It is the best of industries; it is the worst of industries.

And I think the energy position in your portfolio ought to reflect that U.S. oil stocks and natural gas stocks are headed in opposing directions. The underlying fundamentals of liquid hydrocarbons are so different from those of gaseous hydrocarbons in the U.S. market that the odds are that 2012 will bring higher share prices for U.S.-oriented oil producers and stagnant prices for U.S. natural gas producers.

And unfortunately for bottom fishers, I think the trends that have put natural gas in an energy deep freeze are set to last for a while.

This all has repercussions that extend well beyond the stocks of oil and gas producers because the conditions in these two energy sub-industries will have a huge effect on drilling and service companies and on chemical producers.

Here are two deals from Monday, January 23, that sum it all up. Read more

Sell Encana (ECA) out of my long-term Jubak Picks 50 portfolio

The December 2009 split into two companies was supposed to highlight the value of the U.S. and Canadian natural gas assets that EnCana (ECA) kept. (The new company Cenovus (CVE) got the Canadian oil sands and refining assets.) Instead it has wound up emphasizing EnCana’s exposure to a glut in North American natural gas that could keep prices depressed for years.

Now EnCana looks like it has decided to invest in reversing that 2009 split by putting about 20% of its capital budget into developing reserves that are rich in natural gas liquids and oil. Read more

Think the U.S. elections lowered the odds of a national energy policy? IEA report puts some oil barrels a day numbers in a scenario

The soon to be concluded U.S. mid-term Congressional elections—it could take weeks to certify the results for the Senate seat in Alaska—has certainly lowered the odds for any significant national energy policy passing the House of Representatives. According to ThinkProgress, 50% of the freshman Republicans just elected to Congress deny the existence of manmade climate change.

Now as a citizen of the U.S. (and of the world) I may think that’s just super or utterly reprehensible, but as an investor I’d sure like to know what the effect will be in dollars and cents of a lack of U.S. action on climate change (and the consequent decline in the urgency that many other countries will feel about dealing with climate change.)

Right now, it looks like the International Energy Agency will answer at least some of these questions in its World Energy Outlook report to be released tomorrow, Tuesday. In the report the agency will, for the first time, include a scenario that forecasts oil prices and demand with and without new policies to increase energy efficiency and to move the world away from carbon fuels.

Actually you don’t have to wait until next week. The Financial Times got hold of a draft of the report and published the agency’s conclusions on oil prices and demand on November 4.

In the draft the IEA forecasts that real oil prices—that is adjusted for inflation—will hit $113 as barrel by 2035 under what it calls the new policies scenario versus $135 a barrel in its status quo scenario.

Oil closed at about $87 a barrel last week in New York so the IEA status quo scenario is projecting a 55% increase in the real price of oil—plus the effect of inflation and a declining dollar—in the next 25 years. Under the new policies scenario the increase in the real price comes to just a little less than 30%.

The agency also projects global oil demand by 2035 under these two scenarios with oil demand rising to 99 million barrels a day by 2035 under the new policies scenario and to 107 million barrels a day under the status quo scenario. The IEA projects oil demand for 2010 at 87 million barrels a day in 2010.

Getting the global supply of oil to anything like 107 million barrels a day will require massive spending by national and international oil companies on exploration (Schlumberger (SLB), SeaDrill (SDRL) and Weatherford (WFT) come to mind as promising stocks in that scenario) and will reward companies that can expand production anywhere (Chevron (CVX), the companies like Oasis Petroleum (OAS) and Brigham Exploration (BEXP) with large lease positions in the domestic U.S. Bakken oil shale formation, and, of course, Canadian oil sands producers such as Suncor Energy (SU) and Imperial Oil (IMO) would make a list of oil companies likely to add to global supply and that you and I can invest in.)

Unless, of course, you think Congress will come up with a meaningful national energy policy anytime soon.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this post. At the end of September the fund owned shares of Schlumberger and SeaDrill. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

China disrupts the oil and gas industry–again

You wouldn’t think that anybody, especially an anybody as savvy as ExxonMobil (XOM), could overlook China.

But that may be exactly what ExxonMobil did in formulating its plan to pin the company’s growth on natural gas—and in particular on liquefied natural gas (LNG).

According to U.K. oil and gas consulting company Wood Mackenzie, China looks like it will need only half as much additional liquefied natural gas in the decade beginning in 2020 than big oil companies such as Royal Dutch Shell (RDS), BP (BP), Chevron (CVX), and, yes, ExxonMobil had projected. 

Projects such as ExxonMobil’s Qatargas Trains 4 and 5, RasGas, Al Khaleej Gas, the South Hook liquefied natural gas terminal, and the Golden Pass LNG terminal—and this is only a partial list of ExxonMobil’s planned investments in LNG in 2009 and 2010–that made investment sense when it looked like China would be importing an additional 16 million tons of LNG annually in the coming decade now face a scenario in which China will need to add only half as much to its annual imports.

 That will hit all the international oil companies hard but it will hit ExxonMobil especially strongly because the company has based its investing strategy on natural gas in general and liquefied natural gas in particular.

 What’s changed since, say, March 2010 when ExxonMobil announced that it will increase capital spending by 4% in 2010 to almost $28 billion in a big bet on natural gas on top of its purchase of U.S. natural gas producer XTO Energy for $28 billion? Read more