Some say it's impossible; others say it's inevitable. But like it or not, the development of new technology has us thinking about the possibility of North American energy independence. While the intricacies of the markets make it highly unlikely that we would ever stop importing oil, the amount of energy we have in North America could theoretically make us self-sufficient.
Aside from a sense of satisfaction that we'd be able to take care of ourselves in terms of energy, the move toward more domestic energy is providing some unique investment opportunities. Here are a few investment ideas that could help you invest in this change.
More options, less dependency
For years we've had to rely on tried and true methods for our energy needs: oil for our transportation and utilities for our power. But both Westport Innovations (NASDAQ:WPRT) and SolarCity (NASDAQ:SCTY.DL) are looking to change that dynamic. What makes both of these companies unique is that their services and products provide alternatives to the way we've traditionally consumed energy. So rather than filling up with oil and paying your local utility, Westport's engines could give you the option to fill up with cheaper domestic natural gas, while SolarCity will lease you solar panels so you can generate power on your own for much less than a traditional utility bill.
Of course, there is lots of money to be made from these ventures as well. Natural gas trucking is expected to capture 34% of the market by 2035, a 320-fold increase from where it was in 2010, and Westport is looking to capitalize in other heavier-duty industries on top of that. And with SolarCity making panel leasing and power purchase agreements available to customers, revenue in this part of the company has doubled in the past year. These 20-year leases should provide stable cash flows that will also protect against the ups and downs of installation cycles. Both of these companies are still quite a way from being profitable, but long-term investors who can wait out the fits and starts of a young company could certainly come out on top.
Bridging the gap
Despite these advancements in energy options, it's going to take years for us to drastically cut our oil consumption. Luckily, the shale boom in North America should help us get there without relying too heavily on foreign sources. U.S. crude production is at its highest in more than 20 years, and the prospects of the emerging shale plays are still somewhat unknown.
That's what makes American-centric oil producers an attractive investment. This past quarter we saw the integrated majors such as Chevron and ExxonMobil take an earnings hit because of their large exposure to foreign crude prices, but ConocoPhillips (NYSE:COP), which has focused more on North American plays, saw a $250 million gain in earnings year over year because the increased production from domestic crude offset its foreign oil exposure. There are lots of opportunities in American oil, and investors who play it right could be in for some solid gains.
Connecting the dots
Despite the boom in oil, there is one major hurdle in North American oil that will keep us from realizing its potential. The places were we have oil and gas just don't match up with where we need it, and the infrastructure to move it there isn't what it should be.
Almost all non-North American oil is consumed in the coastal regions, where foreign sources are more readily available. So both TransCanada (NYSE:TRP) and Enbridge (NYSE:ENB) want to change that. The proposed pipelines from both companies combined could offset our foreign oil dependence by 20%, which also presents an immense opportunity for Transcanada and Enbridge to generate revenue as well. It currently costs $7 to $11 to move a barrel of oil from Alberta to Houston. So each of these pipeline projects would add about $2 to $3 billion in revenue annually to both companies, respectively.
Transcanda is even taking it one step further. The company announced on Aug. 1 that it has decided to move forward with a 1.1 million-barrel-per-day pipeline to the East Coast. Not only will this satisfy Canada's crude import needs, but it could also take a big chunk out of other imported crudes to the United States. Even though the distance is longer, if we were to assume the same price for East Coast shipments as for Houston shipments, this would represent another $2.8 to $4.5 billion boost in revenue. If you are scoring from home, that means TransCanada could almost double its 2012 revenue with these two pipelines coming online alone.