Late last week we learned that the U.S. trade gap shrank 20.7% to $38.5 billion. That’s thanks to America’s new energy boom and, specificially, record petroleum exports.
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1. Natural-Gas Production Jumped to a New Record High.
U.S. natural-gas production climbed to a record high for a third-straight month in November 2012 (the latest monthly data available), according to the Energy Information Administration.
Output hit 73.88 billion cubic feet per day (bcf/d), an increase of 0.4 bcf/d from the previous month. On a year-over-year basis, production was up 1.42 bcf/d, or 2%.
So how can this be happening when natural-gas producers complain they’re losing their shirts on production?
Well, we’re only hearing from the noisy ones — plenty of producers can do just fine at present prices. More importantly, “associated natural gas” — gas that is a byproduct of crude oil production — is growing swiftly.
Natural gas pumped as a byproduct of oil and other liquids was 75% of the increase in natural-gas production in 2012, and will account for 90% of increase this year.
This means a continued supply of cheap natural gas, which means more profits for companies that use natural gas as an input — the kind of companies I talked about in my New Fuel Revolution 2.0 report.
2. Energy Production is Sparking a Jobs Boom.
More than 1.7 million new American jobs have been created so far, a number that could rise to as many as 3 million by the end of this decade, according to a study by Cambridge Energy Research Associates.
And according to data on Professor Mark Perry’s Carpe Diem blog, the explosion of new oil and gas jobs has increased employment in the energy industry by more than 26% in the last five years.
So you know how we all complain that the U.S. job market is so slow to recover. Without oil and gas jobs, we’d still be in a jobs DEPRESSION.
And guess where a nice chunk of these new workers’ output is being shipped to …
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3. Here Comes China!
For some time, we’ve seen China’s energy companies snapping up select oil and gas companies in Canada. Now, their acquisitions are hitting a little closer to home for U.S. citizens.
China’s state-owned petrochemical giant Sinochem Group just acquired a 40% stake in Wolfcamp, a well-known shale oil and gas field in the Permian Basin of Texas. Pioneer Natural Resources (PXD) of Irving, Texas, said this week that it sold a 40% stake in its Wolfcamp field for a total price of $1.7 billion.
The two companies have also agreed to join forces to develop up to 86 horizontal wells in 2013, 120 in 2014, and 165 in 2015.
So what’s China up to? Its thirst for oil and gas is insatiable.
China’s oil use rose 4.2% last year, while its domestic production increased just 1.6% to 4.1 million barrels per day. It’s importing 56% of its oil, mainly from the Persian Gulf.
China’s net-crude imports in November rose to the highest level in six months as the world’s second-biggest oil user refined more than 10 million barrels a day for the first time.
And last year was a relatively weak year for the Chinese economy. Now, it appears that China’s economic engine is firing on all cylinders again.
What do you think that will do to Chinese oil and gas demand? I’d say its demand could shift into overdrive.
So that means more Chinese money could flow into North American oil fields — Canada and the U.S. — and that sets up a bunch of potential profit opportunities.
4. Big Winners: Railroads and Pipeline Equipment Makers
A new chart from the Energy Information Administration shows one of the big winners from America’s oil and gas boom — railroads.
Drawing on data from the Association of American Railroads, the EIA says that last year, the amount of crude oil and petroleum products delivered by rail increased 46% over 2011, or almost 171,000 carloads.
Compare that to the huge drop in coal transport.
There’s a good reason for that — more and more power plants are switching from coal to natural gas, because natural gas is so darned cheap.
Electricity generated from natural gas jumped to 30.8% from 24.6% in the last year alone, while coal-fired electricity dropped sharply.
With U.S. oil production soaring, there is a huge shortage of pipelines to move it from fields to refineries, so more oil and petroleum product is moved by rail.
This trend will continue until more pipelines are built. And that’s bullish for railroads, and also the companies that make the equipment for pipelines.
5. More Oil Production … But Higher Gasoline Prices
The average price for a gallon of regular recently hit $3.57 a gallon, according to AAA. That’s 11 cents higher than it was just a week earlier, and 27 cents higher than a month ago.
Many consumers are wondering how this is possible, since U.S. crude oil production increased by a record 780,000 barrels per day in 2012. Well, the simple fact is, oil production has little to do with oil prices.
That old slogan, “Drill, Baby Drill,” once touted as a solution to high prices at the pump, was a lie.
Gasoline prices depend on three things — economic growth (which fuels demand), international oil prices and refinery output.
1. The U.S. economy is growing. So is the world economy.
The U.S. housing market had its best year in the last five, U.S. jobs are growing, and the Chinese economy is improving. Auto sales are soaring again in China and other emerging markets.
2. International oil prices are heading higher.
It’s surprising because there should be plenty of supply, but OPEC has cut its production by around 1 million barrels a day in the past few months, in a bid to support prices.
At the same time, speculators are betting on better times, and bidding up the price of a barrel of Brent crude and other international benchmarks.
Oil can be exported, and the U.S. is exporting more of both oil and product. Last year, U.S. refinery petroleum product shipments exceeded U.S. fuel imports by an average of 935,000 barrels per day.
That’s way up from 2011, when U.S. oil-product shipments exceeded inbound cargoes by 368,000 barrels a day.
And 2011 was the first time since 1949 the country was a net exporter. This is a good thing — it helps our balance of trade a lot.
3. And refineries are slowing their production.
It’s not a conspiracy — it happens every spring. At this time of year, refineries start cleaning their machines and making sure everything is functioning properly ahead of the high-demand summer driving season.
Add it all up, and we are seeing the normal summer run-up in gasoline prices that we see every summer.
In a way, it’s a good thing — falling prices would be a sign that our economy was weak. And if it really bothers you, consider trading in your gas-guzzling clunker for one of the five cars recently rated best in fuel economy — the Chevrolet Spark, Dodge Dart, Nissan Sentra, Ford Fiesta and Scion iQ.
Bottom Line: Let’s Make Some Money!
There are still plenty of ways to make money in the New Fuel Revolution 2.0: chemical makers, fertilizer manufacturers, pipelines, railroads, refiners, steelmakers and more.
Better yet, many of these companies pay big, honkin’ dividends for potentially bigger total returns.
If you’re doing it on your own, be very careful. It’s a tricky market. Not all companies will do well, even if they’re in the right business. And the clowns in Washington could always do something stupid to send the market on a roller coaster ride from hell.
But with this big trend — America’s new energy boom — in place, those dips should be buying opportunities.
All the best,
P.S. The New Fuel Revolution in the U.S. is a powerful investment story. But the global audience that’s gobbling up our growing energy supplies is also grabbing up products and services in what my colleague Rudy Martin has identified as four very strong investable trends.
Don’t miss Rudy’s new video research report, “4 Global Mega-Trends to Power Your Portfolio in 2013.” Plus, he’s offering a special $1,395 gift just for watching, but it expires at 11:59 p.m. Eastern tonight. I urge you to check it out right away – click here now!