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As everyone remains focused on the price of crude, the wider energy market is headed for a serious shortfall.
In fact, in the course of my global work, it's impossible not to recognize that there is a new energy crisis quickly developing in other parts of the world.
This is not a rising Armageddon, the end of the world as we know it, or some script for a survivalist thriller.
But it is another dramatic example of how the lack of energy shapes the world…
In this case, the supply of oil and gas is still adequate and trade is on the upswing. The rising problem has to do with energy availability.
In certain areas of the world, the generation and distribution of energy is beginning to morph into a bona fide crisis. In short, the infrastructure in place is simply not enough to reliably keep the lights on.
For investors, these shortfalls will provide significant opportunities to profit.
Let me explain…
Capitalizing on a Major New Advantage
First, the good news…
On the upstream (production) side, the advent of unconventional oil and gas has fundamentally altered expectations on supply. Most of this supply is global, and not centered just in North America. But these new resources will take some time to develop
In the near future, liquefied natural gas (LNG) trade will be bringing natural gas via tanker to places that have usually been dependent only on pipelined gas. And while the LNG needs to be regasified at a receiving terminal and injected into the existing pipeline network, its delivery will provide a major new advantage.
It involves the establishment of local spot markets where contracts are made and executed in a few days, rather than those that tie parties to long-term commitments. More often than not, these agreements contract deliveries over a period of 20 years and require that a certain amount be taken each month or paid for as if it was. What's more, the cost of these "take or pay" provisions are based on a basket of oil and oil products, even though the commodity purchased is gas.
This last element is the single major reason for rising energy costs in areas that are dependent on these pipelined gas agreements. The cost of the gas is tied to the price of oil, which is already high and rising.
The good news is that the development of local spot markets allows for an alternative that will almost always undercut the pipeline price. The crucial element is the guarantee of sufficient and regular supply. And the expansion of LNG trade worldwide is about to provide both.
Meanwhile in much of the world, especially in wide areas of Asia, coal will still be the main source of energy. For the most part, it is inexpensive. But it does carry with it some serious environmental complications, given the inferior grade of coal used and the limited technical sophistication of the power plants.
That's why major coal users are already embarking on alternative energy sourcing. China, for example, has the world's largest reserves of shale gas and is now the global leader in solar technology.
Of course, the huge infrastructure projects that are needed to make these changes will take time and considerable investment, but there is progress on nearly every front.
No Power, No Peace
Now for the bad news…
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.