With Thanksgiving just a day away, 2011 is right around the corner — too close not to have a game plan.
That last sentiment has been on your minds for weeks.
I know this much because my inbox has been flooded as of late, and for good reason…
The return of $100 oil
We know oil consumption is rising again.
Thanks to stronger-than-expected economic growth in Europe and Asia, OPEC has upped its oil consumption forecast for 2011. OPEC believes global consumption will reach nearly 87 million barrels per day next year.
Even the IEA raised its global oil demand forecast again — this time by 0.2 million barrels per day, which puts their projected 2011 demand to 88.5 million barrels per day. That’s compared with the 87.3 million barrels per day projected for 2010.
Although those levels are nothing to boast about, remember that production is still around 86 million barrels per day. Going forward, we can count on that gap widening.
So in 2011, it’s likely that we’ll see the return of $100/bbl oil.
But that certainly doesn’t mean oil prices will average $100 per barrel for the year. Making that mistake could be costly.
I expect to see prices staying between $75-$90/bbl, a little higher than the $60-$85/bbl range we saw in 2010.
Four investment lookouts for 2011
1. China’s energy scramble reaches new heights
I’ve talked about China’s energy grab in the past.
And in fact, calling it China’s “energy scramble” is an understatement.
According to the latest World Energy Outlook 2010, published earlier this month by the IEA, the world’s energy demand grows 36% by 2035, “led by China, where demand surges by 75% — accounting for almost all of the increase.”
Now, that shouldn’t come as a surprise to us. The way China has been buying energy assets across the globe, you’d think the country is in the grips of a cataclysmic energy crisis.
The country’s largest company, PetroChina, reported approximately half of its overall production will come from overseas production within the next five years. And in order to achieve that goal, PetroChina expects to spend at least $60 billion on takeovers…
And believe me, dear reader, nothing will be off limits.
2. Montana’s day in the Bakken spotlight
We’ve been fortunate enough to watch the North Dakota oil boom unfold over the last few years.
Even before that fateful USGS report was released in 2008, we saw opportunities that were too good to pass up — companies like Brigham Exploration (which now sets the bar in the Bakken) have been tremendously successful for readers.
Throughout that time, Montana played the role of the quiet, envious neighbor.
But that could easily change — especially now that Bakken drillers are looking to expand their horizons…
The state has issued more than 300 oil and gas permits in 2010. And while it’s a far cry from the 1,300 permits issued five years ago, it’s a much different game today.
North Dakota’s success took a few years to cultivate, and the rewards are rolling in.
North Dakota is now the fourth-largest oil producing state in the United States. And with every Bakken well drilled, companies are becoming more efficient.
When the drilling frenzy begins to grip Montana’s portion of the Bakken, we’ll see more than a few familiar names having success.
3. Canada’s oil sands heat up
When oil prices bottomed at $33 per barrel at the end of 2008, it wasn’t easy for producers operating in the Canadian oil sands.
This year, however, turned out much better for them. With oil prices seemingly stuck in that $70-85/bbl price range, companies are finally moving ahead in developing the huge oil sands deposit.
Yet the future of the oil sands isn’t in the massive surface mining projects that plague both the news and environmentalists dreams. Rather, the future lies in the bitumen that’s too deep to be surface mined.
And the list of investors interested in the oil sands is far from short…
The most recent deal was made by PTT Exploration and Production, Thailand’s largest oil and gas company, to the tune of $2.3 million to purchase a 40% stake in Statoil ASAs oil sands project.
China Petrochemical Corp. also dipped its hands in the dirty sands of Alberta, spending $4.65 billion for a stake in the Syncrude project.
But as I mentioned, the real money’s too deep to be surface mined. I’m sticking with those SAGD companies looking to ramp up in situ production.
4. Offshore shakes the BP stigma: Brazil or bust
Finally, we have the offshore industry — the one industry that has taken a massive PR hit this year.
(Thanks again for that debacle in the Gulf of Mexico, BP.)
The woes surrounding the Macondo well this past summer have sent the political wolves into the fight.
From here on out, offshore companies looking to tap into deepwater oil fields will have a new, stringent set of rules to live by.
Of course, more caution is a good thing, right? After all, drillers are breaking depth records over and over again, each company drilling further and deeper than ever before.
Now that the world’s giant oil fields are tossing back and forth on their deathbeds — the once-mighty Cantarell, now a shell of its former glory, comes to mind — the world’s oil production is in the midst of a major shift to smaller fields… including offshore.
Leading the charge is Petrobras, Brazil’s oil gem that’s developing the Tupi field.
The company recently announced it will spend $224 billion over the next five years to reach target production of 5.4 million barrels of oil and gas per day.
Reaching that target will take up to a decade. However, the company could very well become the largest publicly-traded oil producer in the world.
Over the next few weeks, I’m going to dig much deeper into these trends individually…
And I’ll be putting the finishing touches on a report detailing several small companies still flying under everyone’s radar.
Enjoy your holiday,
Editor, Energy and Capital