Oil and Energy

We have entered a stage where energy demand is going up not down. China is deploying electricity to its people, selling cars by the millions, and using energy for manufacturing. In fact, manufacturing has surged from 32% of GDP investment to 45%. factories need electricity, coal, whatever. And India has some of the worst electricity infrastructure.

At the same time, Saudi Arabia and others are lagging behind in oil production.

To me, this calls out several opportunities, and in looking at them, I am reminded of a great analogy. The oil industry is like a wheel with hubs and spokes. At the center of the wheel are the big oil companies: Exxon, BP, etc. Next out are the refiners, drillers, shippers, pipe builders, and so on. Furthest out are the specialized companies: the lubricant makers, the drill bit makers and so forth.
When that wheel turns, the companies at the edge move the most. When Exxon announces that it is increasing capital spending 10%, that means that they are spending on drill bits and novel technologies. Those smaller companies at the edge that possess unique market positions or specialized technologies will be deep in money. And so that is the case at GRP, TTI, MDR and other oil equipment and supply companies.

this is what I expect to see.
1. Land based drilling and improvements in pipelines, refineries, storage, and other infrastructure. Known reserves will be tapped even more furiously. Libya is now able to tap into Western technology. Oil is finally flowing out of the Caspian sea. The importance of the pipeline linking Europe and the Middle East through Turkey can not be understated. Notice that Saudi Arabia's King is in Turkey fo rthe first time in 40 years.
Meanwhile, deals on the table would potentially let Iran tap into the Western oil technology denied it by the US.
Companies like MDR are huge in the development of energy infrastructure. And there are many others as well. Expect at least 2 or 3 major US/Euro refineries in the next 2 years. And anyone making and selling pipeline (Iran is building one to India via Pakistan)

2. Offshore drilling. While experts fret over the end of known reserves ("the question isn't whether reserves will run out but when"), the reality is that 75% of the world is under water and that has yet to be explored for oil.
This is where fortunes will be made. Pressure is mounting in the US to allow for more offshore drilling. Other countries do not have the same limitations. Companies like TIE (titanium tubing for drilling - steel corrodes in seawater), drill rig companies like DO & ESV, drill bit companies like GRP, and even special oceanagraphic exploration companies will do well. I would even imagine obscure companies that make submersible subs and deep underwater dive gear would do well.

3. Coal and Nuclear. The US and China power grids are very coal driven - it's cheap and plentiful. Europe and Japan are nuclear driven. Russia is a mix. Electric cars will be moving from novelty item to reality in 2 years. Silicon Valley has stepped into the market - it isn't that hard to develop an electric car unless you are Detroit. The Tesla is already available for $90K - powered off a standard 240W plug, it gets 52mpg, goes from 0 to 60 in 4 seconds, and one overnight charge lasts 80 miles - plenty for the average commuter. Imagine the cost in production - and it's cheaper to build because it needs fewer parts and breaks down less often than internal combustion engines do.
That places more demand on the power grid, which drives more demand.
Imagine a time when environmental groups lobby for nuclear fuel as the means to deliver electricity and reduce carbon gases.

4. Alternative fuels. By this I mean solar and wind and maybe even wave technology. These are very real and gaining in viability as oil continues above $70. But very few companies are really profitable yet - it's really a big bet.