- Created on Monday, 29 October 2012 14:04
- Published on Monday, 29 October 2012 14:04
- Written by Andrew Snyder, Editorial Director, Inside Investing Daily
- Hits: 773
There is bad news just about everywhere these days, except in the natural gas markets. America's fresh flood of energy will help spark an energy revolution.
In February, I got sucked into a whirlwind of controversy when I said what we're witnessing is not an American energy revolution... it's global. My focus at the time was China and what its newfound gas supply meant to the bullies in Russia. My comments got me attention from media outlets as far away as Germany.
Today, my message is far less controversial. It's simply this... I told you so.
For the last several years, Russia refused to believe the shale revolution was a threat to its petro-economy. Vladimir Putin laughed at the idea that competition from shale would erode its European gas monopoly.
But things have changed. Vladimir laughs no more. Now he scolds. In fact, he pointed a finger at Gazprom last week, chastising it for being slow to adapt to the global gas boom.
"Such new players [in the gas market] as the United States and Canada have already started to move. In the U.S., new technologies allow for profitable shale gas production... Politicians, experts and businesses are talking about a real shale revolution," he said.
"We are simply obligated to take these trends into consideration, to clearly imagine how the situation will develop, not just in the next two to three years, but throughout the upcoming decade."
Few investors have figured it out, but the shale boom is creating opportunities across the planet -- from Australia to Africa, to Poland and even Lithuania, the home of Chevron's latest Russia-snubbing shale venture.
Here's analysis from Reuters:
By 2035, the U.S. could become the leader in the world gas market, pushing Russia into second place, the IEA said in May this year. According to the agency's forecast, Russia could produce about 784 billion cubic meters of gas, which will compare to the U.S. figure of 821 billion cubic metres. Another Asian giant -- China -- should come third, where extraction of gas is forecast to skyrocket fivefoldduring the next 25 years. Australia, India, Indonesia, as well as Africa and the Middle East are also expected to come to the forefront of the world gas market.
In other words... as I've said so many times before... this is a global gas boom. Moneymaking opportunities are popping up everywhere. And almost all of them allow us to sidestep the gloomy fog that surrounds global markets.
But a lot of investors are still not tuned in to the story. For example, last week, I received an email from a subscriber to my newsletter Unconventional Wealth. The reader wanted to know what America's recent surge in crude production would do to natural gas demand.
Would an abundance of homegrown oil slash oil prices, and, if so, would that negate the value of cheap natural gas?
The answer is not all that simple. But it's also not overly complicated. The idea hinges on the fact oil is an international trade. There's a vast network that gets crude from Point A to Point B, no matter where it is in the world.
Natural gas, however, is a much more local market. Sure, Qatar ships LNG across the planet. And Australia is gearing up to supply the East. But, despite the overhyped rhetoric, there's no natural gas flowing from inside the United States across her borders. And there won't be for a long time.
That's why America's natural gas sells for $4... and Australia's goes for $16.
And it's also why a handful of companies are lobbying to export our gas. But if you've paid attention, you know they are not having much luck. That's because they run into guys like my friend in Congress (I've mentioned him before). These folks know if they open our natural gas market to international trade, the price would soar... and the nation's hopes of an ultra-cheap (and clean) fuel source would die an ugly death.
As I said, the same can't be said about crude. Despite the recent bullishness, we are a long way from being self-sufficient when it comes to oil. Right now, America produces roughly 10.9 million barrels of crude each day. But we burn more than 19.2 million barrels per day. It's about the same ratio as we saw in 1991.
That means we're importing about 40% of our oil from other nations, which forces us to compete for that black gold on the international market. We pay what everybody else pays... and there's a lot of competition.
But again, that's not the case with natural gas. In the next 24 hours, America will produce about 68.85 billion cubic feet of gas. But that number could be much higher, if we could only use it all. Right here in Pennsylvania, we're capping many of our newest wells simply because there's not enough demand. And in North Dakota, they burn nearly a third of the gas they produce... there's no pipelines to transport it.
In a non-political world, we'd be stretching pipelines all across the country, trying to export that gas. But guess what, my friend? This is America... Politics rule.
So far, the feds have signed off on just one token export permit. Cheniere Energy's (LNG:NYSE) facility will be the equivalent of putting a feather on the nation's supply/demand balance.
But what has me staying far away from this debt-ridden company and has me absolutely convinced America's natural gas price will stay dirt cheap for at least the next three decades is the fact there's a high likelihood it will have nowhere to send its gas.
Remember... Australia, Africa, China and Argentina have recently tapped huge quantities of natural gas. They've got more than they need and certainly won't need to call Uncle Sam for his supply.
The bottom line is we've got a lot of oil... but the entire world has a lot more natural gas right now. We've got ways to use the oil. But not nearly as many to use the gas. That means prices will stay cheap... and the companies that develop ways to use that gas are in for a long-term bull market.
Editor's Note: Congress, billionaire investors, and an oil tycoon -- I'm breaking a story that involves them all. It's all tied to H.R. 1380: The energy bill being "fast-tracked" through Congress so Obama can sign it ASAP. And no wonder -- you won't believe how Big Wigs have positioned themselves for major profits. The good news is I'm cutting you in, too. Do this -- within 7 days -- and you could share in the untold riches...