The four-year struggle to square away a deal with Iran regarding its nuclear production has finally come to an end, as sanctions have been lifted.

Now that Iran is back on the books for black gold, it plans to pump as much into the market as will freely flow. With millions of barrels floating off in the ocean in search of a buyer, some U.S. companies have their feelers out to make a deal with Iranian oil producers. With energy markets so inconsistent, it might be best to stick with natural gas, and the pipelines it came in on.

A full transcript follows the video.

 

Sean O'Reilly: Iran is going to be exporting oil again, on this energy edition of Industry Focus.

Greetings, Fools! I am Sean O'Reilly, joined today by the devilishly handsome Taylor Muckerman. How are you today, sir?

Taylor Muckerman: Oh, stop it!

O'Reilly: Oh, stop it. I knew your mother was listening, so I wanted to throw that in there. Big news this week. John Kerry, the secretary of state, pulled off a four-month-long coup and basically negotiated with Iran to lift sanctions in exchange for their slowing up their nuclear program. I'll fill this in more, but they're going to start exporting oil again.

Muckerman: That's what they say. They've been waiting for it for a while. They've been able to export some oil to some nations...

O'Reilly: Mostly to Europe.

Muckerman: Yeah, and I think South Korea and a few other smaller Asian nations. Those weren't part of the sanctions, but now that it's lifted, they think that they could export an additional 500,000 barrels a day immediately, up to 1 million extra barrels a day after six months.

O'Reilly: That sounds like a lot.

Muckerman: That sounds like a lot. It is for Iran, but not necessarily for the entire world, when you consider OPEC itself exports 30 million barrels a day. Five hundred thousand isn't really a lot, but to Iran it's going to mean something because that first, initial bump will be about 18% of an upgrade. Then if you tack on the additional 500,000, that's another 15% on top of that. Internally, Iran is really going to benefit from this if they can find some buyers. That's most likely going to be China, or somebody in Europe.

O'Reilly: Oil is oil. What was this about having a bunch of oil just floating off their coast, or something?

Muckerman: Yeah. About 30 million barrels -- which I think breaks down to about 11 days' worth of their total export. They've been exporting about 2.8 million barrels a day.

O'Reilly: Did they just not have anywhere to send that?

Muckerman: Yeah. Since they've had these restrictions, they haven't been able to fully export their production capacity. Rather than keeping it in the ground, there are 30 million barrels a day floating on the waters outside of Iran, just waiting to be shipped internationally. This probably won't take place immediately, because the inspectors still have to go through and make sure they're complying with nuclear restrictions.

All politics aside, this seems like a troublesome deal when you look at the supply-and-demand dynamics now. We're going to have some time to prepare for this, since it's not going to happen immediately.

O'Reilly: If I'm an investor, not necessarily in U.S. shale, there's a lot of fear-mongering -- oversupply, lots of scary articles related to this -- and if you're an energy investor out there right now, in your opinion, how much should, if I own shares in an oil company, be freaking out?

Muckerman: I don't think it's going to make a huge difference. You're only looking at an oversupply of about 800,000 barrels a day in the second half of this year. It's almost going to double that, but it's still pretty small in the global scheme of things. I think it will be able to work itself out. There are expectations that some demand will increase next year, and if you look at all the cutbacks in spending, long-term we could be at a supply shortfall...

O'Reilly: In a few years.

Muckerman: ...if companies aren't spending, which some of them aren't. So who knows? Maybe Iran can't even fill the void in the next few years. That being said, you're probably going to start buying more equipment to produce more internally. So maybe you'll look at some suppliers like Schlumberger, or Halliburton. I'm not sure off the top of my head if they've worked with Iran in the past, but I do know that both of those companies have a heavy presence in the Middle East.

It could be a benefit to one, or both, or an additional equipment supplier and services provider. If Iran does decide to produce more, they're going to need that help, because they haven't been producing or doing any R&D since the '70s or '80s. This has been in place for a while now.

O'Reilly: This actually is historic. People don't realize it. On that note, there's talk of international energy giants going in there and helping them develop new reserves. Have you caught wind of any particular company like BP, or someone that will definitely be in there?

Muckerman: I saw an article saying that Chevron is interested, but there are lists for everything these days. There's a list of places where it's tough to do business, and Iran ranks pretty highly on that list as a place where there's a lot of paperwork, a lot of hierarchies that you have to go through, a lot of levels of bureaucracy...

O'Reilly: Why would I spend $1 billion investing in the infrastructure there?

Muckerman: There's a lot of risk, if all of a sudden you find out there's a hidden nuclear plant that people didn't know about, and then sanctions are even harder than they were previously. Personally, I would be a little worried if I was investing in a company that was starting to do business there. Maybe in the future, but let someone else figure it out first.

