African Turmoil Should Affect Your Investment Focus

It's true that energy operators in the U.S. have brought our country farther from the standpoint of attending to our own needs than most would have expected a decade ago. Indeed, we've reached the point where it's necessary for us to import far less crude oil and refined products than was the case until very recently.

According to the U.S. Energy Information Administration, we Americans consumed about 18.6 million barrels per day of petroleum products during 2012. Our import level was about 11 million barrels daily. Our largest suppliers in order were Canada, Saudi Arabia, Mexico, Venezuela, and -- are you seated? -- Russia.

So, while we're edging far closer to becoming our own keeper from an energy perspective, we still have a ways to go. That being the case, my first conclusion is that energy names should grace well-structured investment portfolios. The second is that, to an even greater extent than is generally recognized, many of the major producing counties across the globe are geopolitical tinderboxes. As such, even a small regional eruption could spread rapidly and propel crude prices far higher than they are today.

The darkening dark continent
Take Africa, for instance. The continent's biggest producers in order are Nigeria, Algeria, Angola, Libya, and Egypt. Among them, they produce about 8.5 barrels of oil per day, or about a tenth of the world's total output. But as you know, Nigeria, Libya, and Egypt are replete with internecine battling, and Algeria has neighbors you'd hardly want nearby.

Nigeria, which generates about 2.5 million barrels daily of generally light, sweet crude, is, to use a scientific term, a mess. Most of the country's energy output occurs in the South, in and around the Niger River delta. But the country continues to battle a couple of extremely negative forces.

One involves the Movement for the Emancipation of the Niger Delta, or MEND, a group made up of tribesmen from the area who have generally not been blessed with lucrative energy-related jobs. Instead, most energy workers come from better connected tribes further inland.

As a result, MEND has for years unleashed raids against the nation's energy facilities, which are operated mostly by western companies. Largely as a result, several of those companies, including Chevron (NYSE: CVX  ) have unloaded significant assets in the country. The exodus (or movement offshore) also includes Total, which last year sold its 20% interest in a Nigerian offshore block to China's Sinopec for $2.5 billion.

A knock on western learning
But MEND isn't Nigeria's only woe. Divide the Ohio-shaped country laterally, and you'll discover that the northern half is the home of a Muslim terrorist group named Boko Haram. I'm not fluent in Hausa, the primary language of the North, but I'm told that the group's moniker means "Western learning is sinful."

Boko Haram has been responsible for numerous attacks on Christians and their churches. In the process, the group has frequently gone toe-to-toe with Nigeria's army. Just last weekend, for instance, a Boko Haram ambush resulted in the deaths of 40 soldiers, and caused the disappearance of another 65. But lest it appear that MEND and Boko Haram exist separately in distinct regions of Nigeria, the Niger Delta militants have threatened to avenge violence against Christians in the North by attacking the country's mosques.

Shakiness along the Mediterranean
You're aware of the raging conflicts in both Libya and Egypt. But while Egypt sits last among the top five African producing countries, it's important to note that it's a stone's throw -- or an ambitious swim -- from the Middle East, itself beset by battling in Syria, Iraq, and elsewhere. Egypt is especially important because of that proximity, along with its control of the Suez Canal and its role as Africa's refinery kingpin. It controls 23% of the continent's refining capacity.

Several western companies, including Apache (NYSE: APA  ) and Hess (NYSE: HES  ) , remain active in portions of Egypt. However, Apache announced recently that it was selling a third of its interests in the country -- it operates largely in the western desert -- to Sinopec.

Instability and battling in North Africa have affected the Middle East in yet another way. With unrest in Libya having slashed crude production in that country -- Nigeria's output is also sliding -- Saudi Arabia has somewhat quietly opened its own spigots to compensate for the decline.

Foolish bottom line
There are numerous other African countries where turmoil and bloodshed are the orders of the day. The same obviously can be said of the Middle East. And energy activity has slowed in Latin America, in part due to political instability.

 The resulting message is that today's geopolitics constitute something of an unrecognized floor under worldwide crude prices. That makes the energy sector an ideal target for your investment shekels.

An energy revolution?
There's a figuratively subterranean energy stock out there that you really should investigate carefully. GE and Ford have already plowed sizable amounts of research capital into this little-known stock... because they know it holds the key to the explosive profit power of the coming "no choice fuel revolution." Luckily, there's still time for you to get on board if you act quickly. All the details are inside an exclusive report from The Motley Fool. Click here for the full story!


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2647396, ~/Articles/ArticleHandler.aspx, 10/24/2014 1:16:07 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement