If there is one ratio in the commodities market that completely out of whack, it has to be the price of crude ($wtic: chart) to natural gas ($natgas: chart).

From 2000 to the end of 2005 the ratio of the crude oil price in $/bbl to the price of natural gas in $/MMBtu was around 7:1.

Today, that ratio is a little over 18:1.

The price of crude oil started its ascent towards record highs in 2006, and natural gas supplies started creeping upwards, also to record highs about that same time.

If one were thinking about the ratio alone, you’d surmise that either crude prices need to fall or natural gas prices need to rise to trend back towards that 7:1 ratio.  The problem with this logic is that crude and natural gas now contend for markets with drastically different scopes.

Crude is truly a global commodity as evidenced by the geography of the crude reserves and the intercontinental demand for the black gold from the Middle East.  Natural gas on the other hand is very localized, and this is due primarily to the transportation and infrastructure differences between the two energy resources.

Natural gas is relegated to pipeline transportation (with the exception of limited LNG movement via ships) whereas crude oil is fit for pipelines, freighters, tankers, rail…

So you can start to see the conundrum.

The holy 6:1 ratio (based purely on energy content) is not so holy any more, and natural gas and crude have devolved into completely unrelated markets.

For now.

I suspect that if we continue to see natural gas supply levels stay up, and prices stay low, that more and more industries will shift to natural gas for purely economic reasons.

I predict that natural gas draws will start increasing this winter, and the price will reflect that.

As for the ratio, I suspect it will start to moderate, but not because crude oil prices start retreating.

Energy crude oil, crude to natural gas ratio, natural gas

Last week I started buying Cree (CREE: chart, web, Y!), and in typical fashion the stock dropped (along with just about every other equity) $2 after my order filled.

So, what’s a guy to do but buy more?

Fundamentally nothing changed with the company, although they are well positioned to take advantage of whatever bogus “green” legislation the Obama Administration may conjure up (i.e. trying to make light bulbs sexy again).

A technical trader may suggest that I should have waited for the pending drop in the chart, but that’s really not my style.

I’ve started adding shares in increments of 10 to set a good average price, and will continue to watch the company develop and their products mature.

Energy, Investing CREE, Stocks

The adage; “never waste a good crisis” continues to be more and more transparent as people start opening their eyes to what the government is saying versus what the government is actually doing. If you listen to what the Obama administration says, and compare it to what they do, you’ll certainly see a disconnect. Obama wants to create jobs, but also wants to increase taxes on those with the most money. I would like to think that he understands it takes capital to create jobs, and if you reduce capital, you reduce the incentive to create jobs. So does he really want to create jobs, or just continue to line the pockets of special interest groups and politicians alike under the guise of creating jobs?

I’ve always said that if you follow the money, you’ll find the incentive.

A prime example of this is Al Gore and his efforts to combat climate change. Ask yourself, why would an ex-politician go to such great lengths to promote such a controversial theory? And why would he spend so much money in his efforts? Follow the money.

Gore is Chairman of Generation Investment Management, LLP (GIM) that focuses on investing for the long term based off the idea that “sustainability factors—economic, environmental, social and governance criteria—will drive a company’s returns over the long term”. (If you have any idea what that really means, let me know.)

One major area that GIM tries to take advantage of is the “regulatory developments in climate policy and carbon markets, and the attitude shifts that are occurring among consumers, leading businesses and investors.”

Climate change is an urgent challenge that affects long-term corporate profitability, and therefore must be systematically integrated into investment analysis. The pace of climate change is accelerating and will have material effects on equity markets in the short, medium, and long term. -Source

Al Gore also founded and chairs the Alliance for Climate Protection whose mission is as follows:

Our mission is to persuade the American people—and people elsewhere in the world—of the importance and urgency of adopting and implementing effective and comprehensive solutions for the climate crisis.

The Alliance for Climate Protection is undertaking an unprecedented mass persuasion exercise based on scientific facts. Through a new combination of non–partisan alliances with Americans from all walks of life and innovative and far–reaching communication techniques the Alliance will focus on presenting the facts about climate change and its solutions to the general public in an accurate, clear and compelling manner.

Americans have always risen to meet the most important challenges to our nation’s and the world’s future. Together, we can address the climate challenge domestically and provide a robust economy for now and for our children. -Source

Based on the “Gore Connection” between these two entities, it would make sense why the Alliance for Climate Protection would want widespread emissions regulation and proactively support cap-and-trade legislation so that companies will be forced to lower their greenhouse gas emissions and buy carbon credits.

Surely they would recommend buying those carbon credits from none other than Generation Investment Management!

With this in mind, it’s not hard to see why Al Gore is so adamant about saving the planet from us dirty humans.  After all, the guy needs to make money somehow, and what better way than to scare those humans into giving him money for the greater good of the planet?

Actually, there would be a better way, and that would be if the government got involved and mandated that those dirty humans give him money for the greater good of the planet!

The Ties That Bind

Last week Gore came out and tried to push critics into a corner by suggesting that it’s silly to question the science (see the video below).

Rubbish.  You always question science, because there’s no such thing as a consensus in the scientific community.

It’s interesting that T. Boone Pickens appears in this discussion, as he’s in the same boat as Gore.  Pickens continued to push his “Pickens Plan” (which I wrote about in a skeptical post last year) to America in an effort to reduce the dependence on foreign oil and invest heavily in natural gas and wind energy.  Both efforts in which he already has billions of his own money at stake.

Can it be more “transparent”?

Follow the money, and you will find the incentive.

Energy, Environment Al Gore, Boone Pickens, climate chage, follow the money