JBL: Alternative Energy

Politicians are demanding that the U.S. become less dependant on foreign oil, but the near-term options seem weak. The politics of drilling in the Alaskan National Wildlife Reserve and the Gulf region are too hot to have anything happen soon. Hydrogen is several years away from being an alternative energy source.

Meanwhile, the highly fragile political situations in the countries that are the greatest sources of oil strongly suggest the price of oil will remain high. Although crude hit a five-month low this past week, it remains up 20% in the past year and will certainly spike higher if any of the situations below turn even slightly more negative.

The President of Venezuela, Hugo Chavez, has said he wants Venezuela oil tankers going to places other than the U.S. Although the U.S. is the No. 1 buyer of Venezuela oil, he, in sum, prefers to earn greater political power by selling oil at a discount to Caribbean and South American countries than at a premium to the U.S.

Additionally, Chavez just increased the government's take of royalties on oil profits from 1% to 30% and increased the tax rate from 34% to 50%. As a result, any non-Venezuelan company is now required to turn over more than 75% of its profits to the Venezuelan government and an increasing amount of Venezuelan oil production is government controlled.

At 9 million barrels of oil a day, Russia is a similarly important but highly volatile oil resource. Russia almost rivals Saudi Arabia as the world's No. 1 producer of oil. Russia like Saudi Arabia is considered a friend of the U.S., but you are dealing with two highly volatile political situations

.

Iran, already subject to a U.S. trade embargo, could face additional sanctions from the global community over its nuclear ambitions. Iran sits atop the Hormuz Strait, which 40% of world oil exports pass through every day. Meanwhile, Nigeria has had problems with civil unrest and is far from a "stable" source of oil.

I have two interesting companies that take advantage of a potential crisis in world oil exports.

Is That Corn in Your Gas Tank?

In the latest energy bill it is mandated that ethanol production increase to 7.5 billion gallons in the next 10 years, almost double current production levels.

Ford (F) has said that it will produce 250,000 flexi fuel vehicles in 2006. Hybrid cars and ethanol 85 are some of the best, and safest politically, alternatives to foreign oil. While there are other ways to make ethanol, corn is the best; 12% of current corn production goes to ethanol.

There are already ethanol plants springing up around the country and corn prices will rise with the new demand for the crop. I believe a great way to invest in ethanol is to invest in the basics of the demand: Deere (DE).