Market Pulse: A game changer, part II
June 18, 2014
Just five years ago it looked like oil production had peaked and natural gas supplies were low. That all changed with hydraulic fracturing, or "fracking."
Fracking is a technique where water, sand, and chemicals are injected into deep rock formations. Small fractures in the rock allow natural gas and oil to migrate to the well.
As my February 6 article stated, fracking is a game changer. The U.S. is producing more natural gas than ever and gas is replacing coal in power generation.
Gas prices are far lower in the U.S., which give American companies a huge competitive advantage, so the manufacturing sector is benefiting and the trade deficit is falling. The states with the lowest unemployment rates those producing more and more oil and gas.
Using the same fracking technique, the U.S. is pumping crude oil at a level not seen since 1990 and may become the largest global oil producer by 2020. Oil imports are falling so we are less dependent on Middle East and foreign suppliers.
It's full speed ahead when it comes to energy production, and Washington and the individual states must ensure that it is done in an environmentally friendly way.
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For example, some states require companies to capture and sell the natural gas that comes up with the oil. In North Dakota, they burn the natural gas, which is why enormous flares are seen at night.
Leaking methane needs to be captured, too. Even with environmental oversight, fracking will remain very profitable.
In my February 6 article, I listed MDU Resources (MDU), Spectra Energy (SE), and British Petroleum (BP) as some of my favorite dividend-paying energy stocks.
MDU is up 3 percent, BP is up 9 percent, and SE is up 16 percent. My biggest winner has been Weatherford International (WFT), which is up 67 percent since February 6.
Client portfolios remain overweighted to the energy sector. Demographics and future demand growth all favor energy stocks. So far, so good.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.