It has been more than a year since Citigroup Inc. published "Energy 2020: Independence Day," outlining the impacts of progress toward North American energy self-sufficiency. For this special 4th of July edition of The Energy Report, we reached out to experts in the energy investing space for an update on how recent political events and production trends in the field impact our ability to produce what we use. For Porter Stansberry, Marin Katusa, Chris Martenson, Bill Powers and Cactus Schroeder, the prospects for the future—and the associated investing opportunities—depend on the perspective.
Porter Stansberry: Energy self-sufficiency is a political issue, not an economic one. There is no particular advantage to being energy "independent." Yes, it is important to have enough production capacity to sustain our economy in the event of a global or trade war, but that's also true for many other products, such as food. What really matters for the wealth of our country and for our standard of living is that we maximize our competitive advantage in trade with other countries. If there are other places that can produce energy more efficiently (and thus, more cheaply) than we can produce it here, then we should maximize that advantage through trade.
Going forward, I believe the U.S. will be the clear leader in producing, refining and transporting natural gas around the world. We have the world's largest natural gas pipeline system and the world's largest functional reserves of natural gas. Given this comparative advantage, we should seek to maximize gas production by gaining access to world markets. That is happening with the huge, ongoing liquefied natural gas (LNG) build-out, and that is why Targa Resources Corp. (TRGP:NYSE), a stock I pitched not too long ago, has done so incredibly well.
Given that we consume around 18 million barrels per day (18 MMbbl/d) of crude oil in the U.S., and our domestic production is only around 8 MMbbl/d, it will be years before we will become energy independent in terms of oil. On the other hand, if you count coal exports, you could argue that we are already energy independent. In any case, even though we don't yet produce enough crude oil to meet all of our domestic consumption needs, I do think you'll soon see the U.S. begin to lift restrictions on crude oil exports. And I think that's a very important move for us to make.
Why would I want to see us exporting crude if we're not making enough to satisfy our own demand for crude? Again, you have to understand how wealth is built through trade, and the idea of competitive advantage. We can't use all of the light sweet crude we're currently producing in Texas because we don't have the right kind of refineries. It would be far better for our country to sell oil to the highest global bidder than to consume it in less optimal ways. The higher profits could be reinvested in more production and new refineries here in the U.S.
Crude exports would also have important benefits for our overall economy. They're the only likely way to solve our chronic current account deficits. Given that the U.S. Department of the Interior is an unwelcome partner in lots of oil production in the U.S., it's good for our government's deficit problem too.
Marin Katusa: The best thing the U.S. can do is lift the crude export ban. That will result in lower gas prices for the average American. Refineries in the U.S. have spent billions to modify those refineries to be able to treat the heavier crudes. The fracking revolution has unlocked the light oil, but that oil is trading at a discount because the pipelines are not in place to move it to play the arbitrage. Rail has picked up some of the slack, but the North American sector still needs to invest in its infrastructure. It will happen, but it will take longer than we want it to.
The U.S. will not be energy independent by the media tag line of 2020. It is still a major importer of oil. But the potential is there for the U.S. to become a major exporter of LNG and oil. Unfortunately, the government will not do what it needs to do during this administration to make that happen.