Today I want to give you two of the best investments in energy security - one of the most important new opportunities in the oil and gas sector.
Energy security stems from the accelerating need to protect the production, transport, and distribution of our newfound wealth in oil and gas.
This point was hammered home on Jan. 15 with the release of Oil Security 2025: U.S. National Security Policy in an Era of Domestic Oil Abundance.
The 108-page report is the inaugural effort of the Commission on Energy and Geopolitics. Admiral Dennis Blair, former Director of National Intelligence and Commander in Chief, U.S. Pacific Command, and General Michael W. Hagee, 33rd Commandant of the U.S. Marine Corps, served as co-chairs.
The report reflects matters I have discussed before: the rise of security issues surrounding new domestic oil finds, increasing geopolitical tensions, and the changes in the energy balance, both from a supply and a demand perspective.
In this case, the transition of supply from conventional to unconventional sources, combined with a new emphasis on domestic U.S. production, certainly has both global and security considerations.
But it's the changes on the demand side that are even more striking...
In fact, the rapid transition of end-market requirements from the developed states (North America, Western Europe) to the Asian-Pacific basin will transform energy markets moving forward. That has long-term implications for America.
With the intensifying call to accelerate both crude oil and oil products exports from the United States along with the American emergence as a major exporter of liquefied natural gas (LNG), the new global trading dynamics can't help but have increasing security concerns.
And while the report did review previous international oil disruptions, the real security concern it emphasized involves the energy sector here at home.
The single most important change in the energy picture across borders comes from the rapid move toward self-sufficiency in North America.
Fueled by huge reserves of shale and tight gas, coal bed methane, tight oil, and heavy oil (including oil sands and bitumen), combined U.S. oil and gas production for 2013 will come in at a higher daily level than experienced in more than three decades (the official figures are still about a month away).
That fundamentally changes the dynamics of global energy flows and the security considerations right along with them. As a sign of this major shift, the current OPEC planning document now assumes that no cartel member will be selling any oil to the United States by 2050.
Meanwhile, well before that date (some analysis now indicating within the next 15 years), American crude oil import needs will fall to about 30% of daily our requirements... and virtually all of that will be coming from Canada.
This is a huge shift. Just a few years ago, the American market was looking at having to import 70% of its needs.
The domestic production increases, therefore, have a dramatic impact on both the U.S. and global markets - the United States because of its expected advantage in economic development, and globally because of the shifting assumptions about who actually is dictating the supply.
In all of this, a new dimension is already emerging in energy.
It addresses the interconnection among the protection of facilities and assets, increasing seamless transitions from one area of the market to another, logistics, the integrity of the upstream-midstream-downstream sequence, and efficiency.
All of this (and more) falls under the rubric of energy security.
Of course, we are already in an age in which maintaining product flow or reduced cost per unit transported is as much a security consideration as protecting a pipeline from attack. Security is not just physical. It is also about maintaining a strong economy and way of life.
That means security is going to be an all-inclusive requirement.
The good news is that there is a way to profit now as this push into security develops. It involves what I call the "front-runners."
They are the companies with current technologies and approaches in energy security that are going to be used in expanding ways. An example would be the current providers of smart grid and efficiency technology. These companies certainly have a position in the market, but will also be among the first to benefit as the security needs intensify.
Until recently, such companies had been long on technological applications but short on capital. That meant that while the advances were striking, the ability of many startups to even survive was problematic.
That is now changing, and there are some clear front-runners.
One is Woodward Inc. (Nasdaq: WWD). It's an energy control solutions company. Woodward is up 25% since we added it to my Energy Advantage portfolio.
Another area with obvious security needs involves the companies that provide secure energy transfer systems.
A good choice here is Power Secure International Inc. (Nasdaq: POWR).
Power Secure International is a leader in combining electricity distribution with enhanced infrastructure protections. POWR is up 43% since being introduced to Energy Inner Circle readers a little over eight months ago.
As these security trends become more pronounced, more best investments like these will arise.
And we will be addressing them right here in Oil & Energy Investor.
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