The Investment Implications of U.S. Natural Gas 'Policy'

 |  Includes: COP, CVX, GLD, IEZ, MRO, OXY, PZE, XOM
by: Michael Fitzsimmons

Despite two environmental disasters during his administration -- the Kingston, Tenn. coal fly-ash spill and the BP (NYSE:BP) Gulf oil spill -- the supposedly "pro-environment" Obama administration continues to back the two dirtiest fossil fuels (coal and oil) while completely ignoring the solution to the economic, environmental, and national security issues facing the United States today: natural gas and natural gas transportation.

Natural gas emits 30% less CO2 than does gasoline and 50% less than coal. More importantly with respect to coal, natural gas has 100% fewer particulate emissions (that is, natural gas has 0 particulates) and does not require the storage of toxic fly-ash that coal combustion requires. Still, Obama and Energy Secretary Chu continue to support "clean coal" while ignoring the abundant, cheap, and clean domestic natural gas reserves.

Instead of refueling with domestic natural gas in their own garages for $10/tank, Americans are forced to refuel for $35/tank with gasoline predominately derived from foreign oil. So much for replacing the "C" student President with the "A" student. Obama talks a good game, but absolutely nothing has changed on the energy front. Nothing. With Obama and Chu it's still all about coal and oil, the two dirtiest and most expensive of the fossil fuels and the fuels responsible for the two largest environmental disasters in U.S. history. Considering that both disasters happened during Obama's time in office, the fact that he still supports coal and oil while ignoring natural gas doesn't say much for Obama's ability to learn on the job.

Even worse for America, the current moratorium on deep water drilling in the U.S. will simply exacerbate America's biggest economic problem: its reliance on foreign oil for 65% of its consumption. Deep water oil production in the Gulf of Mexico was the only bright spot in U.S. oil production. Sadly, while the Gulf region is hemorrhaging jobs in the seafood and tourism industries, the cut back in Gulf drilling will mean the loss of many well-paying energy jobs.

Despite all this turmoil in the energy space, Obama and Chu have yet to support and adopt a desperately needed strategic and comprehensive long-term energy policy for the United States. Such a policy, centered on using the only domestic fuel capable of significantly reducing foreign oil imports (natural gas via natural gas transportation) would:

o Create millions of well paying jobs in the energy, auto, and industrial sectors
o Reindustrialize and reinvigorate the United States economy
o Keep U.S. energy money inside the country instead of funding both sides of the "War on Terror" by paying out natural gas royalty dividends to American farmers and landowners
o Significantly Reduce CO2 and toxic particulate emissions
o Reduce Americans' car and truck refueling costs
o Significantly reduce America's yawning budget deficits
o Reduce the need to fund (with fiat currency) imperialistic oil wars and the biggest entitlement program in the U.S. (the U.S. military)

For investors the message is clear: much higher oil prices are on the horizon (no pun intended). Investors should consider investing in ConocoPhilips (NYSE:COP), Occidental Petroleum (NYSE:OXY), Chevron (NYSE:CVX), Petrobras (NYSE:PZE), Marathon Oil (NYSE:MRO), and Exxon Mobil (NYSE:XOM). While the energy services group will take a near-term hit on reduced GOM expenditures, longer term higher oil prices are bullish for the group. The best way to play the energy services might be Fidelity Select Energy Services or the iShares Dow Jones U.S. Oil Equipment Index Fund (NYSEARCA:IEZ). Meanwhile, the continuing addiction to foreign oil will require printing many more U.S. dollars to cover-up the imbalance. Long-term this is very bullish for gold and silver bullion.

Disclosure: Long COP and PZE