Oilfield Daily News

Last year, a group of about 200 people decided to sue Pacific Gas & Electric, claiming that newly-installed smart meters had jacked up their usage.

Considering these new smart meters were being paraded around as the beginning of a major step in smart grid development, stories about faulty meters were not doing PG&E any favors…

But the stubborn California utility maintained that there was nothing wrong with the meters, and that the lawsuit was without merit. Nonetheless, the California Public Utilities Commission brought in a third-party auditor to review the accuracy of the installed meters, and to see if these smart meters had actually caused higher energy bills — which more than 600 consumers claimed.

The results of that audit came in last week.

Turns out that the meters worked just fine, and that higher utility bills were a result of hotter temperatures during the heat wave of 2009.

Of course, those with even an ounce of sense knew that it was very likely that the meters were not faulty, and those who have long opposed smart grid development were simply using this as an opportunity to either deter progress or just make a quick buck.

In fact I interviewed close to a dozen industry experts after that smart grid story broke, and most of them found the complaints to be nothing more than a minor hiccup.

Some even laughed it off, saying the only people that would benefit from all of this would be those conducting the audit — which ended up costing PGE $1.4 million.

Either way, there should be no doubt that smart grid development is happening.

And there should also be no doubt that the opportunities for smart grid investors will only continue going forward…

A pretty big deal

Last week, Itron, Inc. (NASDAQ: ITRI) announced that it would be licensing and embedding Cisco’s (NASDAQ: CSCO) internet protocol technology within its OpenWay meters. This enables wired and wireless communications among various components of smart grids.

This alliance will target power utilities, which could end up deploying as many as 10 million devices in the next few years alone — and will require a common platform to manage them.

This is a pretty big deal, as it allows both Itron and Cisco to further advance the standardization of smart grid architecture.

Today, Itron trades around $58.90 a share. But long-term, this is a solid smart grid play. In fact after the Cisco deal was announced, the stock got two upgrades from Jeffries and Canaccord, with price targets of $78 and $80, respectively.

Hitting those price targets would deliver a gain of between 32% and 35%. Not bad.

Of course, Itron is just one smart grid opportunity. There are dozens more, including Telvent (NASDAQ: TLVT), Echelon Corporation (NASDAQ: ELON), and ABB (NYSE: ABB).

There are also some great under-the-radar plays that my colleague Nick Hodge recently highlighted in his smart grid report here.

Where we’re putting our smart grid money

Today, there are more than 16 million smart meters installed in the United States — all of which are concentrated in only 15 states.

And state public utility commissions have approved another 32 million on top of that.

Of the installed and approved combined, you’re looking at 48 million smart meters. And 36 million of those are for electric meters.

My friend, that’s 24% of all the electric meters in the United States!

And a new report from Berg Insight suggested that there will be 302.5 million smart meters installed throughout the world by 2015.

So yes, we remain extremely bullish on smart grid opportunities; and fully intend to milk everything we can out of smart grid development over the next few years.

To see where we’re putting our smart grid money next, click here.

To a new way of life, and a new generation of wealth…

Jeff

Smart Grid Developments originally appeared in Energy and Capital. Energy and Capital, a free 3x-per-week newsletter, offers practical investment analysis in the new energy economy.

Welcome to Energy and Capital’s weekend edition — our insights from the week in investing and links to our most-read Energy and Capital and sister publications.

It’s a question I pose to my readers far too often these days.

Perhaps the question isn’t even fair to begin with… After all, every day it seems that companies are drilling further and deeper than ever before.

A few years ago, that question drove Russia to literally plant a flag on the Arctic seabed, proclaiming to the water, “All of your oil and gas resources belong to us.”

Anyone else remember that ridiculous publicity stunt?

Countries have become more protective than ever of their precious hydrocarbon deposits — a lesson that the big oil is learning with every up-tick in prices.

This week, the answer to that question became even clearer, and the best part is that it’s presenting investors with another chance — the last one, perhaps, to buy back into the offshore industry.

