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Famous Billionaire gives his invaluable advice on energy stocks and the BP oil spill
T. Boone Pickens has achieved a lot in his 82 years. He was a corporate raider, a billionaire investor, and, most importantly, a wind natural gas proselytizer. But through it all he has stayed an oil and gas man. Pickens warned about the dangers of investing in alternative energy stock, especially during the difficult times in the industry.
In a recent interview, Pickens talked about energy stocks and the BP oil spill. His answer to the question of why the BP oil spill hasn’t forced oil prices up was simple. Although a lot of oil has been lost in the blowout, it was never in the system to begin with. This means that the general supply is not under threat. However, he does admit there does remain the possibility of a slight price increase. Supply is capped daily at 85 million barrels, and if there is to be any kind of global recovery, price will be the only way to control demand.
Pickens denied that the BP oil spill will recreate excitement in alternative energy stocks and spur investment in this sector, citing that oil and alternative energy do different things. Solar power and wind power are there purely for the generation of electricity, so they cannot replace oil, since 70% of oil produced goes into transportation fuel. There are some good projects in alternative energy, but these projects are not going to stop us being dependant on foreign oil. For this reason, Pickens thinks that natural gas will replace oil. It’s cheaper, cleaner, it’s abundant, and we have it right here in the country. So, he believes that the transportation fuel mix will come to include natural gas, and it will also be used for electricity generation. It won’t happen quickly, but it will happen eventually.
Many people believe that the consumption of natural gas will increase, but it is difficult for investors to make predictions, because pricing is so unstable. Pickens advises potential investors in natural gas to… check the weather! He says that weather conditions affect natural gas consumption tremendously. For example, a hurricane on the African coast would probably shut production down, which would lead to a sudden price increase. Weather conditions that are very hot or cold can also increase demand.
The price of natural gas also has a strong effect on the plausibility of alternative energy projects, and, in turn, investments in alternative energy stocks. For example, very low natural gas prices will make it difficult to implement wind power projects, since the pricing of wind power is right at the margin. Thus, the margin largely depends on natural gas prices.
All this makes it sound like natural gas might be one of the riskiest investments there is, but Pickens says
that natural gas is not something you invest in on a daily basis, because it’s simply too volatile. However, if you think of it as a long-term holding, then your profits could be very respectable. This may be at least 2 years or more.
The information supplied in this article is not to be considered as medical advice and is for educational purposes only.
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