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How To Ride The Trend of The World’s Next Top Oil Producer (XLE, CQP, CVX, COP)

November 25th, 2012

Tom Essaye: Last week the International Energy Agency (IEA) released its World Energy Outlook 2012. This annual report provides a long-term view of the global energy market. And it’s used by policymakers and energy officials when crafting energy policy for the next year, as well as the coming decades.

In reviewing the annual outlook, some expected trends were noted. Specifically, energy demand should rise one-third by 2035. And 60 percent of that demand will come from China, India, and the Middle East. That wasn’t surprising if you have been watching the energy markets over past few years.

There were, however, some big surprises …


The first was that the United States will overtake Saudi Arabia as the largest global oil producer by 2020. And the second was that natural gas growth is critical to that expansion.

Under the various scenarios in the IEA’s report, global demand for natural gas grows in all of them … the only commodity to do so! And as expected, Asia, India, and the Middle East lead that demand.

Additionally, North America is expected to become a new exporter of natural gas over the coming decades, as natural gas production grows from the increase of shale and other non-conventional natural gas sources.

The World Energy Outlook 2012 is an extremely long-term view. However, from an investment standpoint it can give you important insight into the major trends affecting the energy industry, and the potential opportunities within those trends.

The Sector to Benefit Most

Based on the IEA’s outlook, the export and transportation of liquid natural gas (LNG) is seen as the preeminent growth sector in the energy industry.

'Energy developments in the United States are profound and their effect will be felt well beyond North America — and the energy sector.' — <em>World Energy Outlook</em>” width=”150″ height=”212″ style=”border:solid 1px #FFFFFF;” /></td> </tr> <tr> <td style=“Energy developments in the United States are profound and their effect will be felt well beyond North America — and the energy sector.” — World Energy Outlook

As the U.S. begins to massively export natural gas, and demand continues to rise, companies that gather and transport natural gas, whether by pipeline or by tankers, will stand to benefit.

One of the companies best situated for growth in LNG transportation is Cheniere Energy Partners (NYSE:CQP), which I own in the Million-Dollar Contrarian Portfolio.

Although there is no “pure play” LNG exchange traded funds in the market, you can have more general exposure in the Energy Select Sector SPDR (NYSEARCA:XLE).

This ETF contains some of the largest energy companies in the world, including those who are investing heavily in LNG like Chevron (NYSE:CVX) and Conoco-Phillips (NYSE:COP).

While it’s obviously a long-term view, the IEA’s World Energy Outlook 2012 report shows the energy markets’ clear direction over the coming years. Therefore, you might consider allocating a portion of your portfolio into that sector to take advantage of the growth over the coming years as these trends materialize.

Written By Tom Essaye From Money And Markets

Money and Markets  (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, and Michael Larson. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.

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