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We know Obamarama is going to
tax the rich, but I bet many didn't think he would weasel in the carbon tax
as quickly as he is going to now. A Romney win would have been bullish for coal
producers in the US – but Romney lost, and now so has coal, at least in
the near term. The biggest winner from Obamarama? Natural
gas.
Exxon Mobil Corp (XOM), which is the largest of the
former Seven Sisters (if you don't know what companies comprised the Seven
Sisters, you really need to sign up for a risk-free Casey Energy Dividend trial), is now
supporting Obama in bringing a carbon tax to the US.
Why would Exxon (and other big energy companies) join
forces to bring on the carbon tax?
The answer is simple: profits.
Exxon has made significant purchases, buying
unconventional North American gas companies. For example, it recently bought
Canadian firm Celtic Exploration for over C$2.5 billion. Let's not forget
that a couple of years back, Exxon bought out XTO Energy for over US$30
billion.
How much pull does Exxon have in Washington, DC? Exxon
has one of the largest lobbying groups on Capitol Hill. And how ironic: Exxon
is also one of the largest holdings for all of the US Congress members. Exxon
has always had clout in Washington and always will. Exxon is one of the
former Rockefeller oil companies, one that has now positioned itself as one
of the dominant unconventional North American companies.
How does a carbon tax benefit Exxon? Natural gas and
coal race neck-and-neck when it comes to electricity generation in the United
States. By increasing the cost to produce coal, natural gas becomes more
attractive for utilities. This means a better bottom line for Exxon…
and a fatter paycheck for its executives.
But why unconventional natural gas in the United
States?
First off, it's hard for a company as large as Exxon to
find deposits that will move the needle on its production meter.
Unfortunately for Exxon, most of the world-class deposits that they are
looking for are in regions where US companies like them have lost their
advantage. For example, in Russia and former USSR states, Exxon has to now
play by Putin's rules, which could change at any minute.
South America has also proven to be very dangerous for
American companies. Chevron has just had US$18 billion worth of assets seized
in Argentina. Before that, Chávez in Venezuela taught Shell and Exxon
about doing business in Venezuela. Nationalization drives also followed in
Bolivia and Ecuador. All this means is that there
are fewer places companies like Exxon can go to make a consistent return on
an investment without insane political risk.
Obama isn't dumb; he knows that just taxing the rich
won't be enough to fill the deficit gap in the United States. A carbon tax
would help both financially as well as politically: Obama would look like a
hero standing up to the "dirty polluters," as well as bring in
another US$100 billion in revenues.
Coal, both metallurgical as well as thermal, is already
suffering: metallurgical coal prices are down because of lower demand in
Europe and Asia, while thermal coal is down because of pricing pressure from
natural gas and the success of shale gas. A carbon tax would be a knockout
blow to the thermal-coal industry in the United States.
With the backing of Exxon, expect Obama to not only
bring in a carbon tax, but to do it a lot quicker than anyone has expected
– and he will be viewed as a hero by many for doing it.
Is your portfolio positioned to benefit from this
coming change? You'd better be. If not, I highly recommend you give our CED newsletter a risk-free trial.
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