When I first started my Total Wealth publication, I identified six "Unstoppable Trends," each of which has trillions of dollars behind it. I even went so far as to say that every dime you make for the next 10 years will be on that list of trends we're tracking.
Energy is on that list, with good reason.
Global energy demand has increased every year since the beginning of time. It's not just tied to human progress... it's literally the fuel for it. No wonder it's turned out more millionaires (and billionaires) than perhaps any other investing sector there is.
Yet in the last five weeks, something very unusual has happened.
Brent Crude - the most visible proxy for the state of energy markets - has dropped by more than 18% in just five weeks, going from $85.00 per barrel to a recent low of $69.50 per barrel, a four-year low. And the downturn is still in full swing, leading many investors to conclude that energy investing is a dead end.
You can certainly understand why they'd think that way... the Middle East is going up in flames, OPEC has started a badly miscalculated price war, and supply is plentiful, with the U.S. about to become the world's largest petroleum producer thanks to fracking and shale.
I've gotten more than a few emails asking this:
Is energy still an "Unstoppable Trend?"
Here's my answer...
In a word - absolutely. Energy is still an "Unstoppable Trend." Not just for the world economy, but for investors.
Growing world energy demand will require an estimated $48 trillion in investment by 2035, according to the International Energy Agency. Some 59% of this will be simply to maintain production at current levels, with the remaining 41% to meet rising demand.
I believe that figure is about half of what it should be, though. That's because aging infrastructure, warfare, and regional security requirements are rapidly accelerating the amount of investment capital needed to guarantee stable, long-term supply. That means we're probably looking at something on the order of nearly $80 trillion when all is said and done.
I'm going to let you in on a little secret...
Not many people recognize this right now because they're too focused on short-term noise. And that's actually to your advantage because it means that everything is priced like it's going to go out of business when, in reality, the entire industry is about to get a huge shot in the arm.
This makes sense when you think about it. More than 80% of all future upstream oil and gas investment will be made simply to offset declines in today's fields.
It's also worth noting that new fuel and energy supply investment has more than doubled in real terms since 2000, while investments in renewable energy have quadrupled over the same time frame and will double again shortly. Some $1.3 trillion was invested in 2013 alone to give you an idea.
All indications are that 2014 will see an even greater surge in investment activity despite depressed oil prices.
And finally, prices are low right now because U.S. production has asserted itself at a time when Middle Eastern pricing power is on the wane. Eventually that will plateau and prices will normalize. Factor in a shortfall in Middle Eastern fields because of war and civil unrest, and prices may conservatively average an additional $15 per barrel 10 years from now, according to the IEA's World Energy Investment Outlook.
If anything, current prices are a glaring "green light" for investment, not the big red stop sign everybody believes them to be.
So, how do you play that?
Whether Oil Prices Rise or Fall, These Energy Companies Can't Lose
When prices are high, it makes absolute sense to invest in energy companies with large proven reserves and the related service companies they hire to find, extract, and process what they bring out of the ground. Effectively, you're capitalizing on supply that can be brought to market with minimal additional investment so you want to tie your money to choices that are commodity-price based.
But when prices are lower like they are now you want to shift your thinking a bit to invest in companies that are contract-based - meaning they're still involved in the energy business, but via services that are going to get paid for no matter how energy is priced.
Here's why... traditional oil wells can pump for 20 years or more even though production takes two years to slide 50% to 55%, according to Bloomberg. Yet fracking production can decline 60% to 70% in the first year alone, according to CEO Allen Gilmer of Drillinginfo.com.
What this suggests is an ever-increasing need for companies providing everything from seismic services to drill bits. But pipelines and so-called midstream operators are my favorites right now.
Not unlike the shopkeepers who sold shovels to the miners during the 1840s Gold Rush era, these companies are largely immune to the price of energy itself. That's because they move energy - oil and gas - like a colossal toll highway with revenue collected for every drop of crude and every cubic foot of natural gas they carry. Pipelines also collect money on the processing and storage that has to happen between the wellhead and the consumer.
Practically speaking, they're vertical integrators, meaning they exercise control or ownership over multiple touch points in the energy business. What's more, they get paid every step of the way.
You'd think the big oil companies would be all over this at the moment. That's certainly a logical thought. But they're not because they've got bigger fish to fry. With prices down and the Fed keeping rates low, they've got to use the opportunity to find new oil. So they're actually selling off their pipelines and creating legions of really small, interesting players with terrific potential.
One of the most interesting to me at the moment is tiny, off-the-radar Marlin Midstream Partners LP (Nasdaq: FISH), a company I recently recommended to my Money Map Report subscribers.
It's a smaller player operating in the well-established Utica and Powder River areas. The company has lower leverage than many of its competitors and is tapped into the networks of much larger companies like Kinder Morgan and Anadarko.
The P/E ratio is a comparatively low 12.8 despite the fact that quarterly year-over-year earnings growth is 222.40% according to Yahoo! Finance.
What's really important given what we've discussed today is that the company prefers the fee-based contracts we've just talked about. This gives Marlin some much-needed staying power at a time when their competitors are likely to struggle, not to mention comparatively steady revenue, too. Plus, it's a great acquisition candidate for a larger player like Kinder Morgan.
Here's Your Key Takeaway...
Short-term pricing dynamics are just that... short-term. They very rarely, if ever, signal the end of an unstoppable trend. So don't make the mistake of confusing them as long as the money creating the momentum we're looking for is still moving.
If anything, temporary price drops are colossal opportunities because it means there is long-term value available that others simply don't see.
Legendary investor Jim Rogers likes to refer to this kind of opportunity as somebody putting money down in the corner of the room. All you're doing is looking for the right opportunity to "pick it up."
And finally, trends are big, broad animals. That means there's plenty of room to maneuver so you can stay in the game.
And that's the point, because it's how you build Total Wealth...
... practically no matter what the markets throw at you.
Investors: Identifying a profit opportunity when other investors are running for cover - like how to invest when oil prices are low - is just one way to maximize profits. But there are even more tactics available to help grow your wealth. Keith's new and completely free-of-charge Total Wealth newsletter will teach you the simplest and most surefire investing strategies, plus the best risk-management steps you should take to protect your gains. And he'll introduce you to profit potential others don't yet see - or even understand. To get all of Keith's Total Wealth research and recommendations delivered twice weekly to your inbox - completely free - click here.
About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.