Chevron: breaking offshore records

Somebody forgot to tell Chevron that drilling deepwater wells was a faux pas these days.

Chevron recently announced it has finished drilling Canada’s deepest offshore well to date. After four months of drilling, the Lona 0-55 exploration well reached a depth of 1.6 miles — nearly half a mile deeper than BP’s troublesome Macondo well.

Sadly, mum’s the word on any data concerning the well. Taking a page from OPEC’s playbook, Chevron is not releasing data on the well, including drilling costs and production levels for up to two years.

Others, however, aren’t feeling confident enough to drill in the deep water.

If you remember back in early August, Pemex delayed their deepest-ever offshore well until 2011. Mexico’s state-run oil company got cold feet in the wake of the BP disaster.

Maybe the public execution of BP’s image in the mainstream media was enough to scare Pemex…

But hey, at least the Mexican government can still afford their cable bill, so all is not lost… not yet.

Is drilling banned or not?

Whether we like it or not, our offshore industry will get back on its feet. Even the U.S. government — no matter how much of a mess the politicians make — will eventually revert its offshore drilling policy.

Of course, the government’s knee-jerk reaction was to ban deep-water drilling — twice.

Back in July, the U.S. Interior Department issued their second drilling moratorium. Earlier this week, however, a judge overturned that 6-month deep-water drilling moratorium.

Next week, I’ll tell you which offshore drilling stocks are ripe for the picking.

Enjoy your weekend,

Keith Kohl

Editor, Energy and Capital

P.S. You can catch up on the week’s top articles from Energy and Capital and our sister publication, Wealth Daily, below.

1,239% Profits by 2012: Witness the Comeback of North America’s Oil Industry
While public attention has been fixated on the aftermath of the BP explosion, these small drilling companies are flying under the radar. During the last few years, drilling techniques in this region have been tweaked over and again, revolutionizing North America’s oil industry. Keep reading to learn more about this win-win situation.

The Nuclear Time Bomb: What They Won’t Tell You About Nuclear Energy
The last time this nuclear hit the mainstream news outlets, they completely missed the boat. But their mistake is our gain — and when you hear the latest evidence in this video report, you’ll be a step ahead of other energy investors.

Sustainable Development and Responsible Investing: A Not-to-be-Missed Conference, September 15-18, 2010
Focused on the world of environmental and sustainability finance, renewable energy and efficiency investment, application and implementation strategies in their major forms, this is an all-encompassing conference platform for sustainable investment, infrastructure, and regional management with a central focus on the global energy transition.

Better than Big Oil: Infrastructure Investing at Its Best
Editor Keith Kohl shows readers a different approach to oil investing.

Huge Oil and Gas Discovery: How to Profit from the Latest Find
Editor Ian Cooper unveils the latest oil and gas discovery in the Middle East, and offers ways to profit from it now.

Organic Food Profit Trends: How These 3 Stocks Can Help You Profit from Organic Food Trends
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Oil Game Plan for Financial Stocks: Profiting from the White House Housing Plan
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The Double Dip Arrives: Like an Unwelcome House Guest
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Chevron Breaks Offshore Drilling Record originally appeared in Energy and Capital. Energy and Capital, a free 3x-per-week newsletter, offers practical investment analysis in the new energy economy.

The East African Rift is a geological zone where continental plates in Eastern Africa have developed a tectonic plate boundary.

This is a part of the larger Great Rift Valley, where the African Plate is in the process of dividing into two new tectonic plates called the Somali Plate and the Nubian Plate.

As you can tell by the map above, it runs almost the entire length of Africa.

What you don’t see on the map is that the East African Rift is suspected to be one of the last great oil and natural gas deposits on earth.

According to Time:

 Seismic tests over the past 50 years have shown that countries up the coast of East Africa have natural gas in abundance. Early data compiled by industry consultants also suggest the presence of massive offshore oil deposits.

There is now a land grab going on. Oil explorers are dropping more wells in East Africa, one of the last great frontiers in the hunt for hydrocarbons.

