The BP PLC (NYSE ADR: BP) oil spill has been a wakeup call for energy-sector regulators.
But it's been an even bigger wakeup call for investors.
Years from now, investors will look back at this period as a turning point – the start of the greatest profit opportunity of this generation. And that's not all. The post-oil-spill period will go down in history as the period during which the United States was finally able to break its dependence on foreign oil, says Dr. Kent Moors, a career energy-sector consultant who works with governments and corporations throughout the world.
Investors who understand the energy-sector shifts that are taking place "will make more money in energy investments over the next several years than in any other sector during any other period in their lifetimes," says Dr. Moors, who is also the editor of the Oil & Energy Investor newsletter. With the changes he's currently projecting, "a large measure of energy independence for the U.S. becomes possible. And I'm not just talking about a mere economic 'recovery' here. We'd be looking at a standard of living that's 60% higher, an economy expanding at 5% to 7% a year and – most important of all – a future that we could dictate."
Precisely because of these opportunities, Dr. Moors is launching a new advisory service – Energy Advantage – this one aimed at investors, and not the government or corporate leaders that he's worked with as a consultant for the last 31 years. The Energy Advantage will debut next week.
"I meet with my clients all year-round … and in places all over the world. The intelligence I get from these meetings is invaluable," Dr. Moors said. "And here's the thing: I'm quite content to invoice the Wall Street gaggle for my services. But I never give these guys investment advice. They're not the real driving force in the market. That role is occupied by millions of individual investors – they're the real 'soul' of the free market."
Moors will continue his consulting work – which is good news for prospective subscribers, since the contacts, meetings, research studies, deal-making and advice that are part-and-parcel of that business will allow him to give investors a "behind-the-scenes" view of the global energy sector that's available nowhere else.
In a career that's spanned three decades, Dr. Moors has done consulting work for:
- Six of the world's Top 10 oil companies.
- Leading-natural-gas producers throughout Russia, the Caspian Basin, the Persian Gulf and North Africa.
- High-level officials from the U.S., Russian, Kazakh, Bahamian, Iraqi and Kurdish governments.
- Governors of several U.S. states and the premiers of two Canadian provinces.
- And the Bank of England (BOE), the Caribbean Business Enterprise Trust Inc., Citicorp [now Citigroup Inc. (NYSE: C)], Control Data, AT&T Inc. (NYSE: T), Deutsche Bank AG (NYSE: DB), Electronic Data Systems Ltd. (NYSE: HPQ), the European Bank for Reconstruction and Development (EBRD), the International Finance Corp. (IFC) the Central Bank of the Russian Federation and Westinghouse Electric Corp.
Off the Radar
Prior to the Deepwater Horizon accident and the ongoing Gulf oil spill, the energy sector seemed to have dropped off investor radar screens.
And that's understandable. After all, the U.S. housing market doesn't seem to be getting a whole lot better, and the nation's jobless rate is still near 10%. The bulls and the bears are playing a painful stock-market tug of war. And the European debt debacle has folks worried about another financial contagion.
If you're still skeptical of an energy-sector rebound, just think back a few short years. Two summers ago – at just about this time – a speculative frenzy was sending oil prices to record levels at nearly $150 a barrel.
At that same point, there was bullish talk of a rebirth in the U.S. commercial nuclear industry. The solar-energy market enjoyed a similarly bullish run. As recently as the start of the New Year, in his State of the Union Address, U.S. President Barack Obama hyped the promise of the "Clean Energy Economy."
Add in some additional ingredients – an Asian giant (China) that's locking in supplies of commodities of all types as fast as it can, and a perceived decrease in global reserves – and investors should be able to see that future energy prices have only one direction to go in the long run. And that's up.
Although the potential for profits is immense, the pathway to those profits will be tricky. That's because the ongoing marketplace changes that will create these profit plays can be expected to inject substantial volatility into the markets for such energy-related commodities as crude oil and natural gas.
That means that the longstanding valuation models on which Wall Street and others rely aren't going to work very well – if at all.
"Menacing volatility will make the market difficult to estimate for those using traditional ways of looking at oil, natural gas and other energy sources," Moors explained. "As we move out of the great world financial contagion of the last few years, this is not the same environment as it was going in. It will be a bumpy ride. But energy abundance – from multiple sources, in markets that operate more quickly and efficiently than before – will create untold wealth. The gains will be staggering."
The investors who understand the new realities – how the market has changed, and the new trends that have taken hold, for instance – will grab the lion's share of the profits in this new energy market.
For instance, it used to be enough to just buy the oil "majors" – Exxon Mobil Corp. (NYSE: XOM), for one – and hold on: The sheer size and market power of these heavyweights, as well as the hefty dividend payouts that were standard fare, made this a kind of no-brainer profit strategy.
