Categories

Investing Liberty Investor Alert Observation & Opinion

Tools

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


    Largest Share Of Americans View ‘Race Relations’ As Nation’s Top Problem Since L.A. Riots
    WTI Crude Plunges Back Below $56, Nasdaq Red On Gilead Weakness
    Treasury Surge Set To Continue: Hedge Funds Most Short The 10-Year In Three Years
    U.S. Equities Set For Record Open On Crude Commentary, Stable Russian Ruble
    Meet Joe Lewis – The $200 Million “British Madoff”
    Maybe Oil Goes To $70 On Its Way To $40
    Seven Biggest Business Blunders Ever Committed
    12 Stocks Making Investors A Fortune!
    Staples Says Breach Affects 1.2M Cards
    Probe Seeks Data From Panama Firm
    Elon Musk’s ‘Hyperloop’ Idea Takes Next Step
    America’s Fastest-growing Beer Brands
    Oil Falls Towards $61 On Supply Outlook
    Futures Climb After Three-day Run
    UK To Extend Libor Manipulation Laws To Cover Gold, Oil, Silver


    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.

    Airbus Delivers First A350, Rules Out Cancelling A380 Project
    Air China Signs Deal To Purchase 60 Boeing B737 Aircraft
    UK Watchdog To Probe PwC Over Tesco Accounting Scandal
    Uber Business Model Faces Legal Scrutiny In Taiwan, Chinese Mega City
    Global Shares, Oil And Ruble Rally Into Christmas Period
    Saudi Arabia Says Won’t Cut Oil Output
    Mexico Competition Watchdog Signs Off On AT&T’s Iusacell Buy
    Wall Street Got This One Sector Wrong
    Obama’s Cuba Gambit Will Fail
    ‘Fed To The Rescue’ — The Plunge Protection Team Makes The Front Page
    Nigeria, Belarus Halt All FX Trading As Central Bank Urges “Don’t Panic”
    Russia Reports It Bought Another 600,000 Ounces Of Gold Taking Its Holdings To New Highs
    LendingClub And Billion-Dollar Valuations Are Just The Beginning For Online Lending
    The Indicator That Makes Alibaba Shares A ‘Screaming Buy’
    The Only Social Media Play I’m Recommending Right Now
    Bitcoin Forecast 2015: Four Powerful Trends Will Deliver A Pivotal Year
    Stock Futures Up: Good Vibrations Continue
    Icahn Gives Taj Mahal Casino $20M To Stay Open
    Wanted More Alibaba? Now’s Your Chance
    Nike Profit Up But Shares Drop On Soft Orders
    Stocks Most Overvalued In 45 Years
    Five Reasons Why The Dow Is Skyrocketing
    Hackers Push Stores To Get Breach Insurance
    Bubble 2.0? Craziest IPO Market Since 2000
    BlackBerry Reports Adjusted Profit, But Revenue Disappoints
    Stock Futures Climb After Two-day Rally
    Oil Rallies To $60, Heads For 4th Weekly Fall On Glut
    Alstom Shareholders Back 12.35 Billion Euro Sale Of Power Arm To GE
    Rouble Gains As Officials Step Up Verbal Support
    Thai Union Frozen To Buy U.S. Tuna Firm Bumble Bee For $1.5 Billion
    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.