Categories

Investing Liberty Investor Alert Observation & Opinion

Tools

  • Economy & Politics
  • Investing
  • Personal Finance
  • Related Posts


    Consumer Spending Rose By Most In 3 Months Driven By Higher Energy Costs
    Philly Fed’s Plosser Explains Why He Dissented With The FOMC
    The Best And Worst Performing Assets In July And YTD
    Chinese Yuan Surges & Stocks Jump To 2014 Highs After PBOC Unleashes QE
    French Billionaire’s T-Mobile Bid Is Great For U.S.
    Coke Is About To Start Spying On Your Soda Habits At Home
    Asia’s Tech Giants Are Stocking Up On Some Of Google’s Biggest Names
    U.S. Job Growth Cools, Unemployment Rate Rises To 6.2 Percent
    China’s Factories Spring To Life As Global Trade Reawakens
    P&G Profit Up 37 Percent On Cost Cuts, Higher Home Care Sales
    Chrysler Says Its U.S. Auto Sales Rose 20 Percent
    Britain’s RBS Places Restrictions On Lending In Russia
    Asia Taken Aback By Wall St Swoon, Pins Hopes On China
    S&P500 Index Posts Worst Fall Since April; Indexes Down For July
    SEC Launched Extensive Probe To Identify Sources In Reuters Stories


    Shifting Energy Demand Means New Opportunities

    Last year marked a new low for the United States, but this low is a good thing. America consumed less imported energy than it has in the past 25 years. We imported less oil than we did in 1987.

    That sounds crazy, but it’s true. Part of it was due to lower demand because of the economic mire we’re slogging through, and part of it was the growth of internal energy production.

    Given these circumstances, there are new opportunities in the energy patch. In 1987, oil was about $17 a barrel, China was a backward communist nation, the Big Three were all American-owned car companies and Apple was a dodgy start-up.

    How times have changed.

    New, unconventional drilling technologies have opened up huge energy reserves in the United States; and many of these have yet to be tapped. You see, until recently, most of the oil and natural gas that was extracted used fairly conventional methods: Drill down vertically into a pocket where oil and gas might be.

    Imaging methods helped increase the efficiency of the operation, avoiding dry holes and lowering the overall cost of exploration and production (E&P). But when all the easy oil was taken, drillers moved on. Plus, oil was so cheap that there was no reason to go after U.S. reserves when there was plenty of easy oil around the world.

    But when oil prices started to surpass $100 a barrel, most of the easy oil had been extracted and $1 trillon wars became necessary to maintain control of our energy supplies from foreign sources, revisiting domestic energy independence started to look like a much better investment than controlling foreign shipping lanes and oil fields with fleets and battalions.

    E&P companies realized the days of cheap, easy oil were over and that new methods were needed to get to the rest of the oil that was underneath us.

    Some companies started to figure out how to drill in deep water (very deep water) and then drill through the bedrock another mile or so down to find oil. Then, they created the technologies to get it back up to the surface.

    For land drillers, the primary challenge was to get through thick, bit-breaking shale fields. The two most effective methods are becoming household names now around the world: fracturing, or fracking, and horizontal directional drilling.

    Fracking means blasting the shale so the driller can access the oil or gas contained in the deposit. Horizontal directional drilling is a relatively new technique used in land and marine drilling operations to drill down vertically and then send the drill into oil and gas pockets horizontally, avoiding the shale or basalt layers and picking up individual pockets that wouldn’t be worth drilling individually as a vertical well.

    Now that these unconventional methods have become relatively common practice, huge amounts of energy are waiting to be tapped in the United States and Canada. The volume of reserves has depressed the price of natural gas and kept oil prices low.

    That means buying producers and E&P companies is not the best way to invest in these shales.

    Right now, the Permian Basin and Barnett Shale are producing their fair share of West Texas Intermediate; but buying the producers can be risky, since the price of crude is low and may be that way for a while. That puts pressure on producers’ margins and profits.

