5. The U.S. Energy Revolution
When you speak of big themes, you have to be focusing on the domestic revolution in energy, my fifth focus group. We in the U.S. have so much of it, and so much natural gas in particular, that this will be a multiyear game-changer. The principal winners are the companies that use natural-gas-related chemicals as a feedstock -- namely, Dow Chemical (DOW), Westlake (WLK), Eastman (EMN), PPG (PPG) and LyondellBasell (LYB) (even if the last company's headquarters are located overseas).
Right now, only Dow has really done much to capitalize off the cheap energy. It's almost as if the other companies don't really believe natural gas will stay down. But I believe that, in 2013, they will start building the plants needed to take advantage of the inexpensive food stock. For those who think this play is chimerical -- sorry, but the U.S. is burning off or flaring more natural gas than we use, and that's maybe all you need to know. The companies that build the most capacity here are the ones that will make the most money.
The refiners -- HollyFrontier (HFC), Valero (VLO) and Phillips 66 (PSX) -- are also huge beneficiaries of the new finds. Their costs are so low and their prices are still, outrageously, linked to the much-higher price coming from overseas. Good for them; bad for us.Furthermore, it's an open secret that the U.S. has too much crude oil -- not just natural gas -- even as we continue, as a nation, to import it. Because of a weird mismatch between U.S. oil-refining capacity and the new kind of crude, light sweet from the Bakken and Eagleford, we will have to export crude starting next year. That's right. The U.S. will need to export natural gas because we'll have no place to put it -- that's what Cheniere Energy (LNG) will do -- and we'll need to export oil because we don't have the refining capacity to use it. If we had an actual energy policy, we could straighten this out. We don't. So we will just have to make money off of it until we do. On the production-and-drilling side, there are very few actual winners in the U.S. because of the twin gluts. The oil drillers are all very hard to own. That's with the exception of Ensco (ESV), which is purely offshore, where there's tremendous amount of activity because of the higher price of crude vs. nat gas. But the nat gas drilling market, itself, is in the doldrums because of the $3-per-MMBtu price tag for the fuel, and the surfeit of storage place, and the lack of surface vehicle or chemical use. The only oil company with tremendous growth prospects is EOG (EOG), which has substantial positions in the two biggest shales, the Bakken and the Eagle Ford. It's the only one I would buy up here. The natural gas company I like is Southwestern (SWN). But I am early to like it, unless a takeover or the cessation in nat gas drilling gives you a marginally higher price for it.