What Obama Had to Say About Energy

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."

Offshore growth
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.

If you're looking for more stocks that will benefit from energy investment, check out our free report called "3 Stocks for $100 Oil." The report outlines one pick each from three of our Rising Star analysts, and it's free for a limited time if you click here.

Fool contributor Travis Hoium manages an account that owns shares of Seadrill. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of Noble and Transocean. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (12) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 25, 2012, at 4:53 PM, jdwelch62 wrote:

    I wouldn't count coal out just yet, Travis. Sure, Obama isn't fond of it, but as you pointed out, its from coal that we get most of our electricity. Also, China and India are starving for coal; they've built a ton of coal-burning electrical plants, and recently Gloucester Coal in Australia (in which I held a postion) was bought out by the Chinese state-run coal company (can't recall the name); share of Gloucester shot up, and I sold, netting a tidy profit. We've got 1/4 of the world's coal reserves in the US of A, and if our government dismisses it, our coal producers can try turning to exporting the stuff to China and India...

  • Report this Comment On January 25, 2012, at 4:58 PM, DJDynamicNC wrote:

    "I'm sorry to say it, but the era of coal is slowly coming to a close."

    You might be sorry to say it, but I'm not sorry to hear it!

  • Report this Comment On January 25, 2012, at 6:20 PM, twolaz2p wrote:

    Obama's rhetoric for the past 3 years has been

    such that I don't believe anything that comes out

    of his mouth

  • Report this Comment On January 25, 2012, at 8:04 PM, xetn wrote:

    Obama talks a good line but when it comes to performance, he sucks. Take the recent decision to kill the pipeline from Canada to Texas. He not only killed this pipeline that would have contributed much needed resources, but killed some 7000 jobs in the process. This from "the jobs president".

    So, why did he kill the pipeline? Because of the enviromentalists claims? In spite of the fact there are already an estimated 4000 existing pipelines in the same areas.

  • Report this Comment On January 25, 2012, at 9:02 PM, Merton123 wrote:

    Toshiba (who purchased Westinghouse electric) just got its nuclear reactor design approved by the NRC. They have several utilities signed up to replace their coal powered utilities with the new modular reactors. Unfortunately American investors can buy Toshiba stock directly since it is a Japanese Company. Our American companies may be able to reverse engineer Toshiba's nuclear design and get on the next wave of nuclear reactors.

  • Report this Comment On January 26, 2012, at 12:32 AM, barakn wrote:

    Coal is still indispensable in the metallurgical industry, and Asian countries will still be burning it for electricity. A company like BTU with good exposure to the Asian markets will turn a healthy profit.

  • Report this Comment On January 26, 2012, at 6:11 AM, Triller wrote:

    You should be sorry, coal is one of the only resources we have plenty of and we won't stop until we use it all. China, Indonesia, India the rest of the world uses cheap coal to keep them warm and build their country, just like the USA did in the last couple of centuries. To write off the most abundant and one of the most valuable resources we actually own and that runs 40% of the grid is just foolish. What would show you have more than words for smarts, would be to show how necessary it is that we learn to use coal responsibly. Like China, burn it cleaner, mine it safer and be smart about energy. Gasification, clean coal, etc. that is the future of investing in coal. Until solar, wind, smart grid etc. become a viable reality for running our gluttonous energy needs, keep your nose to the grindstone and keep working. We don't have fuel cell cars, hydrogen infrastructure. Most of our power plants run off of coal. What, going to hook up solar panels and power the country on that? Maybe making diesel out of coal and jet fuel out of coal, instead of dismissing it a too dirty to use. Just foolish. We need education to burn into the brains of our next generation that there is no silver bullet and dismissing old technology, before the new is actually perfected is just letting the US in for a big surprise. We aren't there yet, and coal still is, and the rest of the world knows it and will be using it for the next century. We better learn how to use every ounce of coal, thoroughly, for every penny it's worth. Sell it to China, us it to make petroleum jelly, diesel fuel, jet fuel, oh, and steel? How do they make steel, the backbone of the economy and 90% of what you eat, sleep and work with day after day. Drive over a bridge lately? Look at the skyline of NYC? Before we start using solar, wind and nuclear we need to learn to use coal more wisely. CCTC, AES, SYNM, SYMX..Can't hide your head in the sand, or wish dirty oil and coal to go away, it's not going anywhere. It's too economically stable. We need to learn to use our toys more efficiently, before we are allowed to get new ones. JMHO

  • Report this Comment On January 26, 2012, at 6:33 AM, Triller wrote:

    Coal is an extremely important fuel and will remain so. Some 23% of primary energy needs are met by coal and 39% of electricity is generated from coal. About 70% of world steel production depends on coal feedstock. Coal is the world's most abundant and widely distributed fossil fuel source. The International Energy Agency expects a 43% increase in its use from 2000 to 2020.

    However, burning coal produces about 12 billion tonnes of carbon dioxide each year which is released to the atmosphere, about 70% of this being from power generation. Other estimates put carbon dioxide emissions from power generation at one third of the world total of over 28 billion tonnes of CO2 emissions.

    Development of new "clean coal" technologies is addressing this problem.

    http://world-nuclear.org/info/inf83.html

  • Report this Comment On January 26, 2012, at 9:43 AM, NEMnyWtch wrote:

    I respectfully disagree Travis. Being a tree-hugging, dirt worshipper, I would like to see the success in development of clean burning coal, expansion of our natural gas infustructure, and would love to run my home for free on solar power. But we are not there yet. An old trade desk boss of mine used to say, "If if's and buts were candies and nuts, every (bleeping) day would be Christmas." In other words, trade / invest in the now, on facts, in what is real. What our President wants, and what is real, are not the same.

  • Report this Comment On January 26, 2012, at 11:48 AM, TMFFlushDraw wrote:

    Thanks for the comments everyone.

    I appreciate the sentiments about coal, but as the article linked points out, U.S. coal demand is declining because utilities are using less coal. Yes, China will be a demand source but it's a slow dying business in the U.S. And with China making huge bets on renewable energy I don't get the feeling they're going to be big coal supporters in 20 years.

    As for the Keystone XL pipeline, I think the story is different than most perceive. There were legitimate reasons not to approve the pipeline TODAY, including an undefined route through Nebraska, which even the GOP governor of Nebraska says isn't solved. He could have put in conditions, but instead I think Nebraska will find a feasible route in the next few months and the president's approval will become a bargaining chip in budget/tax negotiations. I would predict that XL will be approved by the end of the year, and the ~150 permanent jobs it will create will be saved.

    Travis Hoium

  • Report this Comment On February 02, 2012, at 11:07 AM, NEMnyWtch wrote:

    Lets see now, surprisingly good (even for a bullish fan) earnings report, good forward looking statements, good safety record, good management of supply/demand, good pricing. I'm having a good day on the long side, glad I'm not the short "Seeking Alpha" type.

  • Report this Comment On February 14, 2012, at 5:39 AM, thidmark wrote:

    What comes out of Obama's mouth is worth about as much as a Greek bond.

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