The U.S. seems to be moving toward true energy independence. As the hydraulic and fracturing revolution has spread, the sheer amount of now-accessible energy is staggering. Supplies of shale oil and natural gas continue to climb as more E&P firms use advanced drilling techniques. The fracking revolution has completely changed the supply-and-demand dynamics in U.S.
According to OPEC, China could overtake the U.S. as the world’s top oil importer by 2014, as the shale boom continues to drastically reduce America’s energy import needs. This shift would end about 40 years of the U.S. being the most oil-thirsty nation, which began when domestic production started to decline in the 1970s.
In fact, the shift is already moving rapidly: The U.S. produced 84% of its own energy last year and is estimated to be the largest global oil producer by 2020. Net oil exports from the U.S. are expected shortly after. Meanwhile, China’s thirst for oil rose about 8% last year and is already on track to surpass that amount this year.
The shift is an interesting turn of events in the energy sector — one that could lead to some hefty profits for certain firms. Here are four great picks to capitalize on China’s thirst:
China Petroleum & Chemical Corporation (NYSE:SNP) — or Sinopec, as it is more commonly known — is one of the nation’s largest state-owned energy companies, with a plethora of refining and petrochemical facilities across the country.
However, it is quickly becoming a large upstream firm and is now China’s second largest energy producer. Sinopec has already spent $34 billion on several contracts in the U.K., U.S., Canada, Brazil, Argentina and Australia during the past three years to gain access to crude oil reserves.
Its latest deal occurred back in February when Sinopec inked a $1.02 billion contract with Chesapeake Energy (NYSE:CHK) for a 50% share in 850,000 acres in the Mississippi Lime. That came on the heels of a $2.2 billion deal in 2011 for Canada’s Daylight Energy.
These deals have boosted the company’s proven reserves of crude oil and natural gas to 3.964 billion barrels of oil equivalent, and have grown production by 4.9% in 2012.
Sinopec, which yields a decent 2.5%, can currently be bought for just 10 times trailing earnings.
Russia’s Rosneft (PINK:RNFTF) could be one of the sleeper picks for rising Chinese energy demand.
The company has been making headlines for its recent deals with BP (NYSE:BP) and Exxon Mobil (NYSE:XOM). However, its agreements with China could bear more fruit. And it’s easy to see why — Russia is the world’s largest energy producer, China is the world’s largest energy consumer, and the two countries share a common border.
In exchange for $2 billion in loans, the Russian energy producer agreed to deliver at least 37 million metric tons of oil per year — 743,000 barrels a day — to China National Petroleum. Additionally, the pair will jointly explore three offshore blocks in the Barents Sea and eight blocks in onshore Russia.
All in all, the two BRIC leaders could see more deals in the future that will help Rosneft’s bottom line.
After spinning off its refining operations, former integrated major ConocoPhillips (NYSE:COP) is quickly moving to become of China’s biggest suppliers of crude oil.
The company already has extensive assets within onshore and offshore China — including a stake in its largest offshore deepwater field. But COP recently signed three huge agreements with Chinese state-owned energy firm PetroChina (NYSE:PTR) that could lead to rising imports.
These deals include working interests in two Australian projects. Specifically a 20% interest in Conoco’s Poseidon field in the Browse Basin and 29% of its Goldwyer field. These deals in strategically located Australia will help more of COP’s oil and natural gas production flow directly into China and will follow other deals the firm made with some of its oil-sands assets back in 2012.
Conoco currently offers one of the highest dividends among the super-majors at 4.5%. Any deal to sell more its crude oil to China will only serve to strengthen its cash flows, and thus that payout.
Speaking of Canada’s oil sands … while American politicians continue to flip-flop on the fate of TransCanada’s (NYSE:TRP) Keystone XL pipeline, our neighbors to the north aren’t waiting around. That includes moving forward with various plans to build pipelines that will flow from the oil sands to the west coast designed specifically for export to China.
One of the biggest beneficiaries of these pipelines — or the Keystone, for that matter — could be beaten-down Canadian Natural Resources (NYSE:CNQ).
The company operates across a wide spectrum of hydrocarbon production, but its main forte is oil-sands production, as the bulk of its proven reserves are located in bitumen. As such, the company has seen its shares retreat as Canadian crude oil has traded at a wide discount to Bakken-based WTI and international Brent crude. However, when these various westward oil-sands pipelines are built, CNQ will see the price differential shrink and boost its bottom line.
In the meantime, investors can snag shares at a huge discount when comparing the firm to other Canadian and American oil companies. CNQ currently trades for a forward P/E of less than 11, while rivals EnCana (NYSE:ECA) and Talisman (NYSE:TLM) forward P/E’s are in the mid-teens and twenties.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.