Oil & Gas Monthly Special Report Monthly Oil & Gas Report – Volume 3, November 2013 In this issue of Monthly Oil & Gas... Reviving Mexico's Oil Industry North American LNG Exports $2.50 Gasoline? $75 Oil? Reviving Mexico's Oil Industry By Keith Kohl Draw up the papers now... I wouldn't be surprised to see Congress welcome two more Senators into the fold. And I'm not referring to the potential statehood of Puerto Rico. No, the 51st state of the Union will be a country that's about to build very close ties to the U.S. oil and gas industry. While the image of illegal immigrants flooding across the Rio Grande is a hot topic on Capitol Hill these days, what you may not realize is that there's a group of people that has desperately been trying to get in to Mexico. Truth is, they've trying in vain to tap into Mexico's oil industry for the better part of the 20th century, ever since that fateful day back in March 1938, the day Mexico's president nationalized the country's oil resources. As it turns out, those U.S. companies may finally get their wish — offering individual investors like us a chance to get in on the ground floor of a brand-new shale revolution. Mexico's Next "Cantarell Moment" There's absolutely no doubt in my mind that you've heard of these companies before. They're among the biggest names in the business, spending billions of dollars every year in the U.S. oil patch. But reforming Mexico's energy industry is only the first step that will throw the door wide open for companies like ExxonMobil, Chevron, and the rest of Big Oil. What's the reason for this sudden policy reversal, you ask? Mexico is trying to find what I call its next "Cantarell moment"... The discovery of the supergiant Cantarell field was the single greatest moment in history for Mexico's oil industry. But it was short-lived. You are likely aware that production from the Cantarell Complex peaked at slightly more than two million barrels per day in 2003. Today the field pumps less than 400,000 barrels per day, a trivial amount compared to its former self. More important, perhaps, is the fact that Mexico's overall production has fallen to less than 2.5 million barrels per day. So you can understand why the country is desperate to revitalize its dying oil industry... But that isn't going to happen without developing the 13 billion barrels and 545 trillion cubic feet of recoverable tight oil and gas resources buried under Mexican soil. Consider it the most lucrative game of follow the leader in history, with Mexico hoping to mimic the tremendous success U.S. producers have seen. 6 Green Pastures for Shale-Driven Investors And it's not just one region that's making Mexico green with shale envy. In fact, there are six. The Energy Information Administration recently mapped out these plays in its inaugural Drilling Productivity Report, published just a few days ago:
Transcript
Oil & Gas Monthly
Special ReportMonthly Oil & Gas Report – Volume 3, November 2013
In this issue of Monthly Oil & Gas...
Reviving Mexico's Oil Industry
North American LNG Exports
$2.50 Gasoline? $75 Oil?
Reviving Mexico's Oil Industry
By Keith Kohl
Draw up the papers now...
I wouldn't be surprised to see Congress welcome two more Senators into the fold.
And I'm not referring to the potential statehood of Puerto Rico.
No, the 51st state of the Union will be a country that's about to build very close ties to the U.S. oil and gas industry.
While the image of illegal immigrants flooding across the Rio Grande is a hot topic on Capitol Hill these days, what you may not realize is that there's a group of people that has desperately been trying to get in to Mexico.
Truth is, they've trying in vain to tap into Mexico's oil industry for the better part of the 20th century, ever since that fateful day back in March 1938, the day Mexico's president nationalized the country's oil resources.
As it turns out, those U.S. companies may finally get their wish — offering individual investors like us a chance to get in on the ground floor of a brand-new shale revolution.
Mexico's Next "Cantarell Moment"
There's absolutely no doubt in my mind that you've heard of these companies before. They're among the biggest names in the business, spending billions of dollars every year in the U.S. oil patch.
But reforming Mexico's energy industry is only the first step that will throw the door wide open for companies like ExxonMobil, Chevron, and the rest of Big Oil.
What's the reason for this sudden policy reversal, you ask?
Mexico is trying to find what I call its next "Cantarell moment"...
The discovery of the supergiant Cantarell field was the single greatest moment in history for Mexico's oil industry. But it was short-lived.
You are likely aware that production from the Cantarell Complex peaked at slightly more than two million barrels per day in 2003. Today the field pumps less than 400,000 barrels per day, a trivial amount compared to its former self.
