As the oil price goes up, everyone wants a piece of it.

A barrel of oil costs nearly $100 after trading for little more than half that price early last year. Profits in the energy industry are soaring, right?
Not at all. The best guess of analysts studied by Thomson Financial is that earnings for US energy companies grew by just 6 percent last year. Estimates for companies elsewhere are harder to find, but Citigroup, citing external sources, expects 5 percent earnings growth for 2007 for the sector globally.
The sluggishness is due partly to the money that poured in during previous years. If earnings grow by 5 percent or so, it is 5 percent of some very large numbers, International Herald Tribune reported.
Far more important, and less promising, is that oil shows up on both sides of companies’ financial statements. Sure, they sell it for astronomical prices, but they have to pay more to find and extract it.
“Oil prices are up, and costs are up a lot worldwide,“ said Tina Vital, an analyst for Standard & Poor’s. “Not all of the oil price is falling to the bottom line.“
Even less of it is these days, she said, because of the desire of governments to share in the windfall. “Thirty-seven percent of oil revenues are going to global authorities in the form of royalty taxes, income taxes and things like that,“ Vital said. “As the oil price goes up, everyone wants a piece of it.“
Energy was one of the strongest sectors in the stock market last year; the Dow Jones Wilshire global oil and gas index rose 28.5 percent, or 31.2 percent when dividends are factored in. The year ended with the index’s constituents collectively valued at 15 times earnings, up from 12 as 2007 began. Investors apparently are ignoring the fine print in the quarterly reports and fixating instead on the crude oil market.
They probably assume that $90-plus oil will mean stronger earnings this year, and they are probably right--somewhat. Forecasts call for an acceleration of earnings growth but only to 10 percent or so.
If energy companies have so little to show for the exorbitant prices of their products, how can the stocks keep moving higher? The short answer for Komal Sri-Kumar, chief global strategist at TCW, a subsidiary of a French bank, is that they cannot, especially if global economic growth ebbs.
The strength in energy stocks “does not yet incorporate the severity of the economic downturn around the world and what that might do to energy prices,“ he said.
“It’s time for investors to switch out of energy and move into areas that did not do well in 2007.“
Some who are not ready to switch contend that while higher oil prices have not helped earnings all that much, lower prices will not hurt much, either. Chris MacDonald, who runs stock portfolios for Westwood Management, pointed out that royalties or other fees tend to rise at a faster rate than crude prices, and so “it’s probably better for Exxon to have $75 oil than $95 oil.“
His firm’s funds hold ExxonMobil, ConocoPhillips, Murphy Oil, Occidental Petroleum and Marathon, with the last two being his clear favorites.
“If you didn’t own anything in the sector, you could buy Oxy and Marathon,“ he advised. His reasoning is that as the majors struggle to increase production by 3 percent a year, these mini-majors are expected to increase their output by 7 percent to 9 percent.
Vital and her colleagues at S&P have “buy“ ratings on Conoco, ChevronTexaco, Royal Dutch Shell and Total, and “hold“ ratings on BP and Exxon. She also likes the US refiner Sunoco and a couple of exploration companies, Apache and Chesapeake.
Standard & Poors (S&P) is the world’s foremost provider of independent credit ratings, indices, risk evaluation, investment research, data, and valuations.
Looking at the sector broadly, Vital is neutral, saying that “fundamentals are still quite strong, just not as wildly exuberant as in 2006-07.“ When she describes conditions in the market, however, she does not sound exuberant at all.
“We believe oil prices have likely peaked,“ she said, predicting an average for crude this year in the mid-$70s, compared to about $94 this week. The high cost of energy “is beginning to have an impact on demand,“ she said, “and at the same time a lot of new production is coming on stream.“

