The U.S. role in the energy industry was a focal point last week at a major conference of senior global energy decision-makers in Houston – and what came out of it was good news for those investing in energy stocks.
The 32nd annual IHS CERAWeek featured some 300 speakers, including senior industry executives and government officials, who provided fresh insight into energy's future.
Energy analyst, Pulitzer Prize-winning author and vice chairman at energy research firm IHS CERA Daniel Yergin, who presided over the conference, told Politico, "We've got to be aware of rosy scenarios, and I think experienced people … are cautious about rosy scenarios. But I would say … it's a mood of tempered optimism and confidence that technology will help solve our problem – continue to help us meet these big energy needs and these big environmental needs that we have."
IHS CERAWeek included discussions of new technologies, shifts in worldwide demand, regulatory concerns, and supply and demand.
Optimistic conference participants agreed the energy industry is being transformed and said the industry offers plenty of good opportunities for investing in energy stocks.
Three Key Takeaways if You're Investing in Energy Stocks
• The U.S. is Where It's At: The United States has become one of the best places in the world to conduct business in the oil and gas industry, and companies throughout the globe have raced to the country to take part in the new energy boom.
Technologies like fracking that have tapped into vast reserves have erased lingering fears of diminishing energy supplies.
Worries have been replaced by optimism about the abundance of U.S.-produced energy.
According to data from oil field services company Baker Hughes Inc. (NYSE: BHI), oil and gas companies are currently running 1,757 rigs to drill new wells in the U.S. That's far more than the 1,275 wells in operation throughout the rest of the world.
The Energy Information Administration reports the U.S. is expected to average 7.3 million barrels a day of oil production this year, an increase from 6.4 million last year.
Meanwhile, U.S. oil imports have been declining since their 2005 peak. During February, U.S. oil imports averaged an estimated 7.7 million barrels a day, down 1.2 million from the same period a year ago, EIA data shows.
"Unconventional liquid plays helped boost U.S. oil production, which grew by 40% since 2008 – the highest growth in oil output of any country during the period," Yergin explained.
Big economic gains are expected from U.S. shale oil and gas plays.
"We have a strong belief that these shale plays in North America – particularly in the U.S. -
are going to lift the entire U.S. economy by its bootstraps out of its economic malaise and turn the entire economy around over the next five to seven years," said Mark Papa, CEO of Houston-based EOG Resources Inc. (NYSE: EOG).
• China's Moving Away from Coal to Other Fuels: The next several years will bring big changes in China, the world's largest energy consumer, which accounted for 40% of global oil demand growth in 2012.
The Asian nation is drifting from coal to other fuels like nuclear and gas. Currently, coal accounts for 80% of China's power generation. By 2025, the figure is expected to fall to 50% — 60%.
"We are not going to do away with coal for many decades." Xizhou Zhou, IHS China energy director, said at the conference. But, he added, "We believe the diversification away from coal has already begun."
The U.S. has a competitive edge when it comes to meeting soaring Asian demand for natural gas.
"The U.S. model cannot be easily duplicated. Conditions were right for a shale revolution: Technology and expertise was available, the pipeline infrastructure was very well-developed; the regulatory system was conductive," said Chevron Corp. (NYSE: CVX) Gas and Midstream President Joseph Geagea.
• Russia Could Lose its Place As Top Producer: According to Kuwait Finance House Research, the U.S. will overtake Russia to become the largest oil and gas producing country in 2015.
For two decades, Russia has seen "nothing but surprises" in the energy industry, Thane Gustafson, IHS senior director for Russian and Caspian energy, told conference attendees.
But in 2013, the most surprising thing might be that there are no surprises coming out of Russia, Gustafson said: "2013 looks like an unusually quiet year."
That could change in future years, though.
"Russia … has the largest combined oil and gas reserves, as well as the highest combined production of oil and gas [in the world]. And in our view, its potential has yet to be realized," BP CEO Bob Dudley said in an opening keynote address at CERAWeek.
He sees "enormous scope" for increasing Russia's production through enhanced recovery in Western Siberia and exploration and production in Eastern Siberia and the Yamal Peninsula.
Russia also has the potential to develop its own shale oil, Dudley said.
"What Russia and the U.S. have in common is that each will require energy investment on an epic scale, undertaken by energy partners who are not daunted by the obstacles and have the resources, experience, capability and appetite for the task," he said.
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