In the new world, however, the big oil discoveries won't be made by the big operators. That work – from the seismic and geological surveys to the actual drilling of the well – will fall to companies in the "oilfield-services" (OFS) sector. Many of these companies are small and aren't well known to mainstream investors, Dr. Moors said.
But as oil prices rise – and they will – the shares of these companies will surge, as well. Investors who buy in now will be rewarded for their homework, and their patience.
The natural-gas market is changing, too, and in a huge way. Historically – even in the United States – the natural-gas market has actually operated as a series of fragmented, locally focused markets. But thanks to such developments as the Rocky Express Pipeline, and the Dominion Resources Inc. (NYSE: D) Cove Point LNG (liquefied natural gas) terminal in Maryland, the U.S. market is now a coast-to-coast venture and "that local set of markets is about to become one global market, operating at the speed of light," Dr. Moors said.
A Boost for the U.S. Economy
The United States stands to benefit from this energy-sector paradigm shift – on a number of levels.
First and foremost, the Organization of the Petroleum Exporting Countries – the cartel known as OPEC – is no longer the only game in town, Moors said. OPEC member Saudi Arabia is widely believed to have only half the reserves that it claims, meaning "the world needs new answers – and quickly," he said.
Although many of the new reserves are in harder-to-reach – and therefore more costly – locations, the United States has many of the technologies needed to access those reserves. That not only gives it a drilling advantage, it also means that foreign governments may have to cut U.S. players in on their action. Indeed, technology will be a major story going forward – both for investors and for the U.S. economy, since so many of these U.S firms are the technology leaders.
"Windfall profits in the months ahead are reserved for those small companies that can drive down costs," Moors said. "If you can make a more-reliable valve, or a faster pump or a longer-lasting drill, this is your golden moment. If you can build an LNG ship faster, or purify water or scrub chimneys cleaner or make the bearings for a wind turbine cheaper, you deserve investors' money … because you will double it, triple it or better in the months ahead."
The new U.S. carbon emissions legislation is another key catalyst for the global-energy-sector makeover that Moors sees. The timing couldn't be better because – as it's done with other physical commodities – Wall Street has taken crude oil – the commodity – and turned it into crude oil – the financial asset.
Earlier this year many investors were surprised to discover that Wall Street investment banks had leased big, ocean-going tankers and were using them as floating offshore storage tanks for crude oil, believing they would profit when oil prices spiked.
Carbon emissions, too, will become a financial asset. And while that market is still in its infancy here in North America, all that means is that investors who get in early may have the best shot and the biggest profits. Moors said that he's identified five companies that are poised to become "the Goldman Sachs (NYSE: GS) of the New Energy Deal."
A Wide-Open Market
Although oil and natural gas are the headliners right now when it comes to the energy markets, investors can expect to profit from other types of opportunities, too, Moors said.
Commercial nuclear power has long been rumored to be a comeback candidate in the U.S. market. But new, compact and super-safe technology is available and will finally allow that to happen, he says. Solar and wind-power, too, figure to be in the mix, as do other types of companies that investors might not normally classify as an energy-sector player.
Investors must be prepared to think and act globally, too. China's oilfield grab – missed by the mainstream U.S. news media (but not by Money Morning) – is creating a once-in-a-lifetime profit play for investors who understand China's end-game objectives.
While acknowledging that some of the investment opportunities that will come to the forefront in this new-energy paradigm will differ greatly from traditional energy investments, Moors said that the risk-reward profile will be such that "to not invest in this stuff will be irresponsible, I believe."
[Editor's Note: Dr. Kent Moors is a consultant and speaker of global renown on energy-related topics, and is the editor of the Oil & Energy Investor newsletter. His new advisory service – the Energy Advantage – is set to debut next week. Watch for additional details.]
News and Related Story Links:
- Oil and Energy Investor Newsletter:
- Money Morning Special Report:
Seven Ways to Profit From the Obama Administration's New "Clean Energy Economy" Push
Oil Hits Record Above $147 a Barrel
- Bank of England:
- Caribbean Business Enterprise Trust Inc:
- European Bank for Reconstruction and Development (EBRD):
- International Finance Corp. (IFC):
Rocky Express Pipeline
- Central Bank of the Russian Federation:
Westinghouse Electric Corp
- Dominion Cove Point LNG Terminal:
- Money Morning Special Report:
Hedge Funds Take Direct Stakes in Commodities … Should We Be Wary?
- Money Morning Special Report:
Bankster Gangsters: Global Commodities Grab Causes Major Bank Profits to Soar
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.