If you're sick of my USA, arm-waving profit opportunities, you may want to stop reading right now.
Today we're on the global hunt for oil and gas, and yet again it's brought us back to one hugely profitable place: our own backyard!
There is a caveat however, and an important chart…
Here's the thing. Although oil and gas production is ramping up in the U.S. and Canada, it's not a common occurrence outside of our borders.
Indeed, this was the same theme we covered earlier this year. After hearing from a handful of world's most knowledgeable oil market analysts at a conference in London, I shared with you two important facts:
1. North America will account for 75% of crude output growth in the next five years
2. The U.S. is set to be the largest contributor to global oil growth, with the Eagle Ford and Bakken Ramping up…
If you've been reading your daily dispatches this shouldn't surprise.
The new reiteration, however, is that energy booms like the one America is experiencing are NOT the global norm.
Take a look at this…
The chart above illustrates a simple trend: the declining output of a once-prolific oil source, the North Sea.
It's very similar to the chart we've discussed recently for the falloff in Alaska's North Slope oil production. But unlike the Alaskan falloff, which accounted for a drop of 1.5 million bpd over more than two decades, North Sea depletion has fallen much more precipitously, dropping 3 million bpd in just 10 years.
To be sure this is similar to what we're seeing across the globe with Mexico, Venezuela, Egypt, and other once-prolific oil production zones. (Just wait till the Middle East starts to deplete, then the treadmill really starts to tilt!)
Simply put, conventional oil is in a nasty fight with large-scale depletion. It's the main reason why we're not seeing a drop in global oil prices. Right now, with oil prices still teetering over $90, this can't be understated.
Even if the wildest dreams of U.S. oil and gas are met, we'd be hard-pressed to come up with an extra 3 million bpd.
That's the point, even though America is brimming with new oil and gas opportunities – this a broad phenomenon sweeping the globe. So while the U.S. accounts for most of the new oil production growth on a global scale – natural depletion is still holding global prices relatively high.
As you could guess, this is creating a perfect storm for U.S. energy companies.
Playing this Situation is Simple…
I cringe when I say this, because I know the heydays will be over at some point, but the best way to play this situation right now is with U.S. refiners.
With all the global cards lying on the table, U.S. refiners are profiting the most from this oil trend. (Remember that petroleum export chart we posted here a few weeks ago?) In a nutshell, the U.S. petroleum product market has doubled exports in less than five years.
And we're not talking about small potatoes here, either. U.S. petroleum product exports are nearing 3.5 million bpd.
Heck, I didn't even catch this till recently, but the U.S. became a "net" exporter of petroleum products in 2011. As recently as 2005 the U.S. was a net importer of over two million bpd. But in the past few years we've bucked the trend and exports have rocketed, creating a net positive outcome.
For the record, that's the first time the U.S. has had net exports in this category since 1949! It's a boom for America and a silver lining in refiner's pockets.
When will the advantage end for U.S. refiners? Time will tell. But it could easily be a multi-year phenomenon. North America, remember, is the main growth engine for GLOBAL oil production in the next few years. So whether refiners are cashing in or not, the money is going to be flowing somewhere stateside (it's that whole "100-year wealth event" you may have heard about.)
Looking forward, the same trend will vault domestic oil and gas companies even higher.
Matt "broken record" Insley here again, to remind you that this is a huge, investable trend. And there's still opportunity to get in on it.
Oil production on a global scale isn't ramping up like it is here in the U.S., so don't be fooled by localized sensationalism. This local trend is a global opportunity to profit. Heck, the telltale sign of this trend can be seen through our friends at Statoil (STO).
The Norwegian company broke its maiden in the North Sea. Statoil is also the world's No. #1 offshore operator. Yet, here we are in 2012 and Statoil has a primary focus for long-term growth here in the U.S. shale patch, onshore – wouldn't you know it, that includes the Bakken, Eagle Ford and Marcellus.
It's a turning of the tide for the U.S. Unlike the dire situation in Europe, we're getting an energy boom precisely at the time our economy could use it most. Jobs and manufacturing are coming back and exports are booming. (Hopefully our current and future administrations can help this boom flourish even more!)
Energy producers are turning bits all around the U.S. and refiners are turning that production into export gold. For the next few years expect this trend to continue – but don't be fooled into thinking it's happening everywhere. Simply put, it's not.
Keep your boots muddy,
Matt Insley
The Daily Reckoning
