There’s a new war brewing.
It’s not a war fought by soldiers on the battlefield, or any kind of soldier for that matter.
It’s not a technology war fought by IT whiz kids.
And we’re not even talking about a psychological ‘Cold War’.
This is a whole new war. The two sides are familiar. But this time each side has a whole new bunch of weapons.
Free Reports:
This isn’t a military war, it’s an energy war…
If one word has been over used more than any other in recent year’s it’s ‘war’.
Currency wars.
The War on Terror.
Drug wars.
The ridiculous War on Poverty.
You name it, there has been a war on just about everything. We’re guilty of taking part in that. Our recent investment conference was World War D. But that was a good war.
And now to stretch your patience even further we’re suggesting that there’s a new war afoot — an energy war.
Of course, this isn’t a new war.
In a way this war has gone on for decades. And for most of this time the energy war has involved just one energy source — oil.
Well now we can add natural gas to the mix. It’s a war where competing economies are fighting over the opportunity to achieve rapid economic growth. The sort of growth that will help boost stock prices multiple times over the coming years.
In order to have any chance of achieving the growth they need to secure long term and reliable energy supplies.
But the energy war isn’t just about those who plan to use the energy. It’s also about those who plan to produce the energy.
For that reason the opposing sides are starting to take a familiar shape. On the one hand is the United States. It plans to be energy self-sufficient by 2035 — providing oil giant BP Plc [LON:BP] is right about projected US oil and gas production.
If things in the US go to plan the US will not only produce its own energy but it will use it to help fuel a domestic economic recovery.
On the other side are the ‘Reds’. The West’s old foes from the Cold War years, Russia and China. This side of the story has little to do with self-sufficiency.
Russia has the gas, and plenty of it. China has the demand…a huge demand. It wants to secure a supply of natural gas for years to come.
So, how is this Energy War shaping up so far? It depends which side you’re on. But based on the news to hit the headlines over the past week we’d say it’s one-nil to the Russia-China relationship.
By now you’ve probably seen the news of the big 30-year natural gas supply deal signed between Russia and China. The value of this deal is around US$400 billion.
But that’s not the only deal inked by the Russians over the past week.
As the Financial Times reported yesterday:
‘BP confirmed its commitment to Russia after signing a shale oil deal with state-owned oil company Rosneft, despite US government-led sanctions against Moscow and the company’s chief executive.
‘The contract was one of a string of deals signed in a ceremony at the finale of the now-controversial St Petersburg International Economic Forum by Rosneft boss Igor Sechin – as Vladimir Putin looked on with a smile.’
As the FT also reported, most US CEO’s avoided the Russian conference. The same can’t be said of most of Europe’s major oil CEO’s. The heads of Shell, Eni and Total were all there. It’s a slap in the face to the US, which has tried to pressure firms to boycott Russian deals.
But the lure of profits is too strong. The Russians have seen the potential of shale oil and gas. They’ve seen what it has done for US oil and gas production. Russia wants a part of it as it tries to retain its spot as one of the top oil and gas producers.
The discovery, development and exploitation of shale and other hard-to-reach oil and gas deposits is a major project for Russia as it strives to make up for declining production in existing wells.
But what about the US? The shale gas boom is nothing but good news for the US energy industry, right? It was…
We won’t say the US shale boom has stopped dead in its tracks, but it may have hit a bump.
The Los Angeles Times reports:
‘Federal energy authorities have slashed by 96% the estimated amount of recoverable oil buried in California’s vast Monterey Shale deposits, deflating its potential as a national “black gold mine” of petroleum.
‘Just 600 million barrels of oil can be extracted with existing technology, far below the 13.7 billion barrels once thought recoverable from the jumbled layers of subterranean rock spread across much of Central California, the U.S. Energy Information Administration said.’
To put that in perspective, 600 million barrels of oil is the equivalent of around seven days of world oil demand. By contrast, 13.7 billion barrels is the equivalent of 161 days of world oil demand.
It’s a big difference.
And what’s more, previous estimates had the Monterey Shale accounting for two-thirds of US shale oil reserves. That same two-thirds has just been cut down by 96%.
Is it time to panic? Is the US shale boom over? Have Russia and China won this battle of the Energy War?
We wouldn’t say that just yet. The new estimate from the EIA doesn’t say that the oil isn’t there. It just says that based on the current technology it’s too expensive or not feasible to drill it.
But that doesn’t mean some smart entrepreneur won’t come up with a way to exploit the resource a year or two from now. That’s the thing with innovation and the profit motive.
With 13.1 billion barrels of oil potentially lying there in the rocks, even right now we dare say someone is figuring out a way to get at it. When they do they’re likely to make a small fortune as oil companies fall over themselves to get their hands on the new technology.
There’s never a dull moment in the world of energy. And this is more proof that the fossil fuel era is far from over.
Cheers,
Kris+
PS. It’s for precisely this reason that resources expert Jason Stevenson is currently running his slide rule over the ASX energy stocks that can best take advantage of these ‘energy wars’. You can check out more of his research here, including his favourite non-energy play.