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Meddling Politicians Won't Spoil the Opportunity for These Stocks

By Reuben Gregg Brewer – Feb 25, 2014 at 12:00PM

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Exporting U.S. oil and natural gas is suddenly a hot topic; that's because there's a huge investment opportunity.

Horizontal drilling and hydraulic fracturing are set to turn the United States from a net importer to, potentially, a net exporter of oil and natural gas. But only if the government lets that happen, which is far from a certain outcome. Regardless of where you fall on the topic, you can't deny the opportunity of serving markets that have no choice but to import oil and natural gas. Some companies can meet that demand no matter what the U.S. decides.

A U.S. bonanza
The shale plays currently being exploited in the United States have changed the face of the energy market. Where once domestic demand had to be sated with exports, we now appear to have enough of a surplus to send oil and natural gas overseas.

That's a tough call because low-cost energy can provide a competitive advantage to U.S. companies. Thomas Fanning, CEO of Southern Company (SO 0.83%), recently noted that "cheap energy relative to other places around the world" is a big part of that advantage. Of course he has a vested interest in keeping U.S. natural gas prices low, since the utility is the second or third largest gas consumer in the United States.

There are plenty of companies that feel the same way as Southern. So while natural gas export facilities are being approved, it might be some time before there's a truly free flow of U.S. oil or gas into international markets. But there are companies poised to benefit either way, particularly giants like ExxonMobil (XOM -0.35%), Chevron (CVX -0.29%), and Royal Dutch Shell (RDS.B).

Serving the world
This trio has extensive operations in the United States, including drilling, refining, and distribution assets. They also have extensive operations around the world. Exxon, for example, has projects going on in Vietnam, China, Indonesia, and Australia, among many others internationally. About a quarter of Chevron's production, meanwhile, comes out of Asia.

Source: EIA

That's important because Asia is where the most dramatic demand growth is going to come from. So these giants are positioning themselves to serve key markets. This ties in with the U.S. demand growth because these giants had historically brought a lot of the oil they drilled internationally to the U.S. market. Now, they can just shift gears and deliver it to the new hot spots, like China and India.

Icing on the cake
What about U.S. oil and gas? With low prices for natural gas Exxon and Shell have been struggling to turn their investments, made at the top of the market, into winners. That said, they haven't given up on the fuel or their investments. For example, Shell is an international giant in the liquefied natural gas (LNG) space.

In fact, Shell just opportunistically bought LNG assets from Repsol (REPYY 2.57%) for $6.7 billion. Repsol had been working to reduce debt and Shell was more than happy to add key assets in South America. Continuing to build its global presence in LNG makes complete sense because natural gas makes up about half of the company's production.

Shell doesn't need the U.S. to open its natural gas market to continue growing this business. It's doing just fine without. However, if U.S. natural gas does find its way into other markets with any scale, Shell's vast LNG network will likely be a key beneficiary. The same concept applies to Exxon and Chevron.

Complicated politics
How the U.S. takes advantage of its energy surplus is up in the air. If we allow companies to export oil and gas, big international players like Exxon, Chevron, and Shell will be pleased for the opportunity, as will scores of domestic only drillers. However, if we keep these riches to ourselves, consumers like Southern Co. will be very happy to see low prices stick around—something that could hurt domestic drillers. The three oil and gas giants, however, will simply shift their global production profiles so they can serve both the U.S. market and the increasing demand set to come out of growing markets in Asia.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Chevron and Southern Company. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

ExxonMobil Stock Quote
$113.21 (-0.35%) $0.40
Chevron Stock Quote
$183.70 (-0.29%) $0.54
Southern Company Stock Quote
Southern Company
$66.91 (0.83%) $0.55
Royal Dutch Shell plc Stock Quote
Royal Dutch Shell plc
Repsol YPF, S.A. (ADR) Stock Quote
Repsol YPF, S.A. (ADR)
$15.17 (2.57%) $0.38

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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