I first recommended Tullow Oil (London: TWL) a few years ago, after they discovered 2 billion barrels in Uganda…

It’s been off to the races every since: 

In March, Texas-based oil company Anadarko Petroleum Corp. (NYSE: APC) announced that it had found a giant reservoir of natural gas off the coast of Mozambique.

Now companies are making deals and cutting up the continent into exploration blocks.

Tullow just announced it would acquire a 50% interest in — and management of — three of Africa Oils East African exploration blocks. These include two blocks in Kenya and one exploration block in Ethiopia.

Tullow will pay $10 million USD for these new exploration blocks.

The company will also fund Africa Oil’s working interest share of future joint venture expenditures in these blocks until the cap of US$23.75MM is reached.

A lot of untapped oil…

North Africa has seen 20,000 wells sunk over the past few decades. Drillers have sunk 14,000 wells in and off West Africa.

However, in East Africa, only 500 wells have been explored…

There are some oil men and geologists who think that there are 10 billion barrels of oil in Somalia. But constant political unrest in the nation means that no one is willing to spend the money to explore.

I have recommended one company in this region that is sitting on a few key blocks.

I’ll keep you updated.

Sincerely,

Christian DeHaemer
Energy & Capital

Making Deals and Profits in the East African Rift originally appeared in Energy and Capital. Energy and Capital, a free 3x-per-week newsletter, offers practical investment analysis in the new energy economy.

While the Middle East may have a reputation for instability and occasional violence, there’s no denying the vast riches it has to offer patient investors.

Just months after the announcement of $1 trillion worth of minerals in Afghanistan comes word of oil discoveries in Israel…

Israel may finally be able to tell its Middle Eastern neighbors where they can stick their oil — something the United States has wanted to do for years.

In one of the most sought-after parts of the world, 4.3 billion barrels of oil could be sitting in the Leviathan project beneath the Mediterranean, according to Noble Energy (NBL) and Israeli partner Delek (DGRLY.PK).

And that’s in addition to 1.5 billion barrel estimates for Rosh HaAyin, just east of Tel Aviv…

Israel — heavily reliant on imported oil, producing just 4,000 barrels a day with 250,000 barrel per day demand — couldn’t be happier.

Well, unless you also tell them that Leviathan could hold another 16 trillion cubic feet of natural gas on top of the eight trillion cubic feet of natural gas found in nearby Tamar…

Could Israel become a major exporter with these finds? Possibly…

Is there high probability of it joining OPEC with Iraq, Iran, and Saudi Arabia? Probably not…

But it does mean Israel could be within reach of the American “energy self-sufficiency” dream. As Israel is on its way to energy independence, it’s most likely stirring anger among the oil hoarders of the Middle East.

But really, who cares what Middle Eastern countries think anyway?

Why patience will pay off

Israel just found one of the biggest natural gas discoveries in history and oil fields to boot. Meanwhile, we haven’t even mentioned the Givot Olam onshore discovery, where 1.5 billion barrels of oil may be waiting.

Heck, if all goes well, the country could become an oil and gas exporter… see a spike in employment… and watch as its currency skyrockets (the New Israeli Shekel is now worth 26.3 cents to the dollar).

That alone would be huge for an ETF like iShares MSCI Israel Cap Invest Market (EIS), and U.S. stocks like Noble Energy (NBL).

But you have to have patience waiting on real gains.

A decision on whether Israel will drill for oil won’t be made until October, when drilling for gas at Leviathan begins.

There’s also the potential for violent flare-ups with Lebanon…

Debate has risen over whether the Leviathan project extends into Lebanese waters, making tension between the two warring countries even worse.

According to reports, Lebanese Energy Minister Gebran Bassil told Noble “not to work near Lebanon’s maritime economic zone, saying his country would allow Israel or a company working on its behalf to take gas from Lebanon’s zone.”

But Israel believes the discovery lies in its own waters:

“There is no doubt that Israel will do what it has to do” to protect the resources, say other reports. “Adequate security appears to be in place for oil and gas operations offshore Israel.”

Despite all the usual tension, I recommend buying Noble (NBL) here — and waiting.

