How the Shock in New Oil Production Could Be the World’s Greatest Scam

By Thursday, May 16, 2013

How the Shock in New Oil Production Could Be the World’s Greatest Scam“Shockwave,” “revolution,” “bonanza,” and “paradigm shift.”

These are just some of the provocative words in the Medium Term Oil Market Report-2013 that was just released by the International Energy Agency (IEA).

I don’t think I’ve ever read a more enthusiastic and fervent document from a government body in my life.

The IEA is an organization funded by 28 countries that was created after oil prices skyrocketed in 1973 and 1974. As policy, the agency doesn’t forecast oil prices.

The IEA’s executive director, Maria van der Hoven, said, “North America has set off a supply shock that is sending ripples throughout the world.” (Source: “Supply shock from North American oil rippling through global markets,” International Energy Agency web site, last accessed May 15, 2013.)

The IEA forecasts the North American oil supply will grow by 3.9 million barrels of oil per day (mbopd) from 2012 to 2018. That’s significant.

Chart Industries, Inc. (NASDAQ/GTLS) out of Garfield, Ohio is an oil and gas storage manufacturer that was recently featured in these pages. (Read “This Is an Investment Theme Worth Paying Attention To.”)

But the biggest gain of all, according to the IEA, will be in global oil refining capacity, which is expected to surge by 9.5 mbopd over the next five years, led by China and the Middle East.

The report said that higher oil prices over the past few years provided the backdrop for the “revolution.” Lofty oil prices helped make fracturing technology (used to extract oil from under rock) and Canadian oilsands production economically viable.

What’s most interesting (and worrisome) is that the report said the supply “revolution” is transforming the global supply chain, but that future economic growth related to the global oil industry will be strongest in commercial storage capacity and global hubs to support long-haul crude oil. (Source: Ibid.)

The ripples that van der Hoven is referring to have serious consequences—and not just for oil prices.

The report implies that the North American production boom, may only be that. With oil prices where they are (or better) much of the new hydrocarbons are going to get sent directly overseas.

The benefits of the oil and gas resurgence (refining, new infrastructure, jobs, spin-offs, the chance for lower oil prices, and lower prices at the pump) could essentially be shipped overseas.

There are infrastructure benefits (and costs) occurring now because of the oil and gas build-out. Oil prices recently strengthened.

The IEA said that every aspect of the global energy industry will experience some degree of “transformation” over the next five years.

I believe it. But if the “bonanza” simply gets shipped overseas, a huge opportunity will be lost.

The IEA and Exxon Mobil Corporation (NYSE/XOM) predict North America will become a net energy exporter by 2030.

When I read this report from the IEA and considered what it hinted at, it made me think how important it is not to give away the store.

Energy in all its forms (and alternative energy) has so much potential to help revitalize the U.S. economy.

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About the Author, Browse Mitchell Clark's Articles

Mitchell Clark is a senior editor at Lombardi Financial, specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, including Micro-Cap Reporter, Income for Life, Biotech Breakthrough Stock Report, and 100% Letter. Mitchell has been with Lombardi Financial for 17 years. He won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was a stockbroker for a large investment bank. In the... Read Full Bio »

  • Michael Ford

    Charter rates for oil tankers from the Middle East to US ports has collapsed over the past few years as less is being shipped to the US.

  • RadarTheKat

    Oil, like money, is largely fungible, so it really doesn't matter where U.S. oil is ultimately used.

  • choppingdownthecherrytree

    No doubt many aspects of energy production will be created overseas…. when was the last time a refinery was built in the USA?? Activists and environmentalists control the boards which issue permits… so they just deny new building. Many of these jobs will be shipped overseas due to a political agenda…