? There have been failures and successes. The failures include the Solyndra bankruptcy and the $200 million in government loans for hybrid car development to Fiskar Automotive, which has recently laid off most of its employees to avoid bankruptcy. At the same time, we’ve seen a doubling of alternative energy generation in the country and are likely on the cusp of some important breakthroughs in research. So it’s a mixed bag of tricks.
The Fisker fiasco will not spell the end for alternative vehicles by any means. The new budget proposal will increase spending on alternative vehicles by 75% in 2014, to $575 million. There would also be an annual $200 million fund to boost research in this sector.
For solar, the government would spend 29% more to make this alternative energy source commercially viable across the board, while biofuels funding support would increase by 24%. There would also be a $200 million fund to reward the state government that manages to most impressively boost energy efficiency. But while departments like Education and Energy would see budget increases under the new plan, the Environmental Protection Agency would see its budget reduced by 3.5%.
While all of this is going on, the controversial ethanol mandate is coming under increasing attack. On Wednesday, four US Congressmen—2 republicans and 2 democrats--proposed legislation to ease the ethanol mandate in what they said was a move to protect consumers, energy producers, livestock producers, food manufacturers, retailers and the US economy at large. The legislation, the Renewable Fuel Standard Reform Act, would reverse the biofuels mandate as of 2014 and rescind the requirements of blending up to 15% ethanol in the fuel supply. It would also prohibit corn-based ethanol from being used to meet renewable fuel standards.
The legislation is gaining wider support, with a coalition of 13 food groups jumping on the bandwagon over what they fear will be increases in food prices.
Advocates of the ethanol mandate accuse the oil industry is secretly being behind the new legislation in an attempt to eliminate biofuels as a competing force.
Shifting focus to the Mediterranean, we simply must point out that shares of Noble Energy Inc.(NBL)—recommended a couple week back in our premium newsletter by trader extraordinaire Dan Dicker—hit a 52-week high of $117.70 on 9 April. The company has registered positive earnings in eight of the last ten quarters, and this superior performance is set to continue. The last day in March saw the company begin producing gas from its Israeli Tamar field in the Levant Basin, which will be THE venue of the decade. The company also has a number of other sweet global holdings, and analysts expect some impressive earnings growth for the rest of this year and next.
This week, we’ve got another hit for you in our premium newsletter—an Anglo-Turkish venture that is storming the political risk scene for all it’s worth. Be sure not to miss out on this, or on our look at the natural gas market and how investors can profit from the coming price moves.
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