This could pay off well with patience.

I’ve been in the energy trading game for 10 years now, and in that time, I’ve made some good money for my readers. 

Below are actual gains and losses from the last three years of my stint as investment director of Pure Asset Trader…

I went 40 for 40 at one point… and then went 64 for 67 at another.

If you hate making money, ignore this:

But if you’re interested in profiting from a service with a proven track record…

Then be sure to read the latest report from Pure Asset Trader — hot off the presses this week.

Stay Ahead of the Curve,

Ian L. Cooper
Energy and Capital 

Huge Oil and Gas Discovery originally appeared in Energy and Capital. Energy and Capital, a free 3x-per-week newsletter, offers practical investment analysis in the new energy economy.

Energy is — and always will be — a profitable long-term play.

You should know that by now.

If you don’t believe it, you’re better off burning your cash for warmth.

Last week, I shed some light on the Mexican oil crisis. At first glance, I’ll admit my sour view of Mexico’s oil production is more doom and gloom, but I’m hard pressed to find a reason why they won’t self-destruct from Pemex’s production collapsing.

But does that grim outlook mean we’re should throw in the towel?

Absolutely not…

Several weeks ago, I asked a quick, simple question: Right now, which energy plays are you most comfortable holding for the long run?

The answers that flooded my e-mail inbox shocked me.

The vast majority of responses were one of the supermajor oil companies: ExxonMobil, ConocoPhillips, Royal Dutch Shell, Chevron, and BP.

I had to learn why.

Trouble for the supermajors

At first, I had to grudgingly admit the supermajors have given shareholders a nice return — assuming you were lucky enough to invest in them twenty-five years ago…

No matter how skeptical I am of the supermajors, they’ve certainly paid off over the long run — even if it took holding your position for two decades.

But their luck has run out.

There’s one reason why I’m not too thrilled about their future returns: national oil companies.

You’ve heard of them before… China’s CNOOC, Saudi Arabia’s Saudi Aramco, Russia’s Gazprom, and Venezuela’s PDVSA are just a few on that list.

And let’s not fool ourselves; these are the true oil giants. In total, national oil companies control approximately 90% of the world’s proven oil reserves and more than half of the world’s oil production. That share will continue growing over time.

Think about it…

Two years ago, oil prices reached an all-time high of $144 per barrel. If anything, countries are suddenly realizing how valuable their natural resources have become — and they’re not going to give them up without a fight.

When Iraq first opened bidding to develop several major oil and gas fields, companies were rejected because their bids were too low. Yet the complications which arose during Iraq’s bidding process were trivial compared how other countries handled the supermajors.

In Chavez’s May Day takeover in 2007, he officially took control of the last privately run oil fields. Compensation for the former owners was far lower than market value.

Now, it’s doubtful that Venezuela’s state-run company will have neither the money nor expertise to develop the massive Orinoco Belt oil projects.

Within the last few years, it’s almost become cliché for countries to give the finger to ExxonMobil and crowd. And the increased sensitivity over national resources is a signal that things will get much tighter for the supermajors.

The effect was clear…

Over the last year, only two of the six supermajors have managed a small gain for shareholders.

Take a look for yourself:

As I said before, there are much better long-term opportunities than these dying supermajors.

Infrastructure investing

One of the problems with energy traders today is that they always fail to look ahead. Maybe they don’t have the same bullish outlook on energy that we do.

Not that those opportunities aren’t there, mind you.

Sometimes the stars align, and all the hard work you’ve put into your research pays off handsomely. My readers are always quick to point toward the 727% gain they banked on one such occasion.

However, there is another side to the equation — one that investors often forget even exists. It’s not just about production. Remember that. If the trillion barrels of untapped oil locked in the Green River formation has taught investors anything, it’s that oil is worthless unless you can bring it to market.

That is also becoming a harsh reality for many Bakken producers, who have been forced to ship their crude by rail and sell their oil at a discount. And yet it’s not just U.S. producers that are looking for relief.

Remember how the United States has been shifting the bulk of its oil imports to Canada?

