The future for energy should be natural gas. It has the potential to move the United States closer to energy independence and is a cleaner fuel than coal and oil. In addition, it has become harder and harder for U.S. companies to do oil deals in foreign countries where new discoveries are being made. That’s why, after a 10-year hiatus from takeovers, ExxonMobil offered to acquire natural gas producer XTO.
Yet politics may disrupt the takeover. At issue is the extraction of gas from shale rock through a process known as hydraulic fracturing, or “fracking”-sending high-pressured liquid through a horizontally drilled hole, cracking shale and facilitating the release of natural gas. Even though 95% of the fluid is water and there have already been hearings in Congress showing no ill effects to the environment, Congressman Ed Markey (D-MA) will intervene with more hearings.
Markey created the cap-and-trade bill that passed in the House over the summer. According to The WSJ, the hearings will explore the deal’s effects on competition in the natural gas industry, the role of natural gas in the U.S.’s energy, and environmental questions surrounding production of gas from shale rock formations. He will try to make this a populist issue. ExxonMobil recognizes the risks in dealing with today’s Washington, so as reported in their 8-K filing, the deal is contingent upon no legislation against fracking being introduced by Congress.
Markey should support fracking. According to the Energy In Depth website, “the Environmental Protection Agency (EPA), Ground Water Protection Council (GWPC) and the Interstate Oil and Gas Compact Commission (IOGCC) have all found hydraulic fracturing non-threatening to the environment or public health.” Concerns raised by locals over the amount of water used, the makeup of the 5% of the fracturing fluid solution that’s not water, and the removal of waste are resolvable. Unfortunately for the country, this is about control from Washington. The progressives who battled for cap and trade expect to be the beneficiaries of legislation, and they want their payday. Who are the progressives involved?
The Democracy Alliance was formed when a group of donors convened in April 2005 in Phoenix, Arizona-George Soros, Peter B. Lewis, Herbert Sandler, the Sierra Club, and Service Employees International Union (SEIU), to name a few. These groups of progressives fund some of the most liberal organizations in America, such as the Center for American Progress, ACORN, the New Democratic Network, Progressive Majority, and Media Matters for America. Thanks to cap and trade, which according to the Congressional Budget Office will result in tax increases of $872.8 billion for the years 2010-2019, progressives have their legislation to redistribute wealth.
Herbert and Marion Sandler are multibillionaires who made their money from the sale of their mortgage company to Wachovia during the mortgage bubble. They are funding ProPublica, an investigative news website. So why did the Sandlers choose to run an investigative report against fracking? One reason is that George Soros is a good friend of theirs.
Ed Lasky of American Thinker writes, “George Soros is a pal and ally of the Sandlers. He also owns major stakes in energy companies that don’t rely on shale gas for their revenue. These companies would be harmed and become less profitable if shale gas were released onto the market in the vast quantities industry experts believe are available through fracking. He also owns a major interest in InterOil, an energy company that has discovered a vast natural gas find in Papua New Guinea. The potential of that find is enormous and could lead to a very profitable export of liquefied natural gas to the American market.”
Let’s fast forward and see what cap and trade in the U.S. would look like. Europe already has a carbon credits market. Companies that need credits go to the market to buy them to get under the cap. As a result, prices and investment are strongly influenced by legislation, creating a politically driven market.
George Soros knows the power of politics. During the climate summit in Copenhagen, as it became clear a deal wasn’t going to happen, carbon credit prices dropped off a cliff. I don’t know if George Soros lost money in that trade, but I find it interesting that he tried to put a deal together, looking to the IMF to provide $100 billion through special drawing rights. This could have created a huge surge in carbon credit prices.
I sense conflict from within the progressive camp. On a national level, the Sierra Club supports fracking. They realize natural gas is the bridge to renewable energies such as wind and solar and is cleaner than coal and oil. Locally, though, members are fighting the natural gas drillers. I expect the ExxonMobil takeover of XTO to close. But don’t be surprised if Soros and Markey turn the local’s plight into a national populist movement.
E.J. Smith is Managing Director of Richard C. Young & Co., Ltd. an investment advisory firm managing portfolios for investors with over $1,000,000 in investable assets.
