America's Energy Future: Challenges And Opportunities

by: Greg_Womack

I recently attended the The Energy Symposium hosted by The University of Oklahoma Energy Institute Price College of Business in Norman, Oklahoma on March 5, 2013.

Recognized experts from all sectors of the energy industry came together to share thoughtful perspectives on industry trends and specific actions that can help benefit our nation's economy and national security. It was a great lineup of industry speakers, including: Alan Armstrong- CEO, Williams Companies,Greg Armstrong - CEO, Plains All American Pipeline, General Wesley Clark - Retired Supreme Allied Commander Europe, NATO, Greg Ebel - CEO, Spectra Energy Corporation, George Kaiser - Energy Investor, J. Mike Stice - CEO, Access Midstream Partners, Adam Sieminski - Administrator, U.S. Energy Information Administration, Al Walker - CEO, Anadarko Petroleum Corporation, R. James Woolsey - Former Director, Central Intelligence, among others.

Here are my takeaways from the sessions I was able to attend:

America is the world's energy leader with its technology and services industry. Because of improved technology, we are finding and producing more way more oil and gas than what we thought was possible just a few years ago. Oklahoma Governor Mary Fallin shared her vision and plan for energy independence, which budgets for alternative resources, including wind, solar, and biomass. Part of the plan includes converting the states 11,000 automobiles to CNG vehicles. Oklahoma has more CNG fueling stations than any other state per capita (70). By 2025 the goal is to have one CNG fueling station every 50 miles. Wind power capacity has doubled in the last 2 years. Oklahoma is a leader in the energy markets with over $300,000 workers in Oklahoma related to energy.

Oil / energy independence is not just a pipe dream; it will be a reality with the U.S. projected to be a net exporter of natural gas by 2020. We are experiencing an energy renaissance that has the potential to be the greatest economic driver since World War II era. Pipelines, storage and transportation of commodities will remain in high demand. Rail will continue to benefit from transportation of crude in some regions, but pipelines are the key for transportation and delivery of abundant energy commodities (such as the TransCanada Keystone). According to the U.S. EIA, America most likely will not be a net exporter of oil, still needing to import roughly a third of our need over the next 20 years. (However, remember that many experts predicted just a few years ago we were running out of natural gas).

The markets should dictate energy independence, not government. The government is not allowing the markets to create diversity in fuels. We should give consumers/market three fuels to choose from (i.e. gasoline, CNG and methanol), and the let markets run with it. Government is creating more obstacles than it is leeway to energy independence. In comparison, China is doing well diversifying their fuels. Joe Craft, of Alliance Resource Partners (NASDAQ:ARLP) believes coal prices have stabilized and is expecting business to improve; ARLP is increasing capacity with new plants coming online and they expect record exports in the coming years.

U.S. oil supplies to remain historically high. Because of our ability to find more oil, the push to create other fuel options (CNG/LNG), combined with other factors such as fuel efficiency standards, domestic oil demand in the U.S. should not increase as it has historically; thereby crude oil should trade well under $100/barrel in the next few years, (comments from Robert Sheppard, former CEO of BP-TNK). However, emerging market demand for crude and petroleum products will continue.

In regards to challenges and national security, James Woolsey, joined by satellite, voiced concerns about the vulnerability of our electrical grids to terrorist attack. Also, a threat to our national security is that oil has a monopoly on our transportation, while OPEC controls 78% of the world's oil. He stated that methanol is a strong consideration for replacing gasoline in the U.S. Woolsey also stated that energy independence is not solely importing less oil, it's also means not being "ordered around". To help in this effort, we should create an energy policy or environment that supports alternative fuels to gasoline; efficient fuels that we already have an abundance of (natural gas and liquids). General Wesley Clark, who has oil/gas business experience, stated oil dependency is costing us not only economically but human lives, by wars in the middle-east and terrorism. He stated that government cannot create a plan of energy independence, only business can.

It was great to hear many of the ideas on energy industry and energy independence for America. Let's just put it this way...there was a lot of energy in the room! The industry is making great progress in spite of over-regulation and government obstacles. In many respects, America is the world's energy leader; unmatched in technology, experience and now resources! My hope is that we continue to make America energy independent for all American's and future generations---I believe this is the key for America's economic success and freedom for today and future generations.

