Saudi billionaire Prince Alwaleed bin Talal is worried. In fact, he’s so worried he voiced his concerns in a bold open letter to Saudi ministers and took out a full-page ad in the New York Times to spread the word.
So what's keeping Prince Alwaleed up at night? The boom in U.S. oil-and-gas shale, which he believes is a threat to Saudi Arabia's livelihood.
The Prince's concerns are well grounded. Even OPEC's own data support his contention. OPEC expects demand for its crude to fall to 29.6 million barrels a day next year. That’s a full 600,000 less barrels a day lower than in 2012.
The reason is that non-OPEC countries – primarily the United States – are producing more oil and gas.
As the world's largest oil exporter, Saudi Arabia is especially vulnerable. According to the CIA World Factbook, the petroleum sector accounts for roughly 80% of Saudi Arabia's budget revenues, 45% of its GDP, and 90% of its export earnings.
In other words, U.S. oil-and-gas producers threaten to take away the Saudi's rice bowl.
In the U.S., energy companies have already made great strides in taking rice of the Saudi's table. Over the past four years, oil production has soared by 30%. Not surprisingly, oil imports from OPEC members have fallen by a similar amount. In May, domestic crude-oil production exceeded imports for the first time in 16 years.
And it’s only going to get worse for the Saudi's.
A new Harvard study titled “The Shale Oil Boom: A U.S. Phenomenon” says that if oil prices remain close to today’s levels, total U.S. production of all forms of oil could grow to 16 million barrels per day by 2017. That’s an impressive 42% from the current 11.3 million barrels per day.
Should Harvard's 2017 production forecast materialize, the United States would become the biggest oil producer in the world.
That’s bad news for Saudi Arabia, but good news for the U.S. energy companies.
Quantum leaps in hydraulic fracking and other drilling technologies have created a plethora of investment opportunities. In my opinion, the best opportunities reside within the midstream segment – the companies that transport and store oil and natural gas.
Pipelines are particularly intriguing for income investors. These companies produce dependable high-yield distributions, because they are essentially toll highways. And in many parts of the country, they're the only toll highways.
This means pipeline companies are able to capture their clientele – the exploration and production (upstream) and marketing and retailing (downstream) operators. The producers and retailers have no choice but to get their product from point A to point B, regardless of prevailing market price. In many markets, a pipeline is the sole option.
For these reasons, midstream is the “Goldilocks” segment within the oil-and-gas sector. What's more, I believe the High Yield Wealth portfolio owns the very best investment in the midstream sector.
I say that because my favorite midstream pipeline company owns and operates one of the largest and most diversified portfolios of energy distribution assets. It has a large exposure to the Eagle Ford shale in Texas, which has the potential to be the largest ever oil find in the lower 48 states. Estimates range from 7 – 10 billion barrels of recoverable reserves.
Looking to the future, this company will have plenty of opportunities to grow its operations. According to an Interstate Natural Gas Association of America (INGAA) Foundation report, midstream companies will require $200 billion of new investment to accommodate natural gas, oil, and natural-gas liquids transportation over the next 22 years.
For well-positioned companies, the expansion of oil and gas pipeline infrastructure means more business. With energy production booming, and the growth expected to continue for a couple more decades, this is a big opportunity that you won’t want to miss.