|
|
the blustery winter of 1950, U.S. Major
General Oliver Smith and his elite 1st Marine Division were
surprise attacked by some 3000 Chinese troops as the Americans attempted to
take control of the mountainous eastern coast of North
Korea.
Suffering 1,500 casualties and over 4,000 wounded, Smith withdrew his
force and delivered his now-famous quote: “Gentlemen, we are not
retreating. We are merely
attacking in another direction.”
Smith then reassessed strategy, regrouped, and, with fresh supplies
and ammunition, drove the Chinese off in one of the most heroic struggles in
military history.
There’s a powerful lesson investors in
today’s volatile market can take away from Major General Smith. Namely, that when the going gets tough
and you feel backed into a corner, there is a way to come out on top. But, like Smith, you need to
continually reassess your approach and have the conviction to go in a new
direction.
Some might say the U.S.
now finds itself backed into in a foxhole when it comes to meeting its energy
needs. Although we have the
highest rates of energy consumption in the world, it’s no big news that
our traditional sources of oil are either tapping out or have become
“No Trespassing” zones, leaving us dependent on foreign sources
for 70% of the oil needed to keep the lights on. It behooves us, then, to better
understand the nature of the foreign sources. To do so, we are going to use an approach
usually found in a military context, dividing the sources into Allies vs.
Axis --- an appropriate model given the current war being waged for global
resources.
With Friends Like These ….
To better understand the reliability of America’s
oil imports it’s helpful to see who America’s
faithful oil-suppliers are – and who they aren’t. The chart shows that 54% of U.S.
crude imports come from countries we consider Allies willing to work with the
United States
(shown in black and grey). Some
31% of imports come from Axis countries (shown in shades of red,) that have
demonstrated hostility to America. Another 15% are from Saudi
Arabia, a Wildcard we believe could go
either way. It’s unsettling
to note that almost half of U.S.
imports come from countries that are either unfriendly or have potential to
be.
The Allies
“A faithful friend is a strong defense;
And he that hath found him hath found a treasure.”
Louisa
May Alcott
First, let’s take a look at the good
half. Although these oil
exporters have been willing enough to work with America,
they face their own internal challenges.
For example, the U.S.
has powerful competition for both Canada
and Mexico’s
oil; and it’s from these countries’ inhabitants themselves. Canada
already consumes 90% of the crude it produces, while Mexico
consumes a growing 60% of its production. Further, both face challenges with
their reserves. The only abundant
reserves Canada
has are the oil sands -- expensive and difficult to extract. And Mexico,
with its reserves dropping quickly, is likely to become a net importer of
crude in about six years. Read that last sentence again, because right now Mexico
is the third largest source of oil to the U.S… just after Saudi
Arabia.
Shifting farther away from home, the stability
of exports from Nigeria
and Iraq
is challenged by internal unrest. Nigeria
is destabilized by ethnic battles, ongoing supply scares, kidnappings,
sabotage, clashes with militants and election unrest. In addition, resource
competitors, including China
and India,
are both making inroads in that country. Meanwhile, Iraq’s
reliability is largely dependent on a long-term U.S.
presence in the area, a presence that is in doubt.
And these are the good guys!
The Axis
“Keep your friends close, and your
enemies closer.”
Sun
Tzu, 500 B.C, author of The Art of War
Now, let’s touch on the almost-50% of
imports that come from considerably less reliable sources.
The stability of U.S.
relationships with both Venezuela
and Russia
is questionable. Venezuela,
under Hugo Chavez, has already reduced exports to the U.S. And Russia
has shown dubious motives. Its
recent tap-twisting with natural gas exports to the Europeans reinforces that
it sees energy as a tool for gaining geopolitical power.
Angola,
Algeria and Ecuador
are very willing to sell oil to the US
right now, because they need the money.
But, they have also ramped up exports to other countries. Over time, they may pick and choose
to whom they sell their increasingly precious commodity.
The Wild Card
Saudi
Arabia – source of an impressive 15% of exports to
the U.S.
-- is holding its dance card close to the chest. It either could supply the US
reliably over the next few decades, or, through its OPEC power, increase the
price of crude even more.
