Editor's Note: We're sharing this article from Oil & Energy Investor with you because it contains the latest on the changes Kent has been tracking throughout the global energy sector. Some companies – and their shares – will fare much better than others, so make sure you're positioned to profit on the change. Here's Kent…
As we await the next chapter in the ongoing Greek debt mess, something of interest is happening right here in the U.S.
For the first time in my memory (which goes back more than four decades in this business), the energy market's normal supply-and-demand trade-off has been fundamentally altered.
As I have explained on several occasions in Oil & Energy Investor, overleverage will hamper some U.S. producers, while the inability to replace volume extracted due to the expenses incurred exceeding the wellhead profits will cause significant problems for others.
Put simply, some companies are going out of business. Either other corporations will acquire their assets (including producing wells and land leases) in what is shaping up as a major new M&A cycle, or they will simply go bust.
We have talked before about investor opportunities from this cycle. Today, however, I want to emphasize something else that is having a more direct impact on how you should be selecting your investment targets moving forward.
Here's where the best opportunities are going to arise…
The Changing Energy Balance
There is no longer a genuine concern that the U.S. may not have sufficient oil supplies moving forward, at least for the next several decades. That, combined with the inroads being made by natural gas (where we also have the benefit of a largess from unconventional sources), renewables such as solar, wind, biomass, and geothermal, a return of nuclear, and new sources such as tidal, kinetic, and even clean coal are all changing the larger energy balance picture.
In short, there are more sources providing energy, requiring that we be less reliant on any one. The trick, as I have mentioned many times before, is to fashion these sources so that they are more freely interchangeable.
Regardless of how this is cut, crude oil will remain a basic component of this new mix, leading us once again back to today's discussion. The amount of oil available for extraction in the U.S. is one thing. The sourcing balance of that oil is something else entirely. And it is this changing balance that will provide some very nice investment opportunities.
What I mean here is rather simple. There may be a lot of oil out there, but some of it is more attractive to end users (in this case, refineries) than others.
There are two overriding considerations: 1) the cost of the crude to the refiner (still the largest single expense in producing finished oil products) and 2) the physical location of wells combined with the infrastructure expense of moving it.
Watch This Target
All other matters being equal, the second of these factors would favor fields closer to the refineries, providing of course that they can guarantee sufficient volume. A refinery will have a combination of sources designed to maximize a range of considerations; this may even include imported crude at the right price. Nobody relies on one source only. Nonetheless, there will be a designated "go-to-first" source, and that is the target we look for as retail investors.
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.