Wednesday, March 02, 2011

Energy Diversity In The Works (Hopefully)

U.S. energy policy is overly reliant on hydrocarbons, particularly oil.  That's an easy observation to make but changing course is hard.  It takes unsettling news of Middle Eastern violence to smack us all out of our collective stupor.  Libyan oil disruption is now confirmed and other oil producers are due for their own versions of nasty shakeups.  More unrest means more oil price spikes

The U.S. has plenty of oil in deepwater and unconventional sources but last year's Macondo blowout in the Gulf of Mexico taught us the difficulties of extracting it.  Restrictive regulations for offshore drilling can be a cloud with a silver lining.  New regulations will increase production costs and discourage new exploration, but they also make renewable alternatives look more attractive. 

All is not lost for the U.S. We can make our existing energy distribution network more flexible with efficiency programs and smart grids.  California shows us the way to energy efficiency, as usual.  China is looking to the West for help with smart grid projects.  American companies should at least try to penetrate the Great Wall of China if they have energy goodies to sell.  Emerging economies are hungry for new infrastructure.  Let's hope America wakes up - but hope is not a method. 

Full disclosure:  Long TDW with covered calls.