Monday, October 02, 2006

One Stock Picker Says the Coast Guard's Broadwater Report is a Reason to Sell TransCanada Shares

Soon after the Coast Guard released its Broadwater safety report 10 days ago, a stock tout named John Duboscs, who writes a column called Guru Picks at, wrote that he "bailed completely" and sold his shares in TransCanada, which is Royal Dutch Shell's partner in the proposed LNG terminal:

TransCanada (nyse: TRP - news - people ) operates as a natural gas transmission and storage company. Its partnership with the U.S. subsidiary of Royal Dutch Shell (nyse: RDSA - news - people ), Broadwater Energy, had hoped to build a liquefied natural gas depot in Long Island Sound. On Friday, the U.S. Coast Guard issued a report highly critical of the idea, and while it did not kill the project, for all intents and purposes, it is now dead in the water, so to speak. The Coast Guard pointed out the vulnerability of such a facility to terrorist attacks and maintained that it did not have the resources necessary to ensure safety. Gurus bailed completely.

To be fair, when he says he "bailed completely," it's not clear whether he means TransCanada, or Shell, or both. My guess is that if he's looking to protect himself from a stock price that falls because of a questionable report from the Coast Guard, the smaller company would make him more vulnerable than the bigger company, because the impact of the Coast Guard's report would be greater on the smaller company. TransCanada, with a market capitalization of $16 billion, is much smaller than Shell, which has a market capitalization of $137 billion.


Blogger Sam said...

I think the key sentence is "Gurus bailed completely." That means the smart money talkers, the Wall Street fibbers. Loads of folks have been getting out of the futures and hedge funds that invested in natural gas and crude, since it has lost something like 25% of its value lately. Whether or not one small project affects that mix I have little idea. I mean you could short them and make a ton of money, right?

This is the problem with any energy market, especially hydrocarbons. It does seem that investing so much in LNG terminals, subject to such wild swings in gate prices (Henry's Hub), is a relatively poor investment unless you have DOW or some major electrical power plants to supply.

You watch, if we have a very cold winter up the the Northeast and Mid-West, the cost of heating oil (distillate #2, similar to off-road diesel) will go up. It is all in the forecasts for "degree-days."

As to this one particular terminal, I think it is a tempest in a teapot.


7:53 PM  
Blogger Sam said...

Oh, I didn't mean to offend the casual reader ... I meant to say that interms of macro-economics, the effect of one small project is in the range of noise.

For a local and especially a waterman, the impacts of having such a massive terminal could be devastating.

11:25 AM  

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