Matt Insley

Did you hear the news?

In case you missed it, the beginning of this week was awash with stories of America’s energy comeback.

“U.S. Redraws World Oil Map” – Wall Street Journal

“U.S. Oil Output to Overtake Saudi Arabia’s by 2020” – Bloomberg

“U.S. to become biggest Oil Producer – IEA” — CNNMoney

What’s with the newfound energy discussion and the IEA’s new report? And are there any new ways to profit? Let’s take a look…

Here are a few snippets from this week’s release of the IEA’s World Energy Outlook 2012:

  • The global energy map “is being redrawn by the resurgence in oil and gas production in the United States”
  • “The recent rebound in US oil and gas production, driven by upstream technologies that are unlocking light tight oil and shale gas resources, is spurring economic activity – with less expensive gas and electricity prices giving industry a competitive edge – and steadily changing the role of North America in global energy trade.”
  • “By around 2020, the United States is projected to become the largest global oil producer” [Overtaking Saudi Arabia]
  • “North America becomes a net oil exporter around 2030.” [Note: it says “North America, not the United States]
  • “United States, which currently imports around 20% of its total energy needs, becomes all but self-sufficient in net terms”
  • “Unconventional gas accounts for nearly half of the increase in global gas production to 2035, with most of the increase coming from China, the United States and Australia.”

There’re plenty of interesting tidbits that came from this week’s report, none of which should come as a surprise to loyal DRH readers. Let’s break it down…

For starters, it’s clear that America’s energy comeback is for real. Goldman Sachs came out with the first groundbreaking report on this idea back in September…OF 2011.

Back then, they said that the U.S. would surpass Russia and Saudi as the No. #1 oil producer in the world. Also back then, the news was a great shock – indeed we’ve had a year’s worth of write-ups on how to profit (more of which we’ll touch on below.)

On that front, the IEA report didn’t bring much to the table, more than just reaffirming that this resource boom is for real. As the kids would say, the IEA was “tardy to the party” – heck, even OPEC made recent note of America’s great shale story.

Today, I figure it’s only right if we say: Welcome to the conversation IEA!

But the IEA report did make a few points that I’d like to clear up now, too.

As you may have seen this week, there’s been a lot of “energy independence” talk flying around. One of the key points the report made was that the U.S. is set to become energy independent. Great news, right?

To be clear, the IEA isn’t saying we’re going to be “oil independent.” Instead, the report uses an amalgam of energy: nat gas, oil, coal, nuclear. And sure, when you look at it that way the U.S. is darn close to being energy independent as it stands – we’ve got a bountiful stock of coal, uranium, nat gas and even oil!. Indeed, there’s no new news there.

Also, the report boldly stated that North America will become a next oil exporter. Remember, this is North America, not the United States. Again we’ve known for some time that the U.S. and Canada are the two up-and-comers in the unconventional oil game.

So, that’s what you need to know. The IEA report reaffirms our stance on America’s energy renaissance. More oil and gas are going to be flowing through the pipes in the coming years – all at the same time the rest of the world will be demanding even more oil and gas.

But, as you could guess, today’s issue isn’t just all about critiquing the latest energy report. Instead, we can use this latest report to further our discussion on profiting from this imminent boom…

Let’s Play America’s Energy Comeback (Again)

To say the least, it’s good to be an investor in America’s energy future – especially in the next 3-5 years.

The first way to play this scenario is with domestic energy producers. Here, I still like Statoil (STO), ConocoPhillips (COP), EOG Resources (EOG) and Pioneer (PXD.)

These are the types of companies benefiting from America’s shale patch, locking in lease agreements and maximizing efficiencies at the wellhead. Sure, they aren’t the wildcat opportunities that will hand you quadruple digit results (at least not in a year or two), but by locking in to a few of your favorite domestic energy producers you’ll have a one way ticket to profit.

Remember, this shale boom isn’t happening everywhere else in the world. So when global disruptions in crude oil stem from the Middle East turmoil or rising China demand, these domestic players will cash in on higher oil prices. Heck, even the IEA knows that much. By their mid-range metrics energy demand is set to grow more than 30% by 2035, which bodes well for America’s energy bounty.

The second category, from which we can pull profits, is dividend payers.

With more oil and gas flowing through America’s pipelines and more “harvesting” of the wealth we’re pulling from underneath our feet, there’s surely plenty of cash to grab. Now more than ever we’ll start seeing that cash in the form of dividend payments.

In this realm I still like DCP Midstream Partners (DPM) – which consistently pays at solid dividend, currently at 6.5%. DCP Midstream is a big player in the natural gas liquids (NGL) game. With more oil and gas flowing to the surface, there’s severe need to separate and optimize the energy flow. That’s where a player like DCP comes in – and they are willing to pay us along the way.

Pipeline players, midstream players and “MLPs” (master limited partnerships) are where you’ll find a lot of solid dividend payouts.

There’s also another place to look…

Concentrating on natural gas opportunities, I don’t think we’re going to see high prices for many years to come. As the story unfolds, it’ll be music to the ears of U.S. chemical and fertilizer makers.

Remember, as we’ve covered here before, nitrogen-based fertilizer companies are set to cash in on a confluence of events. First, they get to produce products cheaper with the use of abundant natural gas. Next, they should enjoy resilient demand with farmers attempting to make up for last summer’s drought. This could be a win/win for a company like Terra Nitrogen Company (TNH) – currently paying a 7% dividend.

America’s energy comeback is a once-in-a-generation opportunity. Our newfound oil and gas wealth will help boost the economy (steering it away from disaster, like we’re seeing in Europe) and should allow us to turn a solid profit.

Instead of holding any specific credence from this week’s IEA report, let’s just say our U.S. energy prediction is right on track.

Keep your boots muddy,

Matt Insley

Original article posted on Daily Resource Hunter

Matt Insley

The Managing Editor of the Daily Resource Hunter, Matt is the Agora Financial in-house specialist on commodities and natural resources.  He holds a degree from the University of Maryland with a double major in Business and Environmental Economics.  Although always familiar with the financial markets, his main area of expertise stems from his background in the Agricultural and Natural Resources (AGNR) department.  Over the past years he's stayed well ahead of the curve with forward thinking ideas in both resource stocks and hard commodities. Insley's commentary has been featured by MarketWatch.

  • MnkyLv

    What was not mentioned is that the forecast calls for a production rate of 12 Mb/d. Current consumption is 19 Mb/d.

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