More important, perhaps, is the fact that Mexico's overall production has fallen to less than 2.5 million barrels per day.
So you can understand why the country is desperate to revitalize its dying oil industry...
But that isn't going to happen without developing the 13 billion barrels and 545 trillion cubic feet of recoverable tight oil and gas resources buried under Mexican soil.
Consider it the most lucrative game of follow the leader in history, with Mexico hoping to mimic the tremendous success U.S. producers have seen.
6 Green Pastures for Shale-Driven Investors
And it's not just one region that's making Mexico green with shale envy.
In fact, there are six.
The Energy Information Administration recently mapped out these plays in its inaugural Drilling Productivity Report, published just a few days ago:
The EIA's report simply supports what we've been taking advantage of since 2006 — as well as identify six groundbreaking shale plays driving U.S. oil and gas production.
The very first line of the EIA report says it all: “The six regions analyzed in this report accounted for nearly 90% of domestic oil production growth and virtually all domestic natural gas production growth during 2011-2012.”
In other words, all the hype about the U.S. energy boom isn't hype.
These plays don't end abruptly at the U.S. border, either. The Eagle Ford Shale, for example, extends south into Mexico. Remember, this is the same play where production grew to over a million barrels per day within a five-year period.
We're fully expecting the Bakken to accomplish this same thing in five years.
The only question left is which horse to back in this energy race.
Fortunately, that decision will be easier than you think.
The Good, the Bad, and the Outrageously Profitable
In my last article, I showed you how Continental Resources, one of the best North Dakota drillers, drastically outperformed Big Oil — returning an impressive 58% to investors over the last 12 months.
But let me say that one of the biggest mistakes you can make in investing in the U.S. shale boom is in thinking the Bakken is the only game in town.
Try to picture a small group of companies that is not only pumping out one-third of the United States' oil supply, but is also within striking distance of Mexico's shale wealth...
Now let me show you how just one of these plays stacks up against both the Bakken and Big Oil:
These kinds of moves are just part and parcel of the energy gains my readers have been raking in from this all-out North American energy race...
And it's only going to get better from here on out.
North American LNG ExportsBy Keith Kohl
Without question, there's one city on the planet cloaked in thicker, dirtier smog than any other...
The air quality in Beijing has become so poor that passing satellites can no longer get a clear picture. (I imagine the entire area being one gigantic gray blob from orbit.)
The situation has become so dire, in fact, that government ministers are taking some rather drastic measures.
The city now issues a warning called a "haze alert" when smog levels get particularly nasty, and just a few weeks ago, a blue-coded alert for haze was given (for the first time in history, mind you) as the air quality in Beijing was rated as "severe contamination."
Of course, this kind of situation warrants more than simply wearing masks and keeping young children and the elderly indoors...
When the haze alert is in effect, you can expect factories to shut down, and roughly half of the city's five million automobiles are forced off the road.
This is all well and good in the short term — but what's China's serious long-term solution for pollution?
For starters, the Chinese must cut off the most egregious sources of this pollution.
I'm talking about coal.
The statistics are downright outrageous: Although China only holds roughly 13% of the world's proven reserves of coal, more than 80% of its electricity is coal-generated.
Not only was the Middle Kingdom the world's largest coal producer last year, but it was easily the highest coal importer as well.
Trust me, this love affair isn't going to end any time soon...
China has almost 400 coal-fired power plants on the books slated for construction. If you think their electrical generation is heavily geared towards coal, imagine how things will look when these plants are up and running, and China's coal-fired power generation jumps 75%.
But let's get back to Beijing's smog woes...
Fortunately, there is something being done to amend the degrading air quality.
In order to combat the smog invasion, the city is turning to natural gas.
Compared to coal, natural gas is the lesser of two evils when it comes to fossil fuels.
The government is planning to replace four of Beijing's coal-fired plants with plants fueled by natural gas. This $8 billion project is expected to replace the nearly ten million metric tons of coal that are burned by those four plants. For those of you keeping count, that's 40% of the coal the city burns each year.
Now, it's important to understand that this switch to natural gas isn't some new phenomenal epiphany for the Asian nation...
China's unrelenting demand for natural gas has been growing since the 1990s. Take a look:
But feeding this natural gas beast is easier said than done...
Feeding the Beast
Have you ever wondered to what lengths some companies will go to tap into the burgeoning Asian LNG market ?