After listening to the industry experts, here are a few stocks to consider for energy positions:

Pipelines - moving the commodity:

These companies are involved in energy infrastructure focusing on pipelines, gathering and processing and transportation. There is huge demand for pipeline, processing and transportation of energy commodities, and that demand should continue for the foreseeable future.

Williams Companies (NYSE:WMB), is one of the largest providers of energy infrastructure in North America. Its trading 7% off its 52 week highs, and has a dividend yield of 3.9%. Now that it has pulled back from the highs recently, it would be prudent to start a position here and add to on weakness. WMB is a core holding in this sector.

Access Midstream Partners (NYSE:ACMP) is a growth-oriented midstream natural gas provider with focus on owning, operating and developing and acquiring midstream energy assets in the U.S. They have a strong asset base and extensive intrastate pipeline infrastructure located strategically in some of the highest resource rich plays such as the Barnett, Eagle Ford, Haynesville, Marcellus, Niobrara and Utica Shales, along with Mid-Continent regions with access to major delivery points. A spin-off from Chesapeake Energy (NYSE:CHK) in 2010, ACMP is positioned be a leader in the transport/pipeline sector. It currently pays out a 4.5% yield, has a strong earnings per share growth rate of 25% and a strong balance sheet. ACMP has run up recently to all time highs and is still attractive; although I'd wait for a pull-back to the low to mid $30 range before adding it to the portfolio.

Plains All American Pipeline (NYSE:PAA) is an MLP that owns and operates a diversified portfolio of assets that play a vital role in the movement of U.S. and Canadian energy supplies. they're engaged in transportation, storage and terminals and marketing of crude oil, refined products and natural gas liquids (NGLs). It is trading near its all time high; pays out 4.1% annually. PAA is trading at all-time-highs; a pull back to the mid-to-high $40 range would be prudent before adding.

Exporting themes:

Global demand for natural gas is expected to expand significantly as more nations adopt environmentally cleaner fuels to meet future economic growth and environmental standards. Teekay LNG Partners (NYSE:TGP) for shipping of LNG. TGP is paying out 7% annually to unit holders; it has a beta of 0.75, and is trading 8% off its 52-week highs. A good buy in here.

Chenier Energy (NYSEMKT:LNG) for LNG pipeline and terminals. Both of these companies will benefit from exporting LNG. Chenier is more of a speculative play, as they plan on turning a profit in 2015. They will have a total of 3 ports, 6 unloading docks and up to 13 storage tanks in their network. Exports from the Corpus Christi terminal ready for exports as early as 2017. But you might want to wait for a pull back before jumping on LNG, as it is trading at all time highs. Put this one on the watchlist and be ready to purchase if it falls to its 200-day moving average, around $17/share, a $6+ pull back from current prices.

Alternative Fuels:

Clean Energy Fuels (NASDAQ:CLNE), Builds and operates CNG fueling sites. Trading 40% off its 52-weeks highs, the company is a great long-term speculative play in the CNG area. It has been trading in a flat base range, and has put in a nice price bottom. I would start adding to in here.

Westport Innovations (NASDAQ:WPRT) makes heavy duty truck engines to run on CNG / LNG. Like CLNE, WPRT won't turn a profit until 2015, so it is a speculative play, but one worth starting a position as it is 38% off its 52-week highs. Westport has the largest number of natural gas engine technology patents (325 currently, with over 700 filed), blowing away 2nd best Toyota of 218 patents. With improving fundamentals and technicals, now be a great time to add to this (growth) engine!


Alliance Resource Partners --Coal is not dead, yet. We should see an increase in demand, especially exports. ARLP pays a 7% annualized distribution to unit holders and is trading 12% off's its 52-week high. Its P/E ratio is 10 and next year's earnings a projected to increase by 17% from 2013. As mentioned earlier, they are planning several new facilities to come online in the next couple of years and are planning to take advantage of the increasingly profitable export market. ARLP is a great way to play the coal sector with lower volatility; its beta is 0.73 compared to many other coal stocks of 1.5 or higher.

These are the opinions of Greg Womack and are not meant to be taken as investment advice. Please seek professional advice before investing.

Disclosure: I am long WPRT, CLNE. I may take a position in TGP and WMB in the future. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: These are not specific recommendations. These are the views of Greg Womack. Please seek professional advice before investing. Past performance is not indicative of future results. Loss of capital is possible.