Three-month low for oil... Astounding numbers from the U.S. Department of Energy... The Marcellus shale could double in size... U.S. to catch Saudi Arabia by next year... Singapore and Qatar prepare for LNG shift...
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Oil hit a three-month low today at a little more than $88 a barrel. West Texas Intermediate crude – the U.S. benchmark price – has fallen from $108 a barrel in March… a 19% drop.
The reasons for the decline are twofold – a global economic slowdown and the huge amount of domestic oil production coming online from unconventional shale plays. We'll discuss the latter issue today.
We've highlighted North Dakota's Bakken shale region several times recently. It's one of the largest shale plays in the U.S... Its production will soon surpass the Arab nation of Qatar. At 770,000 barrels a day, Qatar is the world's largest supplier of liquefied natural gas (LNG) and a major oil exporter as a member of OPEC. And the Bakken is only one of the massive shale plays that will contribute billions of barrels of new production (more on those in a bit).
Thanks to new technologies like horizontal drilling and hydraulic fracturing (fracking), exploration companies can now access resource deposits that were previously uneconomical. And it's leading to a huge glut in domestic energy supply. Consider the latest numbers from the U.S. Department of Energy (DOE)...
DOE reports domestic fossil-fuel production will reach an all-time high in 2012. At the end of this year, the U.S. will have produced more than 61 quadrillion British thermal units – the energy equivalent of burning 61,000,000,000,000,000 wooden matchsticks – of coal, oil, and natural gas. This meets 83.3% of total annual U.S. energy consumption needs. Five years ago, domestic sources only amounted to 70.5% of total annual consumption. The last time domestic energy production was as high a percentage of consumption was 1990.
Over the last four years, domestic natural gas production has increased 20.5%. Domestic oil production is up 24%. The following chart compares 2012 U.S. oil inventories to their 10-year and 28-year historical averages. Current levels are almost off the chart.
And exploration companies are still finding massive new deposits. Last week, for example, we mentioned Continental Resources' discovery of a new shale oil play called the South-Central Oklahoma Oil Province (SCOOP). Continental is already the No. 1 producer and landowner in the Bakken. And it believes the SCOOP could yield 1.8 billion barrels in the coming decades.
Now, two new reports have surfaced regarding the Marcellus shale gas deposit...
The Marcellus shale lies beneath parts of New York, Pennsylvania, Ohio, and West Virginia. The U.S. Energy Information Administration's (EIA) most recent estimates had pegged Marcellus' gas reserves at 141 trillion cubic feet.
But the Associated Press reports industry analysts believe this number is "grossly understated." A Standard & Poor's report says the Marcellus may contain "almost half the proven natural gas reserves in the U.S." And a report from analysts at ITG Investment Research says the EIA's estimates don't correspond to actual well production. The firm estimates the Marcellus holds 330 trillion cubic feet of gas. That's more than double the reserves of the next-largest U.S. field, the Eagle Ford in southern Texas.
It's not just the size of the U.S. shale oil and gas revolution that is amazing... it's also the speed of production.
The Wall Street Journal reports the U.S. will be in a virtual tie with Saudi Arabia as the world's largest oil producer by the end of next year. In 2012, U.S. oil production rose 7% to an average of 10.9 million barrels per day. It's the fourth-straight year of increases and the biggest one-year gain since 1951.
Saudi Arabia's daily oil output is 11.6 million barrels. Analysts expect Saudi production to remain flat through 2017... but U.S. production continues to surge at astounding rates. Citibank predicts the U.S. will produce 13 million to 15 million barrels per day by the end of the decade.
The article goes on to say, "The boom has surprised even the experts." We wonder what "experts" it is referring to...
Last week's guest on Porter's weekly Stansberry Radio podcast, Professor Leonardo Maugeri, is one of the world's foremost experts on oil, gas, and energy. He's been discussing the impact of the U.S. shale oil and gas revolution for years. The content of the interview includes specific investment insight into the industry that you're unlikely to hear anywhere else. He also gives his prediction for where this energy revolution is going over the following decades.
To listen to this powerful, free interview, click here. And you can download all of Porter's Stansberry Radio episodes from iTunes here.
The shale revolution has also produced a glut of natural gas – driving the price from a high $14 per thousand cubic feet (mcf) to less than $4 per mcf today. We have too much natural gas for domestic use, so we're starting to export it globally (where prices are multiples higher). Already, private-equity group Blackstone and the Chinese sovereign-wealth fund China Investment Corp. have invested in Cheniere Energy, the firm that is constructing a huge LNG export terminal in Louisiana.
And other nations are preparing for the inevitable result of our booming natural gas production – that the U.S. will become a major global supplier...
Singapore is responding to increased (and growing) demand for natural gas by announcing plans to build its fourth tank to increase its LNG capacity. This will increase the island nation's import capacity to about 9 million metric tons per year. Remember… Singapore is the shipping hub of Asia, the world's biggest importer of LNG. Expansion will spur growth in LNG-related businesses, like trading, bulk services, and storage.
Japan is by far the world's biggest natural gas importer – bringing in a massive 116 billion cubic meters (bcm) last year. And it's a lucrative business for Qatari producers. According to Bloomberg, Japan pays around $18 for gas – up to six times more than domestic prices in the U.S. But as additional supply comes onto the world market from places like Australia and the U.S., global price disparities will diminish and may ultimately disappear.
To offset lower income in the future, Qatari producers are looking to increase volume. But the Qatari government placed a temporary moratorium on expanding production until 2015, so producers are looking beyond their own borders to increase volume…
Bloomberg reports that earlier this month, state-run Qatar Petroleum – together with ExxonMobil – received a permit to export gas from the Golden Pass terminal in Texas. Between them, they'll spend around $10 billion to build the new export facility. Qatar Petroleum owns 70% of Golden Pass LLC. Exxon Mobil owns the remaining 30%.
Porter has been covering the incredible changes happening in the gas industry since May 2010... In August, he published an extensive series of reports detailing the many facets of this phenomenon. As part of that work, he released a report titled "Corner the Next Trillion-Dollar Business." The report describes the huge opportunity that exists in exporting U.S. gas to the world… a trend that is playing out in places like Qatar and Singapore. And he highlights the three stocks that will benefit most from the trend.
This work is exclusively for subscribers to Stansberry's Investment Advisory. If you would like to subscribe… you can learn more about Porter's research and sign up for his advisory here...
New 52-week highs (as of 10/23/12): W.R. Berkley (WRB) and Navigators Group (NAVG).
Someone in today's mailbag says Porter isn't smug or self-absorbed. Read it below. And send your comments to feedback@stansberryresearch.com.
"Sometimes I have to reread something after seeing one of your posted customer responses. I saw Dr. Aragon's response to Porter's Friday Digest response to 'Dad.'
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Regards,
Sean Goldsmith
Sea Island, Georgia
October 24, 2012