To get a good idea, all you need to do is take note of what's happening in Alaska right now...
Three of the world's largest publicly traded oil and gas companies are making a radical decision in Alaska that will change the state's future in America's energy industry.
In short, the three companies are about to spend $65 billion over the next ten years building LNG facilities in the Frontier State.
Exxon and its partners in the project just announced the site of the new export terminal will be located on the Kenai Peninsula, roughly 60 miles southwest of Anchorage. The project includes an 800-mile pipeline that will ship future natural gas production from the North Slope all the way down to the terminal.
When all is said and done, these companies are expecting about 3.5 billion cubic feet of natural gas per day will be shipped across the Pacific in the form of LNG.
There's just one little hitch in their plans...
Alaska has to actually produce that much natural gas.
Personally, I'm playing this North American LNG race to win.
That said, I'm betting the supermajors (who are once again late to the party) aren't a strong option for individual investors. And I have a feeling another set of LNG exports will hit Asian ports long before Exxon's ground breaking ceremony at its new Alaska terminal.
$2.50 Gasoline? $75 Oil? By Christian DeHaemer
This week's release of energy inventories from the Department of Energy (DoE) showed that crude oil inventories rose by a huge and unexpected amount.
Wall Street was looking for inventories to increase by 1.55 million barrels. The number reported was actually 6.807 million barrels — the biggest weekly increase in inventories since September of 2012.
This puts current inventory levels near their highest levels of the year compared to the average price for this time of year.
You may have noticed cheaper prices at the pump. I paid $3.29 for regular today.
Expect these prices to continue to fall.
According to the DoE, gasoline inventories also increased a bit this week to 0.149K barrels. The expectation on the Street was a decline by 1.05 million barrels.
A Crude Story
This is great news for U.S. manufactures and for those of us that benefit from cheap energy.
The American energy output is growing so fast, we might have already overtaken Russia.
According to the Wall Street Journal:
The U.S. is overtaking Russia as the world's largest producer of oil and natural gas, a startling shift that is reshaping markets and eroding the clout of traditional energy-rich nations.
U.S. energy output has been surging in recent years, a comeback fueled by shale-rock formations of oil and natural gas that was unimaginable a decade ago. A Wall Street Journal analysis of global data shows that the U.S. is on track to pass Russia as the world's largest producer of oil and gas combined this year — if it hasn't already.
The U.S. produced the equivalent of about 22 million barrels a day of oil, natural gas and related fuels in July, according to figures from the EIA and the International Energy Agency. Neither agency has data for Russia's gas output this year, but Moscow's forecast for 2013 oil-and-gas production works out to about 21.8 million barrels a day.
U.S. imports of natural gas and crude oil have fallen 32% and 15%, respectively, in the past five years.
Keith Nailed It
Our own Keith Kohl has been all over the fracking boom in North America for more than eight years...
His readers have locked down gains of 574%, 478%, and 170%, just to name a few.
As much as I like the producers of energy, the next phase of the market is those companies that can profit from the low cost of energy. After all, natural gas prices have been falling for years.
Dow Chemical (NYSE: DOW), which uses natural gas both as a feedstock and as energy, has climbed from $28 to $40 this year. The company is spending $4 billion in 2013 to build new chemical plants in Texas and Louisiana.
Cheaper natural gas means lower cost ethylene, which is used in countless products, from tires to plastics.
FreightCar America (NASDAQ: RAIL) has climbed from $16.53 in September to $20.87 today as it sells more tanker cars to meet the demand for moving natural gas.
Cummins, Inc. (NYSE: CMI) has gone from $85.88 to $136.47 this year on the back of new fuel-efficient heavy-duty engines, including a 12-liter natural gas engine.
GE Transportation recently announced it would soon be offering retrofit technology that enables locomotives to use both diesel and liquid natural gas . The system allows up to 80% natural gas substitution. The LNG is cryogenically stored in a tender and enables trains to travel further without refueling.
Nucor, a steelmaker, is also building a plant in Louisiana.
The list goes on and on...
And downstream, companies you wouldn't think about will create jobs due to low cost fuel input. These range from glassmakers to producers of table linens.
If you consider lower energy prices to be a stimulus to business — essentially, a de facto tax cut — it will underlie the marginal growth we now have in GDP.
This party is just getting started...
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