advertisement
Bad energy policy can be great for company profits and investor returns.
In my Jan. 8 column, "Profit from a stupid energy policy," I explained how the new Energy Independence and Security Act delays meaningful action on energy issues until 2014, all but guaranteeing oil prices will stay north of $80 a barrel this year, and I picked five stocks that will be winners because of that delay.
Delay long enough and you can't adopt low-cost, gradual solutions to an energy or environmental problem. Instead you have to launch a budget-busting crash project to fix a problem that has reached crisis dimensions. And you don't have the option of casting around for alternatives to the existing delivery infrastructure. In a crisis, you've got to use the parts at hand.
That's why I'm going to recommend five more stocks for the long term -- say, five to 10 years -- among companies that move power, oil and water via pipelines and/or the nation's electrical grid.
Moving water
Why start with water in a column about the effects of high-priced oil? Because many of the crash solutions being proposed hinge on water.In my Jan. 8 column, for example, I wrote that China is making a big bet on solving its energy crisis by building plants to turn coal into liquids that can replace oil. Right now coal is four or five times cheaper than oil, and China has enough coal reserves to last 100 years at current rates of consumption. By 2030, the International Energy Agency projects, China will produce 750,000 barrels of liquid coal a day. That's about a 10th of China's current consumption of oil.
- Talk back: What are your favorite energy plays?
Water -- or, more precisely, the lack of it -- could stop this plan dead in its tracks. A November 2007 report (.pdf file) for Montana's Energy and Telecommunications Interim Committee estimated that a coal-to-liquid plant would use one to seven barrels of water per barrel of liquid coal, depending on the technology of the plant and the specifications of the coal used in the process.
More from MSN Money
So producing 750,000 barrels of liquid a day, as China plans, would require somewhere between 750,000 and 5.3 million barrels of water a day. At 50 gallons to the barrel, that's 37.5 million to about 260 million gallons of water, enough to lower the level of a 100-acre lake by as much as 7 feet in a day.
That's not exactly a drop in the bucket for a country on the edge of a water crisis. China will face an official water crisis by 2030, according to the Ministry of Water Resources, when water resources per acre of arable land will be just 80% of the world average. The problem is even worse when you realize that only 15% of the country's water resources are north of the Chang River (formerly the Yangtze), where the much of the country's coal lies.
Desalination plants on tap
So where will the water come from? China will build desalination plants. It's not because they're the best solution to a water shortage but because they are the best crash solution to a problem that has become a crisis.China won't build just one plant. Just the needs of its coal-to-liquid industry will require -- using the upper figure for the industry's water use -- 10 times the output of the largest desalination plant ever built in the United States (located in Tampa Bay, Fla.). China has announced a goal of producing the equivalent of 30 Tampa Bay desalination plants by 2020.
And China isn't alone. The Saudis recently offered a contract for 20 desalination plants.
Video on MSN Money
How bad is the market?It's unclear whether we are in a correction or a bear market. How should investors handle it? MSN Money's Jim Jubak suggests you delay buying stocks that rely on an economic rebound. Instead, he says, buy stocks that can survive shaky times -- and keep an eye on how the market reacts to earnings reports.
All those desalination plants, in China and elsewhere, mean big business for companies such as General Electric (GE, news, msgs) and Shaw Group (SGR, news, msgs) that supply the guts of water-purification systems and big-project engineering expertise.
But I'd rather go with the folks who will supply the pumps that move water. First, the number of pumps per project can be huge because the desalination plant has to be built near a big source of water and hooked into the existing water infrastructure, often miles away. In Tampa Bay, for example, the water has to be pumped through 15 miles of water mains, after crossing two navigable rivers. Each of the plant's seven mains has a huge, 800-horsepower vertical pump and a 2,250-horsepower horizontal pump. That's a lot of pumping.
Second, with the pump makers you get exposure to all the other big water-movement projects around the world, such as a plan to move massive quantities of water from the south of China to the much drier north, for example. Or the need to supply and then move massive amounts of water to develop Alberta's oil sands.
And third, you get to participate in the growth of the global oil and gas industry, because that industry moves oil like it's, well, water.
Continued: Some stocks to consider
Rate this Article
High