Our Saudi oil imports have decline 35% within the last seven years. Meanwhile, Canadian crude imports have surged 61% during the last decade.

I’d suggest taking a closer look pipeline stocks. Many of them are expanding current projects to meet future demand.

And the fact that these pipeline plays have managed to outperform the supermajors over the past year is not a coincidence…

It’s only going to get better here on out for them, too.

Until next time,

Keith Kohl
Energy and Capital

P.S. At the heart of these pipeline profits is the latest oil boom to hit North America. The best part is that my readers and I have been closing gain after gain from the beginning. And right now, we’re on the verge of making our next round of profits. Feel free to check out our latest oil report, highlighting one company that has an ace up its sleeve. Click here to learn more about this opportunity.

Better than Big Oil originally appeared in Energy and Capital. Energy and Capital, a free 3x-per-week newsletter, offers practical investment analysis in the new energy economy.

Welcome to the Energy and Capital Weekend Edition — our insights from the week in investing and links to our most-read Energy and Capital and sister publication articles.

You know these guys, right?

That’s Buffett, Icahn, and Paulson — three of the most legendary investors in the game.

But do you know what they all have in common besides being multi-billionaires?

They each added to energy positions in the last quarter.

What are billionaires buying?

At the end of each quarter, fund managers have 45 days to report their activities to the SEC. That deadline just passed for the second quarter, and here’s what we learned…

Buffett, whose net worth is $47 billion, is long ConocoPhillips, General Electric, Nalco Holding, NRG Energy — either on his own or through Berkshire.

Here’s how the holdings break down:

• ConocoPhillips (NYSE: COP): 29.1 million shares

• Exxon Mobil (NYSE: XOM): 421,800 shares

• General Electric (NYSE: GE): 7.77 million shares (and an undisclosed amount of preferred shares)

• Nalco Holding (NYSE: NLC): 9.15 million shares

• NRG Energy (NYSE: NRG): 6 million shares

And here’s what Paulson, the $12 billion-dollar-man who helped Goldman create securities that were designed to fail is buying:

• Exxon Mobil (NYSE: XOM): 9.17 million shares

• Mariner Energy (NYSE: ME): 10 million shares

• Apache Corp. (NYSE: APA): 3.4 million shares

• Mirant Corp. (NYSE: MIR): 18.2 million shares

• Deven Energy (NYSE: DVN): 3.3 million shares

• Smith International (NYSE: SII): 2 million shares

• Cheniere Energy (NYSE: LNG): 7.46 million shares

Icahn, the poorest of these fellows with only $10.5 billion, is equally bullish on energy, Here are the energy stocks he’s into:

• Anadarko Petroleum (NYSE: APC): 2 million shares

• NRG Energy (NYSE: NRG): 2.37 million shares

• Ensco (NYSE: ESV): 240,000 shares

• Chesapeake Energy (NYSE: CHK): 12.74 million shares

Why?

Well, the simple answer is rising prices for both oil and electricity.

With peak oil approaching, they know demand is about to outpace supply, and the companies able to access the increasingly hard-to-get nectar are going to be worth a pretty penny.

And with increased regulatory pressure on coal, utilities are adding more and more megawatts from renewables and natural gas.

The utilities you see these guys buying — NRG, Mirant, Constellation — are at the forefront of this transition.

It’s pure fundamental analysis…

World needs lots of energy; there’s not enough of it; the price is going to rise.

They aren’t getting caught up in — and trying to react to — the market minutia we hear about on a daily basis: unemployment, housing numbers, consumer price indices, etc.

They’re simply making bets on the certain future of energy.

That’s what we help you do each and every day with articles like those below.

Before you read those, I’ll leave you with this recent quote from John Hofmeister, former Shell Oil President:

I think over the next 5 to 10 years we will peak in the production of what’s called conventional or easy oil. We will not in anyway peak relative to the resources left in the earth. But the resources left in the earth will be higher risk and higher cost to produce, which will increase the cost basis on which ultimately gas prices are set.