    The best way to play this now is to buy into the sector that benefits from moving the crude from a low price point to a higher price point. And right now, that means pipeline companies. They get paid the same price to run crude and non-gas liquids (NGLs) through their systems, whatever the price of the fuel. And low prices mean there are plenty of opportunities to export oil and NGLs to Europe and Asia, where prices are significantly higher.

    The pipelines send the commodities around the world.

    Two of the best picks now are Magellan Midstream Partners, L.P. (MMP) and Enterprise Products Partners, L.P. (EPD).

    Both these limited partnerships have their own specialties. MMP ships more oil, and EPD ships more NGLs. But they’re both in the catbird seat when it comes to moving production from active extraction operations to where demand is. And because the producers are looking to get the best price for their products, they’re more than willing to ship it anywhere they can improve their profits.

    Both stocks kick off a solid 4 percent-plus yield and have plenty of room for growth, especially as more of the U.S. shales open up and begin to produce.

    —GS Early

    Discuss this Story:

    Comment Policy: We encourage open discussion. Comments including racist statements, profanity, name calling or spam will be removed at our discretion. We use filters for spam protection. If your comment does not appear it is likely because it violates the policy.

    France’s Iliad Challenges Sprint For Control Of T-Mobile
    Fiat Investors Vote On Chrysler Merger To Ease Access To Cash, U.S. Investors
    Tesla Expects To Boost 2015 Output To More Than 60,000
    Action Camera Maker GoPro Reports Bigger Loss As Costs Double
    LinkedIn Forecasts Strong Quarter, Driven By Hiring Business
    If I Was A Russian Company I’d Avoid Dollars, Too
    When Entertainment Passes For Investment Advice
    Employment Costs Surge Most In 6 Years As Initial Claims Miss
    Futures Tumble On Espirito Santo Loss, European Deflation, Argentina Default
    New Catalyst Converts Carbon Dioxide To Fuel
    Accused Of Invading Users’ Privacy, Google Implores Court To Protect Its… Privacy
    Murdoch’s Circle: The Growing News International Scandal
    Time Warner Cable Continues To Bleed Video Customers In What Will Probably Be Its Last Q2 Earnings Report
    What Privacy Settings Tell You About The Profound Differences Between Google And Apple
    Target Appoints Pepsi Executive Brian Cornell As CEO
    Argentina Defaults But Investors See Eventual Deal Possible
    MasterCard Profit Rises 10 Percent As Card Usage Grows
    Weak Demand For Video Services Weighs On Time Warner Cable
    Stock Futures Fall After Argentina Default, Data Awaited
    European Shares Sink Again, Dollar Holds Strong
    Samsung Electronics Downbeat On Third Quarter Prospects As Profits Slide
    Amazon Quickens Push Into Tough Local Services Market
    Fed Nods To Firmer Prices Yet Still Focused On Labor Weakness
    Apple To Lay Off About 200 People At Beats
    Hyundai Recalling 883,000 Sonata Midsize Cars To Fix Problem With Gear Shift Levers
    Sprint’s Revenue Beats Estimate As Network Upgrade Progresses
    ADP Tumbles From June Exuberance, Misses 3rd Of Last 4 Months
    The Only Chart You Will Need To Trade Russian Sanctions
    Jim Grant: “Gold Is The Ultimate Inoculation Against Harebrained Central Bankers”
    Currency Wars Intensify As Russia Buys 18.6 Tonnes Of Gold In June
    Read more from Investing...

    Liberty Investor Digest

    Get today's most important
    financial headlines all in
    one place by email!



    Sources


    close[X]

    Sign Up For Liberty Investor Digest™!

    Get Liberty Investor Digest FREE By Email!

    Input your name and email address in the fields below and get today's most important financial headlines sent straight to you inbox!

    Privacy PolicyYou can opt-out at any time. We protect your information like a mother hen. We will not sell or rent your email address to anyone for any reason.