Ready for the US Energy Boom?

Focus: ENERGY

Jim Jubak Image Jim Jubak Founder and Editor, JubakPicks.com

The US is seeing an oil and gas revolution that promises to keep prices low for years to come. Here's how to invest in the trend, writes MoneyShow's Jim Jubak, also of Jubak's Picks.

Five years ago, I never imagined I'd type these words: By 2017, the United States will overtake Saudi Arabia as the world's largest oil producer.

In addition, according to the International Energy Agency, by 2015, the United States will overtake Russia to become the world's largest producer of natural gas.

The United States is now the fastest-growing oil and natural gas producer in the world. During the past five years, according to Citigroup, the United States has added 2.59 million barrels a day to total production.

You'd think there's an investable angle there somewhere. I can think of four:

  • First, the stocks of the companies responsible for this huge surge in US production.
  • Second, the stocks of the companies that will make money from solving the current bottleneck in getting this supply to market.
  • Third, the stocks of companies that will benefit from the long time frame of this trend. The trend is likely to stretch on for a decade or two—with a likely extension past 2030 as supply from Canada and Mexico increases. This will drive North America as a whole toward energy self-sufficiency projects with long timelines that had been discounted on the risk that the boom would be over before they were completed.
  • Fourth, the sectors in the US economy that will reap benefits from lower US energy prices, beyond the general advantages flowing to the US economy from lower energy costs.

Let me start with the general picture, and then move to individual sectors and trends.

What Changed the Picture
I don't think it's overstatement to call what we're seeing now "the shale revolution." Higher oil and natural gas prices met up with the maturing of technology pioneered in the 1970s to send oil production soaring.

The new production is coming from shale formations that, until the development of new technologies for hydraulic fracturing (fracking), were thought unlikely to ever give up their oil content.

Not so long ago, the US energy story was about an apparently irreversible decline in production from the big oil states of Alaska, Texas, and California.