Call it like you see it,

Nick 

Energy Stock Technical Analysis: How to Spot Energy Stock Trends
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Going Mobile with Full-body Scans: Buy American Science & Engineering Inc.
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Alternative Energy Infrastructure: Why this One Company will Control Midwest Wind Power
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Nanotechnology Investments: Nanotech Stocks are Poised for Growth
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Sitting Pretty: One Company’s Recent Discovery that it’s Sitting on Millions Worth of Crude
Thanks to a world-changing Cold War blunder, investors have a brief window to bank 180 times their money on this tiny oil company’s $1.44 shares… Energy and Capital tells you everything you need to know about this hidden treasure trove of crude in this video.

Tiny Nuclear Company Leads American Resurgence: The Nuclear Energy Story Fox News Isn’t Telling You
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Underwater ‘River’ of Oil Confirmed in Gulf: Large Underwater Oil Plume Confirmed
Analyst Adam Sharp examines the newly-discovered plume of oil in the Gulf of Mexico.

Chinese Water Stocks: Chinese Drought — Not Floods — is the Real Story
Editor Nick Hodge reveals why drought — not flood — should be the real Chinese story grabbing headlines these days.

Sustainable Development and Responsible Investing: A Not-to-be-Missed Conference, September 15-18, 2010
Focused on the world of environmental and sustainability finance, renewable energy and efficiency investment, application and implementation strategies in their major forms, this is an all-encompassing conference platform for sustainable investment, infrastructure, and regional management with a central focus on the global energy transition.

Energy Holdings of Billionaires originally appeared in Energy and Capital. Energy and Capital, a free 3x-per-week newsletter, offers practical investment analysis in the new energy economy.

We’re now at the time of year when kids start dreading going back to school, moms dream of free time during the day, and granddads pick a weekend to winterize the boat or shutter the cabin. 

Us resource guys, however, think about buying natural gas for the annual winter price boost.

But this year the markets aren’t buying it.

On Wednesday, the Energy Information Agency (EIA) came out with a bearish report.

Last week, the price of natural gas fell as much as $1.36 per million Btu; after the report, prices fell to $3.77 — dipping well below $4 for the first time since May.

The government report stated:

Natural gas in storage totaled 3,052 billion cubic feet (Bcf) as of August 20, about 6 percent above the 5-year (2005-2009) average.

The implied net injection for the week was 40 Bcf, significantly below historical injections for the week.

The market was expecting a 38 bcf gain, even though the historical five-year average is 59 bcf gain for the third week in August.

As you can see by this handy government chart, if you convert the price of oil into dollars per million Btu, you’ll see that oil cost a whole lot more than natty gas.

Though, I will grant you that both energy sources have been falling over the past month.

Gas is cheap because of the 100-year overhang that new drilling methods have discovered. 

My good friend Keith Kohl has made a ton of money for his readers by getting in early on this trend and staying ahead of the curve. If you’d followed his advice, you would have made gains of 356% and 129%.

Natural gas to oil price ratio

Historically, the price of natural gas to the price of oil has run in the range of six times to twelve times.

Right now oil is at $73.16 and natural gas is at $3.71. That puts oil at 19.71 times the price of natural gas. 

A lot of natural gas bulls made a big deal over this fact in the spring, thinking that ratios tend to return to historical averages. 

What they didn’t count on was the fact that drillers and explorers would continue to play a game of brinkmanship, hoping that the other guy would shut down production. 

They didn’t.

They can’t, in fact, because they leveraged themselves out the wazoo buying up fracking rights in a massive land grab. They have to cover the note or go out of business. 

This is why you’ve seen buyouts in this field.

The natural gas situation is yet another example of the old adage that the market can stay irrational longer than you can stay solvent.

Who benefits?

The winners in this situation are those that can produce natural gas the cheapest, and get it to market the easiest.

But the real winners are those that use it — companies like Clean Energy Fuels Corp. (NASDAQ: CLNE) that have built infrastructure to service fleets of vehicles in airports and harbors.

