Two Recession-Proof Secrets for Oil Investors

Keith Kohl

Written By Keith Kohl

Posted September 16, 2011

We haven’t seen a race like this in decades.

The more this silent energy war drags on, the more critical it is to our energy security that we don’t lose.

In the end, however, there’s only one winner: you.

The smart money isn’t choosing sides in this showdown. Savvy investors are playing both sides of the fence, and it will prove to be a win-win situation.

It’s simple, really — and it all revolves around one of the safest investments out there today. You see, we know that both the U.S. and China are desperate to secure future oil supplies…

And as a colleague of mine put it recently, “We’re staring down the barrel of an unconventional future.”

An Unconventional Future

Allow me to explain how the average person sees things.

One quick look at data from the EIA reveals U.S. oil production last June averaged 5.624 million barrels per day. Granted, it’s less than half of the 11.7 million barrels per day we’re importing on a daily basis.

That’s good news, isn’t it? After all, our domestic production is up 13% since 2008 — and nearly 4% higher than a year ago.

Too bad that’s where the optimism ends for us.

You see, what they haven’t realized yet is where we’re getting that oil. Our easy-to-get oil is being replaced through unconventional means right now!

More than one-third of that domestic production increase between 2008 and 2011 came from just one state: North Dakota. And as my veteran readers are well aware by now, that bit of good news is entirely thanks to drillers tapping into unconventional shale formations like the Bakken.

Meanwhile, our conventional production is still declining. Within the next two years, we’ll see North Dakota catapult past California to take the title of third-largest producing state. That’s not a guess; it’s an inevitability.

And our Peak Oil conundrum will keep us fighting China for Alberta’s 175 billion barrels of bitumen.

China is in a similar boat. China doesn’t have nearly enough oil reserves, and the country has been a net oil importer since 1993. Right now, China is consuming oil at a rate of 10.2 million barrels per day, about 6% higher than last year.

Of course, if we were only looking at this with a short-term perspective, there wouldn’t be much to worry about… But that’s the worst mistake we can make.

The Battle for Infrastructure

Over the last few weeks, we’ve talked endlessly about how the U.S. is setting itself up to receive more Canadian crude via the Keystone XL pipeline.

At first glance, everything appears as if it is falling into place. But that’s because most people haven’t caught wind of another pipeline in the works — a second project that hasn’t even made U.S. headlines.

And this pipeline isn’t going to decrease our dependence on oil from the Middle East — it will increase it! If completed, Enbridge’s $6.6 billion Northern Gateway project will be approximately 36-inches in diameter and ship Canadian crude from Edmonton, Alberta, to the British Columbia coast… then on to Asian markets.

No one should be surprised to learn the Gateway pipeline is strongly supported by the Chinese. Sinopec is already backing the project. Sounds about right, considering the Chinese are shelling out billions of dollars in Canadian oil interests.

Now, for the silver lining: As I mentioned above, the smart money will play both sides of this energy battle.

Two Recession-Proof Secrets in Oil Profits

In the U.S. alone, more than $2.7 trillion will be needed just to replace aging infrastructure. In China, that amount jumps to $4 trillion. And that figure doesn’t include an increase in energy consumption, which you can certainly bank on happening.

Two years ago, we saw a massive opportunity in infrastructure investing. The International Energy Agency reported in 2009 approximately $26 trillion will be needed in the energy sector by 2030.

Investing in infrastructure plays is perhaps the safest long-term investment you can make.

In the case of the China-U.S. feud for Canadian oil, it allows us to play both sides of the fence. And you can see below how it’s worked thus far…

ENB TRP Chartclick to enlarge image

Despite the numerous harsh economic troubles to hit investors, these pipeline stocks have proved they can weather recessions and crashes. Furthermore, these infrastructure stocks are even stronger over the long run:pipe long run

There’s an added bonus here for the smart money. Going forward, one place will solidify itself as a leader in world energy production, even more so than it already has…

Alberta’s slogan is “We have the energy.” I can tell you firsthand that they do…

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Until next time,

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Keith Kohl
Editor, Energy and Capital

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