by David Fessler, Investment U’s Energy and Infrastructure Specialist
Tuesday, February 8, 2011
That’s one man’s verdict on the chance of seeing oil prices top the $200 per barrel mark.
That man is Nansen Saleri, President and CEO of Quantum Reservoir Impact, and former head of reservoir management at Saudi Aramco.
He appeared on CNBC’s “Squawk Box” show this morning and was asked about the chance of Egyptian unrest causing oil prices to spike even further – and he downplayed the effect it would have on world markets:
“Egypt only produces about 750,000 barrels of oil a day, which is a little less than 1% of the total world output of 82-83 million barrels a day.”
When asked what would happen if the Suez Canal and the SuMed pipeline were shut down, he noted:
“The capacity of the canal and the pipeline together are about four million barrels a day. But currently, only about 1.6 million to 1.7 million barrels are flowing through it. That’s less than 2% of the total liquid supply globally.
“Couple that with a 2-3 million barrel extra supply in the Middle East (particularly in Saudi Arabia), and nearly as much floating around the world in tankers, the 2% variability is really miniscule in terms of the big picture.”
And when asked about he thought would be a “fair price” for oil, he simply said, “It’s based on what people are willing to pay.”
Translation: Good old supply and demand at work, once again. And it’s one reason why companies like ExxonMobil (NYSE: XOM) and Petrobras (NYSE: PBR), will continue to fare well in the months and years ahead.
But so much for me thinking this was just going to be another interview about oil prices. Saleri then started singing my tune…
The Global Energy Wars
He said we’re now in the most global competitive market for energy in history, with conventional oil just one of the players.
The others? Natural gas, wind, nuclear, solar, geothermal, and even biofuels. They’re all competing against one another… and against conventional oil.
“From an [energy] supply perspective, the globe is entering a far more free market-oriented environment. Diversity in the energy supply is a stabilizing force,” said Saleri.
This ultimately benefits the consumer, by keeping supply in line with increasing demand. Saleri continued: “On an equivalent BTU basis, natural gas is about one third the cost of oil. Clearly this is not sustainable.”
Hear, hear! That’s one of the reasons that T. Boone Pickens is so high on natural gas. It’s cheap, we have an abundant supply and we can put it to use in this country in transportation, heating, and power generation immediately. No advanced technology required.
In fact, we’re doing just that…
The Equation is Simple: Energy = Profits
Natural gas accounts for about 55% of our total energy supply, with oil down to about 39%. Renewables makeup about 6%, but are the fastest-growing segment.
That’s one of the reasons why companies like First Solar (Nasdaq: FSLR) will continue to make gains in this new, competitive global energy supply market. The stock is up 40% over the past year and has surged by more than 500% over the past five years.
Saleri’s parting comments sum it up rather succinctly: “You won’t see $200 [a barrel oil]. There are fundamental reasons why you cannot see $200 when you have so much gas available. Solar, wind nuclear, and other alternative energies are there to take a share. $200 a barrel oil is out of the question.”
That’s just one man’s opinion, of course. But he makes a very compelling argument for investing in just about any form of energy. We’re going to need them all – and all should do well in the coming months and years ahead as the global economic recovery continues to accelerate.
And that’s exactly why I created my Peak Energy Strategist service: To focus exclusively on the massively important trends within the energy and infrastructure sectors – and show investors how to profit from them.