If Obama ever gets behind natural gas for use in vehicles as he did in putting electric recharge stations in various downtown areas, companies that make infrastructure could benefit.

Companies like Exterran (NYSE: EXH) offer natural gas compression in production fields. Dresser-Rand (NYSE: DRC) has a full range of systems to liquefy and move natural gas safely.

Chart Industries (NASDAQ: GTLS) and Chicago Bridge and Iron (NYSE: CBI) also offer the technology and services you need for creating a natural gas infrastructure.

But the coolest thing is natural gas attack helicopters…

Crazy Russians

Forty years ago — at the height of the Cold War — Soviet scientists began building a helicopter using liquefied natural gas. 

In the late 1980s, they were successful in replacing JP5 (or aviation kerosene), and had test-flights in helicopters and airplanes that lasted hundreds of hours.

Not only did nat gas work — it was better. 

LNG was less corrosive toward the bearing and stuffing materials; it cost less, and it wouldn’t leak over a hot engine and cause fire or explosion.

As you know, the number one cost to run an airline is fuel. 

If you could safely and easily fly a plane at a quarter of the fuel cost of traditional airplane fuel… why wouldn’t you?

According to Air Fleet, a Russian trade magazine, the technological improvement in natural gas use for aviation was quashed by those with interests in the oil business. Some things are the same everywhere.

But things are starting to change…

Qatar Airlines put out a press release saying that it is planning to convert its aircraft from kerosene to natural gas.

Qatar Gas, Royal Dutch Shell, and Qatar Airlines are negotiating an action plan for this project which could make the major Middle East air carrier the first to give up traditional fuel using an Airbus A380: “the first commercial aircraft to fly with Shell synthetic jet fuel processed from gas… ”

Qatar, as I’ve written about before has little oil and a surplus of natural gas — so, that’s where its interests are.

Markets have a way of finding the lowest cost supplier. Those that act first get the highest rewards. 

Once again, sadly, the U.S. energy industry has failed to lead.

Sincerely,

Christian DeHaemer
Energy & Capital

Natural Gas Attack Helicopter originally appeared in Energy and Capital. Energy and Capital, a free 3x-per-week newsletter, offers practical investment analysis in the new energy economy.

It happens almost every day.

For some unknown reason, tow trucks seem to have a field day outside my office.

Countless times I’ve seen people scramble outside, only to watch as their car is pulled down the street.

Believe me, the price of getting your vehicle back is steep enough to make you regret being towed. I have a feeling I’m not the only one of us that has experienced this nightmare.

Thankfully, I’ve learned my lesson when comes to Baltimore’s tow truck racket; and having been a victim several times before, I can’t help but feel sympathy for the driver.

So this morning, I wasn’t surprised to see the tow truck driver give me a toothless, knowing grin as he passed. His smirk was enough for me to go back and double-check that my parking pass was clearly visible on my dashboard.

The moment I rounded the corner to the lot, I saw the reason why he was so smug.

Resting comfortably — sans parking pass — was a Hummer. The massive vehicle was parked right next to my beat-up Cavalier. In the blink of an eye, the guy was furiously at work.

“Not gonna give them a chance, huh?” I said.

He looked at me, this time with a hint of contempt.

I continued, “Shame to tow a brand-new truck like this.”

His quizzical face gave me the opening I needed.

“Don’t worry, it’s not like they will be driving it for much longer.”

He gave me another hard look, then stopped what he was doing to ask me what I was talking about.

Facing peak oil realities

“Do you think someone was actually driving this beast when gas was over five bucks? Filling up is so cheap now, people are starting to forget again,” I said.

He conceded the point.

Like everyone else, he hasn’t thought much beyond today’s price tag on the pump.

Unfortunately for Hummers around the world, oil isn’t $30 per gallon anymore…

In fact prices have been stuck between $70 and $85 per barrel for more than a year.

Sure, there have been a few exceptions; oil briefly climbed above $93 per barrel last May.

As demand slowly makes its comeback, the possibility of $100/bbl oil doesn’t seem so far-fetched. It won’t happen this month or next. But sooner or later, triple-digit oil prices are inevitable — and much of that is thanks to peak oil.

