Watching all the events of the last quarter, I couldn’t help but think upon the famous poem by Robert Frost, The Road Not Taken:
Two roads diverged in a wood, and I,
I took the one less travelled by,
And that has made all the difference.
2011 has started with extraordinary volatility and has been witness to some events that will force all countries to make some tough decisions – stick to the easy road, the road taken to date, or start making some tough, sensible and logical decisions.
JAPAN
The horrible events in Japan have changed a lot of things for a lot of people. The comments made by some that ‘uranium is the solution’ have been dealt a blow by events at the Fukushima Nuclear Plant.
The long term ramifications for Japan and other countries that currently utilise nuclear power and are planning to use this power (mainly China and India) are still unclear, but many countries have some soul searching and tough decisions to make: go nuclear or something else? If so, what is that other energy form? This has suddenly created an environment in which some tough decisions need to be made, and these may be the ones on the road less travelled.
AMERICA
The answer, my friends, has been before our eyes for a very long time. In fact, whilst The Rolling Stones were not economists formally, they seemed to get it over forty years ago. I am sure they were referring to the current environment when penning the following lyrics:
I was born in a cross-fire hurricane
And I howled at my Ma in the driving rain,
But it’s all right now, in fact, it’s a gas!
But it’s all right, I’m Jumpin’ Jack Flash,
It’s a gas! Gas! Gas!
(Jumpin’ Jack Flash, 1968)
I believe the answer for many countries, and for Japan and the US, is in natural gas. Without boring you with details on how much gas is out there and why and where from et cetera, here are the points of relevance.
Natural gas:
- Is a cleaner burning fuel than most other conventional energy sources
- Is extremely abundant and cheap, especially in the US and Australia
- Is the most logical energy that can be used for the next 20-30 years
- Will allow a transition to some other forms of cleaner energy
- Will allow the US to reduce its reliance on oil from foreign climes, thus reducing the US trade deficit dramatically
- Will create an industry in the US, thus helping meet the gaping hole in jobs needed, and
- Is historically cheap (See the ten-year chart below)
(Source: Bloomberg)
Cheap, cleaner, abundant and available right now. Let’s hope Governments make some smart decisions, embrace gas and take us on the road less travelled, one that will provide a much better future for the next generation.
Mathew Kaleel is chief investment officer at H3 Global Advisors.