Silicon nanowires may lead the way to converting waste heat into electricity, according to research reported yesterday in the journal Nature. Two separate teams, one at Caltech and the other at the University of California, Berkeley, reported that they could increase silicon’s ability to convert heat into electric current by as much as 100 times.
According to Cellular-news.com, the application could take surplus heat generated within mobile phones during use, or even from the human body when in standby and convert it to electricity.
Thermoelectric conversion relies on a difference between hot and cold areas in a device. Heat flowing from the hot side to the cold side creates current, which can be captured and used to power a device or stored for subsequent use. Bulk silicon has traditionally been considered a poor material for thermoelectric conversion, because its thermal conductivity is too high; heat travels across it so well that it’s difficult to create the necessary temperature differential.
“If you were going to make a high-performance thermoelectric, you would never use silicon, because as a bulk material it’s pretty lousy,“ says James Heath, a chemist who led the research at Caltech. He was surprised by his own results; he expected some increase in efficiency, but not as much as he got.
Thermoelectric conversion efficiency is measured by a number dubbed ZT. Several factors go into that number, and it can be increased both by lowering the thermal conductivity of a material and by increasing its electrical conductivity. Whereas bulk silicon at room temperature has a ZT of 0.01, the Berkeley team increased that to 0.4, and the Caltech team increased it to 0.6. That puts silicon nanowires about on par with bismuth telluride, the compound from which commercial converters are made despite the fact that it is relatively expensive and challenging to work with. Making thermoelectric devices out of silicon, which is abundant, cheap, and easily handled, could help create a new market for the devices
Both research teams found that they could decrease silicon’s thermal conductivity - and therefore increase the conversion efficiency - by fashioning the material into nanowires with diameters of 10 to 100 nanometers and introducing defects in the silicon that slowed the flow of phonons - the acoustic vibrations in the crystal lattice of a material that carry heat. Click to enlarge
“Defects are important here,“ says Peidong Yang, a materials scientist at Berkeley. “They can block the phonon transport from one end to the other end, so the thermal conductivity can be drastically reduced.“
Yang says his group engineered defects into the nanowires at three different length scales. First, by fashioning the bulk silicon into nanowires, they made the material very small compared with the phonons so that the size of the wires themselves affected how the phonons could move. They also made the surface of the wires rough, introducing a set of defects at a smaller scale. Finally, they doped the silicon with boron to introduce defects at an atomic level.
Heath induced a greater drop in thermal conductivity by making his nanowires even smaller than Yang’s - only 10 to 20 nm in diameter. Normally, a wire would carry two types of phonons, he explains: one that causes the wire’s diameter to expand or contract, and one that causes it to lengthen or shorten. Like a rubber band that gets thinner when stretched, the two work in opposition. But when the nanowires get small enough, the two types merge into a single type of phonon, and that slows down the heat transport even more.
Unfortunately, when Heath made the wires 10 nm wide, which gave him the best results for thermal conductivity, the electrical conductivity crucial to thermoelectric conversion also dropped.
Mildred Dresselhaus, a physicist at MIT who had predicted that using nanowires would lead to better thermoelectric conversion, says she’s pleased with Yang’s and Heath’s research. Their reports “represent a significant advance in the field,“ she says. “The applications field is now taking off, and interest in the field by the science community has grown a lot in the last two to three years.“
One of the easiest applications would be for recycling waste heat from computer chips into electricity. “You gain twice,“ says Heath. “Number one, you’re getting rid of heat, which is bad in a laptop, and number two, you’re gaining efficiency.“ He thinks that applications could come with just a couple of years’ work.

Four years ago, it was almost impossible to get financial institutions to attend an investor summit on climate risk. Today, some of the world’s largest banks have embraced the issue by focusing on research on the impact of global warming on investments, cutting their own greenhouse emissions and funding clean energy projects, according to a report released by Ceres (Centre for Education and Research in Environmental Strategies).
However, a six-month study of the world’s 40 largest banks also found that only a few are integrating climate risks into their lending practices, and setting targets to reduce greeenhouse gas emissions in their lending portfolios, CnnMoney.com reported.
“We’re seeing a different mindset across the board,“ says Mindy S. Lubber, president of Ceres, a leading coalition of investors, environmental groups and other public interest organizations, which published the report, Corporate Governance and Climate Change: The Banking Sector.
“They’ve gotten more involved because the debate has changed,“ said Lubber. “ This is a capital market issue and a government issue.“
The pressure to address global climate change is coming from clients, employees, government and the banks’ own research, the study said.
“It absolutely affects their bottom line,“ said Lubber.
The study rated banks on their efforts to deal with global warming. The highest rated firms were focusing on setting internal greenhouse gas reduction targets, boosting climate-related equity research and increasing lending and financing for clean energy projects. HSBC Holdings PLC (HBC) received the highest score of 70 points out of a possible 100, followed by ABN AMRO Holding NV (ABN) with 66. The highest scoring US firm was Citigroup (C), followed by Bank of America Corp. (BAC), whose score was 56. The lowest scoring firms included Lehman Brothers Holdings (LEH), which scored 26, and Bear Stearns Cos. (BSC), which got a score of 0.
Many of the changes on the banks’ stance toward global warming have come in the last 12 to 18 months. Among other things, the banks have issued almost 100 research reports on climate change. Twenty-eight of the banks disclosed their greenhouse gas emissions from operations, and 24 have set internal reduction targets.
Additionally, 29 of the banks reported their financial support of alternative energy, eight of them have provided more than $12 billion in financing and investments in renewable energy and other clean energy projects.
However, only 12 of the banks have board-level involvement. Additionally only six said they are formally calculating risk from global warming in their loan portfolios. The report said Bank of America was the only bank to announce a specific target to reduce greenhouse emissions associated with the utility portion of its lending portfolio. Lubber said none of the institutions have set policies to avoid investing in carbon-intensive projects such as conventional coal-fired power plants or Canadian tar sands.
The report recommended that climate change become a governance priority for company boards and CEOs, especially in the US where there has been almost no board involvement. There also needs to be better disclosure about the financial and material risk posed by climate change.