O'Reilly: Awesome. Thank you for your thoughts. Before we move on, I want to make our listeners aware of a very special offer for all Industry Focus listeners. If you found this discussion informative, and you're looking for more Foolish stock ideas, Stock Advisor may be the service for you. It is our flagship newsletter, started more than 10 years ago by Motley Fool co-founders Tom and David Gardner.

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Taylor, the other thing I wanted to talk about was something that came out yesterday: Natural gas is passing coal as our top electricity source in the U.S.

Muckerman: For the first time ever.

O'Reilly: Yeah. I'm surprised it took this long, to be honest with you. What do you think? That's a big deal.

Muckerman: It is a big deal, and it's been a long time coming. I remember when I first started covering energy and materials companies several years back, and people were already talking about the death of coal. Coal company stocks have performed among some of the worst in the entire stock exchange over that time period. And rightfully so. Demand has been slowing, especially in the U.S. The EPA has been cracking down on emissions from power and electricity generation plants, which have traditionally been heavy users of coal.

You've seen a lot of shutterings of old plants because it cost too much to refurbish them and get the scrubbers in there to clean out the carbon emissions. Southern Company tried a coal regasification plant, state-of-the-art, in their Kemper facility down in Mississippi. That took way longer than they expected. It cost way more than they expected.

So if technology like that can be more cost-efficient and timelier, maybe coal still has a life. Right now I don't see natural gas continuing to pull away. I think there will be flip-flopping for a while, because companies still have plants that can go back and forth based on which commodity is more expensive, or less expensive.

O'Reilly: So there are plants that can alternate between?

Muckerman: Sure. Yeah.

O'Reilly: OK. This doesn't just seem to be a regulatory issue to me, because you look at what's happened with natural gas, and right before the Great Recession it was at its peak -- $13 per million BTUs. Then it crashed and got down to $2 in 2010. Now we're at $3 or $4.

Muckerman: Yeah. It rose a little bit but still found its baseline right in the low single digits.

O'Reilly: If I'm a company, I'm looking at this, and it's cleaner, so the government will be less on my back, and it's been beaten down the last six years.

Muckerman: And it's bountiful.

O'Reilly: Right.

Muckerman: Especially in the U.S.

O'Reilly: Yeah. We've got 200 years, or something like that.

Muckerman: Yeah, and it's easy to transport. It's cleaner to transport.

O'Reilly: Lots of economic reasons why this makes sense.

Muckerman: For sure. You're seeing it possibly already having an impact. There was a report backed by a few different utility companies. No surprise that these utilities that have backed the study are largely nuclear or natural gas-based, but they say the pullback in coal usage and electricity has already started to help curb emissions. They said it was down 12% over the last five years. They're ahead of EPA guidelines.

We were talking about Exelon (NYSE:EXC), which is one of the big companies behind this study, a huge nuclear fleet, also natural gas, and they're moving into renewables. They have some coal, but they're shying away from that. Some people are saying this is an attack on coal, but it's hard evidence based on the top 100 largest producing plants in the country -- 12% reduction in carbon emissions since 2012.

O'Reilly: Wow. Are there any natural gas companies that you keep your eye on that are long-term beneficiaries of this?

Muckerman: Generally, just the pipelines, because they're building the connections from the fields.

O'Reilly: They've got the natural monopoly.

Muckerman: There are a lot more producers out there than there are pipeline companies. It's a bit more of a concentrated market for pipelines, and there are some big players. I'm personally invested in Spectra Energy (NYSE:SE). They have their company; then they have a couple different partnerships that pay a high dividend up to them; then in turn I get a dividend payment from Spectra.

It's one of the largest pipelines in the country, outside of Kinder Morgan -- predominantly on the East Coast, with some Canadian operations as well. They're heavily involved in the Marcellus and Utica shales, and they have about $35 billion in projects either under construction, or looking at, moving forward, really trying to deliver natural gas to the New England area, which really has a shortage of pipelines outside of New York.

O'Reilly: And it gets cold.

Muckerman: And it gets really cold.

O'Reilly: Very good. Well, thank you for your thoughts, Taylor.

Muckerman: You got it.

O'Reilly: Have a good one. If you are a loyal listener and have questions or comments, we would love to hear from you. Just email us at focus@fool.com. Again, that's focus@fool.com. As always, people on this program may have interests in the stocks that they talk about, and The Motley Fool may have formal recommendations for or against those stocks. So don't buy or sell anything based solely on what you hear on this program. For Taylor Muckerman, I'm Sean O'Reilly. Thanks for listening, and Fool on!

Sean O'Reilly has no position in any stocks mentioned. Taylor Muckerman owns shares of Halliburton and Spectra Energy. The Motley Fool recommends Chevron, Halliburton, Kinder Morgan, Southern Company, and Spectra Energy. The Motley Fool owns shares of Halliburton, Kinder Morgan, and Spectra Energy. Try any of our Foolish newsletter services free for 30 days. 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.