New Technologies Keep Us Strong
October 9, 2012 by GS Early
Technology has made steady, reliable power a necessity not only for individuals but for industry and governments as well.
Energy always has been something that Americans (and people in most other nations for that matter) consider part of our national security. We’ve sent troops halfway around the world to secure energy resources on more than one occasion. Most developed nations have done the same and will continue to do the same until energy security is less threatened.
There’s a saying: When you lose the Internet, it’s like 1979; when you lose power, it’s like 1879.
But given the frequency that major power systems have been going down around the world, 1879 is showing up more and more often.
About a year and a half ago, Japan lost its nuclear power plants, which generated 30 percent of the nation’s power. Its economy is still trying to claw its way back. There is public pressure to find an alternative to such heavy nuclear dependence, even though it will expose the country to more foreign imports of oil, natural gas and coal.
In early July, a swath of the mid-Atlantic was living in 1879 for a while. And it was ugly.
And, of course, there’s India, where nearly 670 million people lost power. Yes, 670 million people. That’s the entire United States going down and then more than another 200 million.
India’s Cautionary Tale
The Indian power grid is a patchwork grid similar to the U.S. grid. It’s old and the infrastructure was built for a bygone era when villages shared a television and landline phones were a luxury.
Obviously, as one of the top tech nations and one of the most vibrant emerging economies in the world, a rising standard of living has meant more people can afford more blenders, TVs, mobile phones, air conditioners, etc. But between generation and transmission, most of the money goes to generation because rebuilding the transmission system is a huge undertaking in any country.
Dominion Resources, Inc. (D), the utility for Virginia and some of West Virginia and North Carolina, said after the storm that hit in July that just to bury the above-ground lines to simply avoid trees tearing the distribution lines off poles would cost $1 million a mile.
And the company can’t necessarily pass those costs (some or all) along to consumers without getting approval from State regulators. Passing that cost along would be a very tough sell to consumers and businesses. We want these things but don’t necessarily want to pay for them.
But India is a bellwether for what could happen in the United States at any time. Imagine a modern industrial nation losing power to its entire grid for days. Imagine the damage to equipment and business. No stock markets or bond markets. Think of 9/11 all across the country, in every factory, in every house.
The problem in India could have been avoided entirely if certain available systems were in place and the operators acted more directly and authoritatively. Again, the system is only as good as its operators. And the politics in cutting off India’s bread basket were certainly a very difficult call. But in the end giving them what they wanted ultimately served only to deny them what they wanted.
Maybe just build a better grid?
Another U.S. Solution
While improving the U.S. grid (and those in many other nations for that matter) is a matter of necessity, there’s also another opportunity that has emerged in recent years.
New drilling technologies have made it possible to tap into massive amounts of natural gas that have been trapped under shale deposits. In the United States, these shale gas reserves are massive; they make the United States the Saudi Arabia of natural gas (see my past article on fracking for more).
And not only is that a transformative development for U.S. consumers and industry that goes a long way toward making America energy independent for decades to come, but it represents a huge opportunity to export this fuel to the rest of the world.
As noted above, Japan is buying new fuels, including natural gas, and pays four times what the market rate is in the United States. Europe is paying three times the U.S. rate. Its major supplier is Russia’s Gazprom, which is a less-than-ideal supplier.
The point is that there is global opportunity to export gas. The only way to export gas efficiently is to cool it until it liquefies. The only problem is that the United States has only a handful of liquefied natural gas (LNG) export ports. And there are only a few LNG shipping companies.
GasLog Ltd. (GLOG) owns a fleet of LNG-carrying vessels. And it’s currently one of the tightest in terms of the supply-and-demand shipping market.
GasLog has a solid slate of vessels that are booked under long-term contracts. It also has a number of new ships that are coming on line in the next two years and that will enable them to take advantage of the tight rate market that currently exists.
GasLog is talking about spinning off some of those vessels that are booked under long-term contracts as a master limited partnership (MLP). That would really unlock a lot of value for the company. Whether it makes that move, it’s a great company in this space.
Another one is Teekay LNG Partners LP. (TGP), which offers a really nice yield above 7 percent. The reason that yield is so high is that there’s really no contract risk per se; it doesn’t have much exposure to the near term bull market in contract prices which is why it’s kicking off such a nice yield.
A New Grid Strategy
For those who are bolder in their vision for new energy in the United States, look to buying some of the cutting-edge smart-grid companies.
High-temperature superconducting (HTSC) wire is not a silver bullet to a new grid, but it does have some significant advantages for a new grid. Many countries are looking at ways to build these HTSC systems into their existing grids and upgraded grids.
HTSC wires are to traditional power lines what fiber optic cable is to a copper telephone line. You could back up a small city on one buried HTSC cable. And because they have so much capacity, you can build in other smart systems to help keep the grid functioning and receive real time feedback, chart consumption trends, etc.
One of the pioneers in this field is American Superconductor Corporation (AMSC). The stock has been slammed in recent years because of its wind division. It had a deal with Sinovel, one of China’s largest wind companies, and then Sinovel walked, leaving AMSC short one gigantic client.
Now the company is going back to its roots and the HTSC side of the business until the global economy gets back on its feet. AMSC is split in two divisions, Gridtec and Windtec. I’ll let you figure out what the divisions do.
Revenues for the first quarter of fiscal 2012 were $28.7 million, which compares with $9.1 million for the first quarter of fiscal 2011. The year-over-year increase was driven by strong growth in the company’s wind and grid segments.
This is by no means a quick turnaround story, but if you have some long-term money that you aren’t counting on for your grandchildren, AMSC is a good buy under 7.
The second firm is Bruker Corporation (BRKR), a 50-year-old firm that’s a leading provider of high-performance scientific instruments and solutions for molecular and materials research, as well as for industrial and applied analysis.
While its instrumentation division is a compelling story unto itself, this company also has a HTSC division and is also a global player in this sector. Bruker Energy and SuperCon Division (BEST) is a leading global manufacturer and developer of HTSC wire products and devices.
In May, BEST announced a large-scale technology transfer contract for its Bruker HTS GmbH subsidiary to license and transfer know-how for second generation (2G) YBCO ceramic tape high temperature superconductors (HTS) to a subsidiary of the Russian state atomic energy corporation, Rosatom. The contract is valued at $25 million.
BEST is also very active in the U.K., Germany and South Korea. No doubt, the recent turmoil in Europe has hurt Bruker’s recent earnings. The company has lowered guidance for the rest of the year, so the stock is at reasonable levels.
Bear in mind, this isn’t a stock where you wait for its quarterly results. You check on this stock annually for the next few years and then decide whether things are working out. This is a long-term growth play that could return orders of magnitudes on your investment or leave you with a few pennies in your brokerage account. A high-risk/high-reward high tech proposition, Bruker is a buy below 15.50.