I know that our year-over-year production increased by 411,000 barrels per day 2009. (You can see those figures with a few simple mouse clicks.)

And yes, I understand that eight states boosted their oil production last year… But dig just a little deeper and you’ll find that most of the increase came from only a few areas.

However, in order to continue that streak, oil prices will have to rise. There’s no way around it. The oil we’re pumping out now is much more expensive.

I’d hate to burst anyone’s bubble, but it’s not as easy as shooting the ground with your gun, Jed Clampett-style.

And it’s getting more difficult to stifle my laughter when people tell me the world will be producing 130 million barrels of oil per day in 2030.

Mexico’s fall from grace

“But if we can’t get enough from ourselves, isn’t that when other countries will take advantage of us with their own supply?” the question from the tow truck driver interrupted me.

I should have expected him to say that… He’s no stranger to taking advantage of others’ misfortune.

“Not exactly. The picture doesn’t get much better for them, either.”

Six years after U.S. oil peaked in 1970, it wasn’t some famous geologist or oil tycoon that made a massive discovery… It was a simple fisherman.

When seeping oil began messing with his fishing nets, the nuisance was investigated by PEMEX, Mexico’s national oil company.

You know the rest of the story. Just five years after the discovery, the Cantarell oil field was pumping out more than a million barrels per day.

By 2003, production had grown to 2.1 million barrels per day. Of course, Mexico’s oil exports to the U.S. reached a new record that year, too — to the tune of 1.6 million barrels per day.

The next year, however, PEMEX announced that Cantrell production would experience a sharp decline of 14% per year from 2006 and beyond.

The reality was much worse. In the summer of 2008 — when oil prices reached a new high $144 per barrel — production from the Cantarell dropped sharply to 973,668 barrels per day, a 36% decline.

Since then, things have gotten worse for Mexico.

Remember, we’re talking about a government that derives 40% of its budget from oil revenue.

As you can expect, peak oil has taken its toll on our Mexican oil imports:

How bad is the situation?

PEMEX recently announced the company will be importing crude oil for the first time in decades.

Think about that for a minute.

The problem is that Mexico’s refineries — the last of which was built thirty years ago — can only handle light crude, not the heavy stuff they are starting to produce.

I’ve said this to my readers many times before, and I’m still as adamant as ever: Mexico will become a net oil importer within the next 7 to 10 years.

When that happens, I can only hope the Mexican government — as corrupt as it is — has its act together.

Of course, it also means the U.S. will have to find an extra 1.2 million barrels per day from somewhere else…

Although the amount of imports that PEMEX is considering right now is only 3% of their total production, this is just the beginning.

Forget the short-term fears

Energy has, and always will be (in my mind, at least) a long-term play.

Don’t get me wrong, you can jump in and out of an energy stock on a daily basis, and still walk away with a small fortune in your pocket.

Granted, I don’t recommend you do so blindly… or else be prepared to learn a hard lesson.

Make no mistake, the opportunity is there. I’ve watched as Christian DeHaemer’s readers banked 727% gains on a single oil stock without batting an eye.

But too many people are grossly underestimating the value of a solid energy stock in the long run.

On Monday, I’m going to show you two of those plays in particular.

The best part? The way things are shaping up, this creates a win-win situation for investors.

The price of delay

“Sounds like Mexico is in for some trouble,” our tow truck driver grumbled. His scowl was back, probably after realizing how much time he’d wasted talking to me in the lot.

“Maybe… But at least you can prepare for it,” I replied, more to myself than to him. He’d already turned his back to finish securing the Hummer.

With one quick glance at the parking pass hanging from my mirror, I started to make my way back to the office. As soon as I turned the corner, I could hear a woman’s voice screaming to leave her car alone.

So much for waiting.

Until next time,

Keith Kohl
Energy and Capital

Mexican Oil Crisis originally appeared in Energy and Capital. Energy and Capital, a free 3x-per-week newsletter, offers practical investment analysis in the new energy economy.