Is there an investment better than oil?
It seems to many, oil has it all.
Oil is a popular way to protect against inflation.
It’s truly a liquid asset. Someone, somewhere, always needs oil. It can be bought and sold very easily.
Also, oil is tough not to keep track of. The financial media gives us daily updates on gasoline prices.
On top of that, even slight increases in demand can send oil prices soaring. For instance, world oil consumption increased from 76 million barrels per day in 2000 to 87 million barrels per day in 2008. Meanwhile, oil prices climbed from around $30 per barrel in 2000 to average more than $80 a barrel last year. A 14% increase in demand led to more than a 150% rise in prices.
There’s the “Peak Oil” argument too. Which makes sense in there isn’t too much “easy” oil left, but there’s still plenty of oil in the world. It’s just more expensive to produce. Also the truly economically viable alternatives will come along, but they’re realistically years away from mass implementation. Remember, it took a couple of decades for the world to get rid of its addiction to whale oil after Peak Whale Oil.
So oil doesn’t look too bad. At $74 a barrel though, it’s not too good to pass up either.
There is, however, one energy sector which is looking much better than oil at the moment. A sector growing much faster than wind and solar power. A sector which doesn’t require any government legislation (ref: Cap-and-Trade) to make it economically viable. And one that has China, ExxonMobil, and other deep-pocketed energy heavyweights cutting multi-billion dollar checks every few months.
And best of all the investment opportunities will be limited. So when the big money wakes up to this high-growth energy sector, their will only be a few options for them to plow money into.
Better than Oil
I’m talking about liquefied natural gas, or LNG.
For long-time long time Prosperity Dispatch readers the growth of LNG over the next few years is nothing new. The last time we went over the growth potential of LNG was back in April. We determined the continuation of the LNG boom was “all but inevitable.”
Of course, the most attractive part of investing in LNG (we’ll look at the two best ways to do that in a moment) is that it’s still relatively small. And since it is small, it can grow very quickly.
For example, the latest Short-Term Energy Outlook from the Energy Information Administration predicts:
U.S. (LNG) imports to increase to about 500 billion cubic feet (Bcf) in 2009, up from 352 Bcf in 2008, and rise to about 740 Bcf in 2010.
That’s a two-year increase of 110%. And it’s only going to get bigger as time goes on.
Consider this. Last week, PetroChina (NYSE:PTR) announced it had cut a $41 billion LNG purchase deal with ExxonMobil (NYSE:XOM). The deal says PetroChina will purchase $41.29 billion worth of LNG from Exxon’s stake in the massive Chevron-operated Gorgon LNG Project in Australia.
The deal guarantees future sales from the project. It’s already sold. It’s like opening a factory, but you already have orders for the next 20 years.
This deal though is just one of many already in place. And it’s only one of many more to come.
The thing about natural gas is the Asian countries which consume the most produce very little of it. The chart below of Japan’s natural gas consumption and production is the perfect example of what is happening in other countries like South Korea and China:
Meanwhile, the countries which have a lot of it – Australia, Papua New Guinea, and Indonesia – are capable of producing far more than they are able to consume.
The only realistic solution is more and more LNG imports.
The Middle East continues to move into the LNG market too.
