Last night's State of the Union address focused heavily on the energy sector, one of only a few bright spots in the economy today. The president spoke of expanding offshore drilling, expanding shale oil and gas production, and promoting renewable energy.
It was a very bullish speech for most energy investors, even if many of the initiatives never happen. Here are some highlights and how it might affect your investments.
Getting the facts out there
On Fool.com, we've covered the growth in U.S. oil and natural gas production extensively. Companies such as Continental Resources (NYSE: CLR ) , who announced today its production increased 57% in the past year, have helped increase energy independence and create jobs in the United States. Here are some of the facts President Barack Obama highlighted that investors should keep in mind.
- The government has "opened more than 75% of our potential offshore oil and gas resources."
- "American oil production is the highest that it's been in eight years," and "last year, we relied less of foreign oil than in any of the past 16 years."
- The president is directing his "administration to allow the development of clean energy on enough public land to power 3 million homes." And the Department of Defense is also expanding its renewable energy efforts by buying enough capacity to power 250,000 homes a year.
- "This country needs an all-out, all-of-the-above strategy that develops every available source of American energy."
The opening of offshore reserves for drilling is certainly a plus for the drilling industry, but the land won't be available for years. A plan released in November would open new leases over a five-year period beginning this year, so don't expect drilling off the coast of Alaska quite yet.
Still, it's another reason to be bullish on deepwater drillers Seadrill (NYSE: SDRL ) , Transocean (NYSE: RIG ) , and Noble. These companies are already looking at higher demand because of expanded drilling off the coast of Angola and Brazil, so more U.S. demand is icing on the cake.
The effect this drilling will have on oil prices will be minimal, as I highlighted last year, but any drilling expansion is good, especially for offshore drilling stocks.
Unlocking natural gas
The natural gas industry can look at the State of the Union in two ways. First, Obama sang the praises of increased domestic production and touted the millions of acres opened to drilling in the last three years.
He also went out of his way to highlight safety and the fact that companies drilling on public land will have to disclose chemicals they use. States are beginning to regulate fracking more heavily in anticipation of potential federal regulations, but the industry has fought disclosure for years.
Reading between the lines, I would say Obama's words last night are bullish on the level of natural gas production in the United States. Whether that means more regulation and whether that regulation is a good thing is another matter entirely.
Renewable energy downplayed
One of the surprising things to note is that renewable energy wasn't touted as highly as I would have thought, outside of a passionate line:
We have subsidized oil companies for a century. That's long enough. It's time to end the taxpayer giveaways to an industry that's rarely been more profitable, and double-down on a clean energy industry that's never been more promising.
The tremendous growth of solar installations, their falling costs, and the number of jobs created were notably absent. Maybe this was because Solyndra has taken its political toll or the fact that renewable energy hasn't been the savior Obama once hoped it would be.
The recent expiration of the 1603 Treasury Program may tell you everything you need to know about what will happen for renewable energy from a policy perspective. There is likely little help on the way for renewable energy so the status quo will have to work. For those of us observing the industry and think it can stand on its own, this may be the best way forward anyway.
What we didn't hear
We definitely didn't hear a shout-out for the coal industry in the State of the Union, and the American Coalition for Clean Coal Electricity is already fuming.
The omission doesn't say a lot about the near-term prospects for coal, which provides more of our electricity than any other energy source. But it does tell you everything you need to know about the future of the industry. The trends simply don't favor coal, and neither does Obama.
As a result, I wouldn't touch miners such as Patriot Coal (NYSE: PCX ) , Alpha Natural Resources, or Arch Coal (NYSE: ACI ) , which are all trading near 52-week lows and will likely stay there with natural gas trading near record lows. I'm sorry to say it, but the era of coal is slowly coming to a close.
Foolish bottom line
Overall, I thought the speech was bullish for natural gas, offshore drilling, and to a lesser extent renewable energy. The focus on energy was refreshing to hear, especially considering the immense progress we've made in the last five years.
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