Despite the relatively stable relationship between the U.S.
and the Saud family, rising regional tensions, increased Islamic militarism
and ongoing Israeli-Palestinian tensions could threaten exports. And, the U.S.
presence in Iraq has
implications for the stability of Saudi
Arabia’s supplies, too. Should the U.S.
pull out of Iraq, any
implied chance of U.S.
troops supporting Saudi
Arabia, should push come to shove,
disappears. (How likely would the
U.S. be to send troops
back to Vietnam?) This could leave the Saud’s looking elsewhere for security
guarantees – guarantees that would invariably be purchased with a
realignment of oil sales to suit the new benefactors.
“… We’re Advancing in a New
Direction”
With such vulnerability in our supplies, America’s
quest for new oil is vital. The
single most important conflict of this war will be replacing declining
reserves. But for war profiteers
-- or investors -- profiting big starts with betting on the right army. The unexpected victors of one early
American military conflict come to mind as an example of the right type of
regiment to back. Remember that
famous 1775 battle of Lexington and Concord,
the “shot heard round the world” that kicked off the Revolution
and culminated in our freedom to pursue our way of life? It wasn’t the British Redcoats,
trained to fight the old-fashioned way, lined up and advancing in unison, who
won that one. They ended up
scrambling for cover, tripping over their coattails as they hightailed it all
the way back to Boston
Harbor.
It was the Minutemen, the rebellious, nimble
scrabblers, who knew the terrain, left business-as-usual behind and,
sniper-like, came out on top. So
it will be in the search for new oil today. This time, the major oil companies are
wearing the red furry helmets and buttoned up uniforms and are ending up the
casualties of war. That’s
because the old world army, including players like ExxonMobil, Royal Dutch
Shell, BP, Chevron, ConocoPhillips, must cost effectively replace their
flagging oil reserves and maintain production or face a quick retreat…
in their share prices. And these days, finding large new pools of oil that
can be cost-effectively developed is no easy task. Plus, they’re facing
stiff competition from China,
Russia
and others who are cashed up with plenty of fresh ammo – namely
trillions of U.S. dollars thanks to the historic trade deficits of the last
decade or so. These new,
nationally-sponsored competitors, who aren’t constrained by
prohibitions against handing over suitcases of cash to win concessions, are
quickly signing long-term off-take agreements where price is hardly discussed
in the negotiations. In the war
for new oil, the business-as-usual army has little chance of advancing in the
right direction.
So, if not “big oil”, where should
an energy investor look to deploy their capital? We’ll place our bets
on the Minutemen, or the small, more agile oil explorers targeting
under-explored areas in the U.S.,
Canada,
and more remote areas of the globe.
Rather than being caught up in layers of bureaucracy, and hindered by
the negative associations of big oil, these smaller companies can act swiftly
and have grass-roots connections with local politicians to help push their
projects forward. Plus, they can
operate in areas that are less populated by environmental protest groups that
can challenge progress.
Most importantly, when a small company makes a
large discovery it can have a huge impact on its share price… where
even a large discovery, by today’s standards, will barely move the dial
on a multinational giant.
Investing in one of these companies early is
one of the best ways to not only insulate yourself against the personal
inconvenience of steadily increasing energy prices, but also to make you one
of the few real winners in the war now being waged.
Marin Katusa
Casey Research, LLC.
Caseyresearch.com
Also by Marin Katusa
The global energy squeeze
threatens to empty your gas tank – but it can more than fill up your
wallet. You just have to know
where to invest.
Subscribe now to Casey
Energy Opportunity for an insider’s view on promising, well-financed,
well-managed companies searching the world for big opportunities. Companies like:
Azimut Explorations, up
381%
Denison Mines, up 2,900%
International Uranium, up
2,112%
Luke Energy, up 348%
Valkyries Petroleum, up
222%
We do the research heavy
lifting, so you don’t have to.
Subscribe to Casey Energy Opportunity for just $9.95 per month, with a risk-free money back guarantee.
“An investment in
knowledge pays the best interest.”
-- Benjamin Franklin
Casey Research, LLC is one of the nation’s oldest and most
respected organizations dedicated to providing independent investors with
unbiased research on opportunities to earn extraordinary profits by being
just ahead of the crowd. BIG GOLD, new from Casey Research, provides subscribers with
actionable research on the unfolding gold bull market and on profiting from
the world’s best gold producers, near-producers, gold mutual funds,
ETFs and more. You can try it without risk. To find out how, click here.
|
|
