Oil Consumption: U.S. vs. China
Energy Investing for the Long Term
Energy Stocks for the Short Term
The World in 2050
by Laurence C. Smith describes four global forces that are
impacting the world today: demographic trends, natural resource
demand, climate change and globalization.
Essentially, Smith predicts a growing global population with
changing demographics will increase stress on diminishing resources
from hydrocarbons to water, compounded by an increasingly warmer
climate due primarily to increasing CO2 and
One net result will be improved economic and weather conditions for
countries closer to the Northern Rim of the Arctic. Another result
is that critical resources for sustaining life on earth will be
under increasing stress or limited supply.
The book's thesis made me take a look at energy, crude oil in
particular, and the nations that consume it as a constrained
The most significant nation in terms of GDP growth today is
China, with roughly 1.3 billion people or about 20% of the world's
population. China currently consumes about 11% of global oil
production, or about 0.31 gallons per capita.
The U.S., with about 4.5% of the global population, currently
consumes nearly 21% of global oil production, or 2.55 gallons per
Or in terms of barrels of oil, China currently consumes 9.8
million barrels per day, while the U.S. consumes roughly 19 million
barrels a day.
Pondering that thought, I did a couple of calculations.
In 2011, China's GDP was roughly 43% the size of the U.S. GDP or
the U.S.' GDP was 2.3 times larger. From 2000 to 2011, China's GDP
averaged 10% per year growth, while U.S. growth averaged
As China's GDP continues to grow more rapidly than the U.S.,
China's energy/oil consumption should eventually surpass U.S. oil
If China's per capita oil consumption were to increase to the
current U.S. consumption level, China would consume roughly 81
million barrels a day, or nearly the total current worldwide oil
What is critical to understand is that China's impending oil
demand--not to mention the appetites of the rest of the developing
world--will put severe strains on global oil supplies that will not
be able to keep pace with the rising demand.
The net result will inevitably be higher crude oil prices-and
higher prices for energy stocks. So you absolutely want to own
energy stocks for the long term to capture those gains.
But what about the short-term?
Crude oil prices are likely to continue to be very volatile for a
while, but there are still some smart energy investments out there
for the shorter-term. I recommend focusing on stocks with high
dividend yields, low short-selling interest, good growth prospects
and strong balance sheets. If possible invest in stocks that are
trading near their 52-week lows.
These stocks are positioned to grow when the energy sector
stabilizes, and until then, their dividends will provide solid
One stock I've recently recommended for the shorter-term (a six
months to one year) investment timeframe is
Plains All American Pipeline (
, a Master Limited Partnership (
Plains All American Pipeline transports and stores primarily crude
oil, refined products and liquid petroleum gas (LPG) products in
the United States and Canada. It operates in three segments:
Transportation, Facilities and Supply and Logistics.
I compared Plains All American Pipeline to three of its midstream
MLP peer operators: Enterprise Products Partners (
), Magellan Midstream Partners (
) and ONEOK Partners (
On a relative basis, Plains All American Pipeline stands out among
the four as the better investment with the better dividend yield,
low to insignificant short selling interest, good growth prospects
and a good balance sheet.
PAA does trade near its 52-week high, but also trades at a
relative 2013 price to earnings (P/E) discount to its peers. The
company has significant positive net free cash flow even after
deducting interest expense.
Over the last year, Plains All American Pipeline (
) has outperformed its peers.
PAA moved higher as crude price volatility sent energy investors
scrambling for yield with low downside exposure. Immediate support
is its 50-day moving average at 81.55.
My price target for PAA is 97.65 per share over the next six
months. My recommendation is to start with small purchases now and
look to buy more on pullbacks toward support, particularly if crude
prices soften. Invest for the long-term, take the dividend and be
patient. Place a firm stop loss order at 78.50.
From the Oil & Gas Patch,
Cabot Global Energy Investor