North America is in the beginning of an oil boom. This oil production estimate graphic (see attachment) is just from the Eagle Ford site in West Texas. There are 20 other known oil shale fields in the US with more in Canada with huge estimates of reserves. Goldman Sachs has predicted that the US will be the number one supplier of oil by 2017. The US laws are written assuming that oil will remain in diminishing supply and currently block export of crude oil. With no change in US policy this probably means that crue oil prices going to drop significantly in the US, remember what happened to US Natural Gas prices... This would squeeze the margins of the entrepreneurial companies that have taken the risk. One small event happened to me in a conversation this last July that woke me up. Montanna Technology Institute trains engineers that work in mining and drilling. 97% of their graduates get jobs when they graduate. This was such a drastic difference to the worldwide under employment situation that it was impossible to not take notice that something big is underway.
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So I have been cogitating what the future investing plays will be. Here are some thoughts. Some of these plays are well underway and this post is late to the party.
1. At some point we should stay away from the companies who depend on the high price of oil to drive their business. This would mean the drillers and maybe the refiners. I own BCEI, an oil shale drilling play. I expect that future lower oil prices may erode their margins.
2. 75% of fertilizer cost input comes from Natural Gas. Margins should be up in these companies. Take a look at RNF.
3. Calpine (CPN) specializes in Natural Gas electric power generation. Electric power pricing is driven by more expensive coal and oil, a recipe for margin expansion.
4. Plastic makers use Natural Gas Liquids as a prime ingredient. This may be what is driving the Chemicals-Plastics group. Some off shore chemical companies are moving to the US to take advantage of lower costs. Take a look at POL, AEPI, EMN, SHLM.
5. Caterpillar (CAT) has teamed with Westport (WPRT) to produce natural gas engines. Cummins (CMI) is another play in this group.
6. Cheniere (LNG) has obtained the sole license in the US to export liquified natural gas. Their export terminal in Lousianna will come online in 2015. This could be the impetus for LNG to make profit.
7. The oil pipeline group should not see margin contraction with lower fuel costs. EQT Midstream Partners (EQM) seems well positioned in this group. SXL and RRMS are in this group also.
8. Targa Res Corp (TRGA) is focussed on the Natural Gas Liquids business (ethane, butane, propane). They are expanding their Texas Gulf area export facility. Their are no restrictions to exporting these products.
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