July 2012

Freedom from OPEC

Over the past nine months I have been writing extensively about how the United States is on the verge of a major positive development.  Late last year, Goldman Sachs jumped on board with a special report to investors.  In the past few months, institutional finance magazines began reporting this major development.  In June, I noticed a handful of television journalists start to talk about it. Newspapers are beginning to write about it as well.

What is it?  

It” is the United States becoming energy self-sufficient.  This means that the United States is very close to not needing energy, particularly oil, from nations we do not consider particularly friendly.  We will still need oil from Canada and some other allies until we more fully commit to alternative energies, however, we won’t need much from anywhere else, as has been the case for almost 50 years now.  Already, of the oil we use, less than 10% is now from OPEC

This is different than energy independent, which would mean we were completely supplying ourselves, but very good nonetheless.  

The effects of this development in energy will create a number of positive impacts for America.  The most obvious is that our domestic energy costs should be lower.  Not only is that good for households, but it is extremely good for business.  Already, because energy costs in other nations can be 300% or 400% higher than in the United States, companies have almost stopped sending jobs overseas and some are bringing jobs back as wage inflation in other nations further erodes their competitive advantages. 

Combine low energy costs with a highly skilled workforce and rising labor costs overseas, and it is easy to be optimistic about America’s future in high-end manufacturing.  So long as we set aside enough to fund training and education programs as we make difficult budget decisions, American production will continue to improve going forward.

In addition to aiding manufacturing at the high-end, U.S. input costs for agricultural production will remain flattish (flattish is a special economic term which means what it sounds like).  This is important as the United States is the bread basket to the world.  Not only does the relatively low cost of energy in America benefit our profitability, but it helps maintain peace around the world.  There is nothing more likely to cause war, as the Pentagon recently pointed out, than starving populations.  With our ability to feed far more people than we have here, we help prevent war.

Finally, our military commitments to the middle east should continue to decrease as they have in the past few years.  We simply are no longer as compelled to protect foriegn oil fields.  In fact, with China winnning many of the oil contracts in Iraq, they are now largely on the hook to maintain the balance of power in the region so that Iran and Saudi Arabia do not meet in a conflict.  Reducing military expenditures is vital to gradually balancing the United States budget. 

This has all begun to happen primarily due to a newer technology called hydraulic fracturing, that allows domestic energy companies to recover oil and natural gas from American deposits. On MarketWatch, I coined the phrase “energy technolution” to describe this and other transformational technologies hitting the energy industries.

While the process was imperfect initially, it has not only become very efficient, but very safe.  Companies in fact, are being very careful to not allow pollution to become a problem for fear of killing their new golden goose.


I was recently in North Dakota learning more about “fracking”, what was going there and some of the investments that we have. What I came away with was a sense of awe.  What is going on in the Williston Basin is a boom of historic proportions that has led North Dakota to produce the 3rd, and nipping at Alaska for 2nd, most oil among American states. There are similar booms, though not as concentrated or forceful, developing throughout America.


On my trip to North Dakota, Mr. Bob Walstad, a founder of the Integrity Viking Funds, and co-manager of their Williston Basin Mid-North America Stock Fund, which we own, was nice enough to be my host and tour guide.  What I was able to learn driving around with him and listening was better than any continuing education class I have ever had.