67 WALL STREET, New York - November 25, 2012 - The Wall Street Transcript has just published its Oil and Gas Investing Forecast Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Global Oil & Gas Investing
Companies include: China Petroleum & Chemical Cor (SNP), PetroChina Co. Ltd. (PTR), CNOOC Ltd. (CEO), Valero Energy Corp. (VLO), Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), BP plc (BP), Enersis S.A. (ENI), Total SA (TOT), Helix Energy Solutions Group, (HLX), Peabody Energy Corp. (BTU), Cameco Corp. (CCJ) and many others.
In the following excerpt from the Oil and Gas Investing Forecast Report, an experienced portfolio manager discusses the outlook for the sector for investors:
Mr Guinness: Rather surprisingly to us, the U.S. refining industry has really turned itself around. It was beaten down by the recession, but now exports to Latin America have been surging. Also, the refiners have had a windfall because of the divergence that has emerged between WTI and Brent due to the interesting success in development of shale oil in the Eagle Ford and the Bakken basins and now the Permian basin. The Permian and the Bakken are basically feeding oil into Cushing, which is where the WTI benchmark is set. There are not enough pipelines to get these increases in supply down to the coast so WTI is depressed relative to the oil price at the coast, which tends to track Brent. Refineries that are able to access WTI are enjoying a good, albeit temporary, boost to their margins.
We are also interested in the growth in gas demand in China, which is going to be very strong over the next eight years. We believe that Chinese consumption of natural gas is going to go from 10 Bcf today to 40 Bcf a day by 2022. To put that into context, the U.S. today consumes 70 Bcf per day, so China only consumes one-seventh of what the U.S. does. Now in terms of oil, China consumes about 10 million barrels a day, which is about half the U.S. As far as coal goes, China consumes two and a half times as much coal as the U.S does.
These different proportions in China's consumption of gas, oil and coal relative to the U.S. highlight imbalances that are going to unwind. And as this happens, the amount of gas they consume will rise exponentially. It has been rising from a very low base for the last 12 years, at about 17% per annum, and that is going to continue. One of the stocks involved with this that we like is PetroChina, and we are now looking quite hard to see if there are other stocks we can invest in to benefit from this development.
Back in the U.S., we are increasing our weighting to gassy exploration and production stocks. We believe we are moving into a period where we are able to see much more clearly what is going to happen. We believe the oil price will be stable, while the gas price is going to recover over multiple years. This is going to cause a great boom for U.S. natural gas companies. They are oversold at the moment and they are going to recover very nicely over time.
There are many people who say U.S. gas is going to remain very cheap for a very long time, and they are wrong. I agree the natural gas price won't get very expensive, but it will move from being ridiculously cheap to a long run price per mcf, of, say, $6 maybe next year but more likely in 2014 or 2015. The current spot price is $3. It went as low as $2. For much of the last decade, it was trading at $8, and it went up to $12 to $14. And today, it trades in Europe at about $9; and in Asia, it's about $15. And natural gas at $6 will still be very cheap compared to oil - 40% of oil's value per BTU - energy content - if oil is $90 per barrel.
And these gassy E&P companies will grow these gas shales that they have now developed in a much more measured way than over the last five years. And as they grow steadily, demand from the electricity utility sector will grow commensurately, and likewise, gas will go on replacing oil for heating.
For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.