I recently went to tour a graphite mine about 150 miles northwest of Ottawa.
From the highway, it was another several miles down a snow-covered forestry road to get to the mine, which is in the middle of thousands of acres of Crown land.
Two moose tried to block our passage on the way in.
Massive fallen pine trees need to be cleared from the road every single day.
You’ll be hearing plenty more about that mine — and about graphite — in the coming weeks and months…
But it’s something else I learned on that trip that piqued my interest. And I think you’ll want to know about it, too.
Ever wonder how you get electrical power to a graphite mine in the middle of the Ontario wilderness, miles from any power line?
I hadn’t either, but it was a prime concern for this young mining company.
Every cent of cost is one less cent profit.
So all the options were weighed in thorough feasibility studies: build a substation from the highway and run a line; build diesel generators; tap into a nearby Enbridge gas pump house and build gas turbines on-site.
Natural gas won by a wide margin.
Even with the up-front costs of tapping into the Enbridge facility, laying a new pipe, and building turbines, the current low price of natural gas — and the forecast for it to remain low — means it’s a cheaper option than buying electricity or diesel to run generators.
Swimming In It
New techniques and formation information have led to a global reassessment of natural gas reserves.
The advent of fracking and the discovery of shale formations mean proven reserves of natural gas could be several times more than once thought. And that’s keeping prices at two-year lows — below $3.00 per BTU.
Even better, these formations are, for the most part, in countries previously considered “energy poor,” namely the United States, China, and Argentina.
This means countries once dependent on energy imports could soon become energy exporters… and this has the “energy rich” incumbents starting to worry.
The sentiment is clear in this recent quote from the head of the Venezuelan Gas Processors Association:
The global energy chessboard is changing, and markets will be realigned. Countries that have never had so much available energy will become self-sufficient, and perhaps even exporters. Fossil fuels may become cheaper, the growth of alternative energies will slow down, and new alliances, investments and trade networks will be established.
Indeed, those alliances, investments, and trade networks are being established right now.
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One Day: $4.5 Billion
You may have still been hungover from New Years, but two very indicative events occurred on Tuesday:
1. For the first time ever, China’s Sinopec (NYSE: SHI) bought into a U.S. shale play. It paid $2.2 billion for a 33% interest in five of Devon Energy’s (NYSE: DVN) fields. Devon had been shopping the package, which includes 1.2 million acres in the Utica, Tuscaloosa, and Niobrara Shales since November.
2. France’s Total (NYSE: TOT) paid $2.3 billion to Chesapeake (NYSE: CHK) and a smaller partner for a 25% stake in 619,000 acres of Ohio’s Utica shale.
If you’re starting to think this is part of larger, much more valuable trend, you’re right.
Keith and I told you several times last year about the heavy merger and acquisition activity caused by new shale finds.
Here we see China and France chomping at the bit to the tune of $4.5 billion.
In total, 2011 saw $473 billion in energy asset transactions.
This year could be even bigger.
To that end, we’ve identified three stocks operating in U.S. shale formations that are most likely to be a part of this year’s boom.
As the global energy chessboard changes, the world is starting to hail the new shale king.
Call it like you see it,
Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street’s Underground Profits. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor’s page.