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Thursday, August 28, 2008
You've probably heard about Brazil's Tupi and Carioca, which may be the two biggest oil fields discovered in the last 30 years...
The Tupi field may hold 8 billion barrels of oil. If true, only the 15 billion-barrel Kashagan field in Kazakhstan, discovered in 2000, is larger. Tupi, though, may be small potatoes next to Carioca. This latter field may hold 33 billion barrels of oil.
Again, if true, Carioca would be the third biggest oil discovery in history, behind only the mammoth Ghawar in Saudi Arabia and the Burgan in Kuwait.What makes these discoveries particularly remarkable, in addition to their size, is where they are. They lie underwater, hundreds of miles off the coast of Brazil. Call it "blue water energy."
One thing is for sure. Petrobras, the Brazilian oil company that discovered the oil, will spend a lot of money trying. Already, Petrobras has plans to spend more than $20 billion for marine support vessels and offshore drilling equipment. Those are big numbers, especially when you consider how tight the market already is for these things – not to mention the shortage of men and material to make more.
It's not just in Brazilian waters that big prizes lurk. There are meaningful discoveries of oil and gas in the South China Sea, off the west coast of Africa, and even in the waters off Trinidad and in many more wet places.
Soon we could be poking around for oil beneath the Arctic seabed. We'll need lots of subsea wells and platforms and other goodies to put out there in those watery plains. Just consider the pipelines alone. We'll need miles and miles of offshore pipelines to bring the oil to market.
According to Quest Offshore, between 2007–2011, the industry will have laid down 35,000 miles of pipeline. That's a lot of steel. And a lot of pipelay barges to do the work. And crews. It's a demand that should continue for years to come, even if the oil price comes down.
That's only part of the story, though. Here's the other: The existing miles of pipelines are getting old. It's part of a huge theme I've been following for the past several years. I believe the next decade will give us fantastic investment opportunities in fixing the world's creaky infrastructure.From roads and bridges to water and power supply... there's trillions of dollars that are going to be spent. Matt Simmons, the oft-quoted energy analyst, likes to say, "Rust never sleeps."
The whole oil and gas infrastructure is a "vast spider web of steel." There are over 335,000 miles of pipelines in the U.S. alone. There are hundreds of refineries in the world, as well as thousands of tank farms, gas stations, and oil and gas wells.
Such infrastructure requires a lot of maintenance, which is not cheap. On the heels of two decades of low oil prices, much of the industry deferred a lot of maintenance. As Simmons says: "The entire value chain is built of steel. Steel begins to corrode the day it is cast."
The risk of failure – of leaks or breakages – is high. "If the world wants to continue using energy, its assets need to be rebuilt. Simple law of nature," Simmons says. "The construction job will rival the combination of building the World War II war machine, the Marshall Plan rebuilding of Europe, and the post-World War II Interstate Highway System."
Here's one example, just a snippet of the infrastructure the industry is building: Shell is putting together a $1.5 trillion energy project in the Middle East – a massive gas-to-liquids plant in Qatar. It is as large as 450 football fields. It will require 300,000 tons of steel and employ 35,000 workers.
All the while, the prices of steel, cement, copper, etc., continue to rise. People, too, are hard to find, like parking spaces in Manhattan. It's a massive opportunity. The offshore boom only adds to the urgency of it all.
Good investing,Chris Mayer
THE COCKROACHES ARE HEADED FOR GOLDMAN SACHS
For most of the past year, it's been the same song over and over... Wall Street firm ABC experiences huge loss on mortgages, shares are down on the news.
Goldman Sachs is one of the few megafirms to survive this dance with most of its value intact. From the looks of things now, that "most" qualifier may be replaced with "some."
Goldman is the top name on Wall Street. It collects fees from everything related to investment and speculation. It operates hedge funds... it performs office work for other hedge funds... it takes private companies public... it performs research on public companies.
So it's no wonder the "golden age" of commodity, currency, and real estate speculation (2003-07) sent Goldman shares soaring. Folks who jumped in five years ago more than tripled their money. Now, however, the market is saying, "The golden age is over."
The stock market tends to lead the news... so we wouldn't be surprised to see a few cockroaches crawl out of Goldman's kitchen and send shares even lower.