Coal-to-Oil Technology Could Strike it Rich in China by Malcolm Berko on Creators.com

Recently

Natural Gas Firm Looking Like a ‘Buy' Dear Mr. Berko: A long-time friend of mine (name omitted) who says he knows you well has had some good successes in the market during the past six years buying oil and gas limited partnerships, high-yielding convertibles and preferreds. He just …Read more. Rosy-Eyed Washington Projections Should Be Taken With Caution Dear Mr. Berko: My only stock market investment is $207,000 in several Fidelity mutual funds, which are in my company retirement plan. I'm 56 and single. I earn a decent living and have almost zero debt. Both of my children are living away from home.…Read more. Money Laundering: A Delicate, Dangerous Art Dear Mr. Berko: A friend of mine is going to sell a building he's owned for years at a very large profit, and the tax bite, according to one accountant, will be almost $120,000. A New York City lawyer and CPA he consulted said he could avoid these …Read more. Home Builders May Be on the Rebound Dear Mr. Berko: I think the home building stocks will come back a lot sooner than expected. In fact, I think that home building stock prices have hit bottom. My broker tells me that his firm is neutral on the industry and can't recommend any stock …Read more.

Coal-to-Oil Technology Could Strike it Rich in China

Dear Mr. Berko: You wrote last year about a South African company called SASOL that makes oil from coal. I bought 75 shares at $34 and its now $54. Your description of their process, which was used by the Germans during World War II to produce oil and gas from coal, was fascinating. It worked and SASOL took the process from Germany and refined the procedure to make it more efficient. Now I have two questions. My profit in SASOL is $2,000 or 60 percent. Should I sell the stock? And I would like to know why the U.S. doesn't build a similar plant to make oil and gas from coal or oil shale. It's estimated that there are more than 2 trillion barrels of oil just in the oil shale deposits in Colorado, Wyoming and Utah. That is triple the oil reserves in Saudi Arabia. Why don't we use oil shale to produce oil and gas in the U.S. rather than buying it from Saudi Arabia and the Middle East? - R.T., Durham, N.C.

Dear R.T.: It's a common perception that the United States imports most of its oil from the Middle East. Actually our largest source of oil is Canada and our second largest source of oil is Mexico. Saudi Arabia and the Middle East rank a distant third and fourth.

Regardless, keep your shares of SASOL (SSL-$53). China has huge coal deposits and very little oil. So SSL has presented its coal-to-liquid, or CTL, process to China, which imports about 80 percent of its oil. Not surprisingly, China has expressed a very serious interest in using SSL's technology. If SSL and China enter into an agreement, it's an understatement to say that SSL would benefit quite nicely.

But like counting the stars in the universe is an impossible task, an attempt to estimate the dollar benefit of a China-SSL agreement would be an equally impossible task. Meanwhile, with the price of oil pushing $140 a barrel, SSL has suddenly become involved in a slew of feasibility studies around the globe and a lot of folks are getting serious about SSL's CTL technology.

Revenues of this company have doubled since 2003, operating income has tripled and so have profits.

SSL trades at 12 times earnings. With expected 2008 earnings of $5 a share, SSL could trade in the low $60s.

I think you ought to continue holding those 75 shares and even consider rounding your position to 100 shares.

I seriously doubt that the U.S., France, Great Britain, Italy, etc. will soon be using SSL's technology. The reason is spelled Shell, Chevron, Marathon, Exxon, etc. Chevron, for example, has reserves of 9 billion barrels of oil at a cost of $5.14 a barrel, Exxon has reserves of 23 billion barrels of oil at a cost of $5.16 a barrel and Royal Dutch Shell has 24 billion barrels of oil at a cost of $5.15 a barrel. That's a lot of reserves to protect with enormous future profits to be earned.

So Big Oil has a lot to lose if the SSL process gains popularity. Be mindful that the U.S. has more coal than the Middle East has oil and the SSL process would hurt Big Oil's bottom line badly.

I don't for a moment believe that Exxon or the other oil giants care much about the U.S. economy. Between 1938 and 1943, Standard Oil, now Exxon, had a process similar to that now used by SSL and teamed up with Hitler's Germany to produce oil and gas from the Third Reich's huge coal deposits.

In its reach for the almighty dollar, Exxon actively helped the Germans produce millions of gallons of fuel for their trains, tanks, planes, war ships and trucks in their fight against the allies. In 1943, some of the big shots at Exxon became honored members of Himmler's Inner Circle of Friends.

Money has no loyalty to any country and the Exxon boys are living proof of that truth. Some even believe that Exxon's assistance prolonged the war by two years and cost 73,000 American lives.

So, considering Big Oil's enormous vested interest, it's unlikely that SSL will have success using its technology in the U.S., Canada or Mexico. Oh well, that's politics, where money talks and patriotism walks.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@comcast.net. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.