Oil and Natural Gas Investments: Why You Should Buy Black Gold Now

by Alexander Green, Chief Investment Strategist
Thursday, December 3, 2009: Issue #1150

Some day in the future, human beings will likely colonize Mars. But if I suggested you invest in its colonization now, you’d rightly think I was a few cards short of a full deck.

The same is true of much-ballyhooed “alternative energy.”

Someday, nano-engineered solar panels and wind turbines may power the nation and the rest of the world. But it won’t be anytime soon. Today, wind and solar combined make up just one-sixth of 1% of American energy consumption.

As for the Cassandras who insist we simply don’t have any choice but to look elsewhere and that our planet is running out of oil and natural gas… well, take it with a whole shaker full of salt.

Here’s why – and how we can play the current oil and natural gas investment situation…

How to “Run Out of Oil” Multiple Times

Consider this from Pulitzer Prize-winning columnist, George Will:

“In 1914, the Bureau of Mines said U.S. oil reserves would be exhausted by 1924. In 1939, the Interior Department said the world had 13 years worth of petroleum reserves.

In 1970, the world’s proven oil reserves were an estimated 612 billion barrels. By 2006, more than 767 billion barrels had been pumped and proven reserves were 1.2 trillion barrels. In 1977, Scold-in-Chief Jimmy Carter predicted that mankind ‘could use up all the proven reserves of oil in the entire world by the end of the next decade.’ Since then, the world has consumed three times more oil than was then in the world’s proven reserves.”

The world’s population is rapidly rising, of course. And so is discretionary income. Nearly 2 billion of the world’s 6.2 billion population don’t have electricity and have never flipped a light switch.

So surely that means nuclear power is likely to play a major role in meeting future energy demand?

Nope.

Forget Nuclear… Oil and Natural Gas Will Still Rule the Energy World

By 2050, there will be more than 10 billion energy consumers. If nuclear power is to supply even 10% of our carbon-free energy, the world would have to build more than 50 large nuclear power plants a year. Currently, five a year are being built.

Our primary energy source for the rest of our lifetimes will be the same one that has dominated for the past 150 years: oil and gas.

Despite all the naysayers and finger-waggers, that’s not an insurmountable problem. The world’s deep-water oil and natural gas reserves are significantly larger than was thought just a decade ago. And higher oil prices have spurred the development of technologies for extracting them.

That means the cost of developing Canada’s oil sands, for example, are quickly declining. Projects that weren’t viable last year now are, with oil at $77 a barrel.

As for natural gas, U.S. known reserves – including the Marcellus Shale, – which contains more natural gas than the North Field in Qatar, the largest field ever discovered – exceed 100 years of supply at the current rate of consumption. And those reserves are sure to become larger.

Two Huge Commodities… And One Investment That Capitalizes on Both

Let other speculators chase the high-risk venture capital investments in alternative energy sources. Oil and gas are here to stay. Bank on it.

Or better yet, pick up a few shares of iShares Dow Jones US Oil & Gas Exploration Index (NYSE: IEO). Here are three reasons why you should…

  • It’s well-diversified, holding Anadarko Petroleum (NYSE: APC), Apache (NYSE: APA), Chesapeake Energy (NYSE: CHK), Devon Energy (NYSE: DVN), Noble (NYSE: NE), Occidental Petroleum (NYSE: OXY), Valero (NYSE: VLO) and many others.
  • It’s liquid.
  • Costs are low – annual expenses are less than half of one percent.

Good investing,

Alexander Green