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148: Take advantage of the oil/gas/coal boom - key insights


07-22-2007

PropertyInvesting.net team

Our website analysis team have prepared a unqiue insight into countries that will benefit and countries that will suffer from the current and forthcoming oil and gas price boom. We created a mathematical model that has:

1. added all the oil, gas and coal production (in barrels of oil equivalent) for each country in the world

2. added the oil, gas and coal consumptions (in barrels of oil equivalent) for each country in the world

3. subtracted one from the other to get the "net surplus or deficit in hydrocarbon production or consumption"

4. divided this with the population of the country

This Hydrocarbon Surplus/Deficit Index for each country is measured in tons of oil per person per year. The countries with the largest surplus per person essentially create the most net hydrocarbons per citizen of that country. The countries with the biggest deficit have to import these hydrocarbons from other countries.

This index is very important because as oil, gas and coal prices rise, the countries with the largest surpluses should be the "winners" and perform better - whilst the countries with the largest deficits will be the "losers" and be hindered (high energy prices act like a tax and slow economic growth in oil consuming nations). The more the prices rise, the more noticable this will become.

As previously communicated, we held a workshop in June and concluded that 12th June 2007 was a turning point - that underlying trends all of a sudden point to rapidly increasing prices as supply is constrainted and demand rises. Our forecast for oil prices is $83/bbl by year end 2007, $100/bbl by end 2008 and $120/bbl by mid 2010. The countries with the biggest surpluses will benefit from these higher prices. This should have a knock-on impact on property prices in these countries and general GDP growth and prosperity.

It's no real surprise that our favourate developed oil/gas country - Norway - comes very high. USA is only marginally negative - this is because it produces quite a lot of oil and gas, but huge amounts of indigenous coal (we know it's addicted to oil, but it's also addicted to coal and its got plenty of coal). Brunei, with it's 400,000 bbls/day of oil/gas production (equiv.) but only 300,000 population scores high.

Italy scores low - and also imports a lot of it's electricity - the demographic trends for Italy are also poor. France scores poor, although it has many nuclear power stations and exports electricity which will help it fight higher oil and gas prices. Japan is the most heavily exposed - and the recent earthquakes closing down some of it's nuclear plants will not help - it's aging population will also be a drain. South Korea is also heavily exposed though its high tech manufacturing might and expanding population should help it.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

China produces more oil/gas/coal in hydrocarbon equivalents than any other country in the world, but of course it uses huge amounts as well, so still has a deficit albeit when one divides this by it's population, the deficit is small per person. The same is true of India. We believe China and India's manufacturing growth and use of their people resources will hedge their economies against rising hydrocarbon prices. But countries like Italy and Spain with no cost advantages, high hydrocarbon usage per person and aging population will fair worst. Germany will also suffer though it's strong manufacturing exports and high tech industries should cushion the blow. 

 

 

 

 

 

 

 

 

 

 

 

 

The trick is to find the countries with low country risk - stable economically and politically - with high hydrocarbon surpluses. Norway, Australia and Canada score high. These countries also have innovative knowledge based lighter industried and financial services business as well. For riskier countries, UAE, Brunei, Saudi Arabia, Libya, Kazakhstan and Oman are worth considering for property investment. Dubai will undoubtedly prosper as the massive hydrocarbon wealth in the region will feed through to property investment in this centrally located regional super-city. Almaty is an interesting option - the capital of Kazakhstan - a country the size of Western Europe with much land, oil, gas and coal - a country relatively close China that could prosper on the back of the oil/gas mineral boom and China's increasing importance.

The UK is surprisingly exposed, though because so many oil/gas companies have their HQs in London and Aberdeen, the smart money will be invested in these two locations that have the highest chance of benefiting from the petro-dollar. West London will also benefit from Asian, Middle Eastern, Africa and Russia oil wealth re-invested into prime UK property - Mayfair, Kensington and Chelsea spring to mind.

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

The chart below shows the total cost of oil consumed in each region - the striking thing being that the price of oil and its costs have risen three fold in the last 5 years - from $25/bbl to $75/bbl (July 2007).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The next chart shows the total regional cost (deficit) or value (surplus) - this demonstrates the regions with the main exposure to high oil prices.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Finally, the global oil production chart. Note the flattening off of the curve in 2006. We believe that Russia cannot now produce any more oil, Venezuela has many production problem, the USA is in decline, Canada cannot get oil sands projects on-stream fast enough and the Middle East production is close to maxxing out (the giant 55-120 billion barrel Gwahar fields is watering out and is in decline) and there is not enough political will and investment into new oil supply. This coupled with chronic under-investment over the last 20 years in oil refining capacity will lead to a supply and refinin crunch starting June 12th 2007 - expect >100$/bbl oil prices.

So it's worth considering hedging against high oil, gas and coal prices. The other option is to invest in oil companies!

We hope this special report has given you some helpful and unqiue insights - we hope it's been worth the effort to compile this objective mathematical model for our visitors. If you want to hedge against an oil price shock, looking at the chart above, Norway (Bergen, Stavanger, Oslo) is as safe as you can get!

If you have any comments on the analysis, predictions or insights, please contact us on enquiries@propertyinvesting.net, or write something our Weblog.

 

 

 

 

 

 

 

 

 

 

 

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