Shale Oil Boom Boosting US Refiners

The shale oil and gas boom in the United States continues to reshape a wide variety of American industries. For some industries, it's a blessing (petrochemicals) while for other industries such as coal, it's a curse.

Another sector being affected greatly by the shale boom is the US oil refining industry. The good news here is that the effect looks to be a positive one. Many US refineries, particularly on the East Coast, were on the precipice of being relegated to the dustbin of history. But now shale oil from places like Texas and North Dakota may change their outlook and save them from oblivion. North Dakota has now overtaken Alaska to become the United States' second-biggest producer of oil, trailing only Texas, with an output of about 575,500 barrels of oil per day.

This boom in oil production has led to wide discrepancy between the prices of domestically produced oil and imported crude oils, giving a lifeline to refiners who could not survive paying for expensive ($100+ a barrel) oil, especially in the light of flat US gasoline demand. In fact, according to data from Reuters, the discrepancy is about $35 a barrel between Brent crude oil and that from North Dakota.

But with so much cheap shale oil coming from the Bakken in North Dakota, the amount of oil produced has exceeded the capacity of the pipelines carrying oil to east coast refineries and elsewhere. So refining companies have turned to other solutions.....

Some firms have begun to place large purchase orders for rail cars in order to ship the oil from North Dakota to their refineries. The recent spinoff from Conoco, Phillips 66 (NYSE: PSX), has ordered 2,000 rail cars (at a cost of $200 million) in order to carry up to 120,000 barrels of oil per day to refineries on both coasts. And Phillips 66 is far from alone in shipping Midwest oil to its refineries on either coast.

Another refiner, Tesoro (NYSE: TSO), initiated a $60 million rail shipping project last year capable of moving 30,000 barrels of oil a day from the Bakken to its west coast refineries. And beginning late last year, Sunoco (NYSE: SUN) has been railing about 20,000 barrels of oil per day to Albany, New York and then barged down to Philadelphia where it has a refinery. Of course, this is a drop in a bucket when one considers that Sunoco imported about 343,000 barrels of international oil a day for its Philadelphia refinery. But it is the beginning of a major trend.

Let's remember too that rail cars are not the only possible solution to refiners' problem of getting access to cheap shale crude. Canadian pipeline company Enbridge (NYSE: ENB) is in talks with Valero Energy (NYSE: VLO) to reverse the flow of a 240,000 barrels of oil (from the Canadian oil sands) per day pipeline to bring the oil to Portland, Maine. From there, the oil would be loaded onto tankers for shipment down the east coast.

The bottom line here is that oil output from US shale oil plays will top 800,000 barrels per day by 2016, according to a forecast by energy consultancy Bentek Energy. That means that the amount of shale oil produced will double over the next four years! The only problem is how to get that cheap, abundant crude to the refiners who so desperately need it to stay in business. After all, crude is 85 percent of the cost of gasoline.

As can be seen here, the refining companies are working on creative ways to get their hands on that crude. This should give hope to the companies and their shareholders. This article was originally written for the Motley Fool Blog Network. Make sure to read my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.

21st Century Manufacturing: 3D Printing

Manufacturing is usually thought of by most investors as a dull, stodgy, slow growth, low profits sector that is best avoided. But if investors assume that to be true, they will be missing out on an exciting new sector of manufacturing, one that uses the latest technologies and which promises to increase manufacturing precision while lowering costs by billions of dollars for manufacturers worldwide.

That sector is high-tech additive or personalized manufacturing, otherwise known as 3D printing. 3D printing was invented in 1984 by Charles Hull. Such machines are based on the latest advances in electronics, laser technology and chemistry whose purpose is to build up complex shapes from granules of plastics or metals. The technology has exploded in recent years, having been used to build everything ranging from car bodies to dental implants to jet engines to jewelry to transducers for ultrasound scanners.

Two of the early users of 3D printing technology are global industrial powerhouses, General Electric (NYSE: GE) and ABB Ltd. (NYSE: ABB). GE's CEO Jeff Immelt was recently quoted in a Financial Times article about 3D printing as saying “It's going to be be big” as he pointed out how this new exciting area of manufacturing will shorten cycle times between designing products and actually making them. ABB's CEO Joe Hogan said in the same article “3D printing means it's possible to go from concept to reality in just a few hours. That's a big help when you are trying to be quicker and more reactive.”

The Economist backed up both CEOs, citing that 20 percent of all output from 3D printers is currently producing final products rather than prototypes. It went on to say that, by 2020, that figure will rise to more than 50 percent.

This technology also lowers the amount of infrastructure needed for manufacturing, allowing emerging companies and countries to become a serious player in manufacturing much more easily and quickly. And in developed countries, it will allow mass personalization of goods, perhaps marking the return of artisan production workers which haven't been seen in most rich nations for many decades.

Investors may be curious as to who the current leaders are in this new technology. Additive manufacturing machines are being made by a number of companies around the world such as Germany's EOS, the UK's Renishaw and Sweden's Arcam along with several firms right here in the US. These companies include the likes of Stratasys (Nasdaq: SSYS) and 3D Systems (NYSE: DDD).

The key here for investors is that this is an industry still in its infancy. Industry figures put sales of 3D printing equipment last year at only about $500 million. This is less than 1 percent of sales of conventional machine tools. Total revenues for the entire industry, including materials and services, amounted to about $1.7 billion in 2011. But it is a fast-growth technology industry.....

That is why, as institutional investors have caught on, that both 3D Systems and Stratasys are both selling at about 35 times this year's earnings. Another reason for their valuation level is the possibility of a takeover by a large company like GE or Hewlett-Packard (NYSE: HPQ), the largest printer company in the world.

Hewlett-Packard, which signed a collaboration agreement with Stratasys in 2010, may not want to follow the path Kodak took. Kodak was the dominant player in photography, but missed out on the digital camera revolution and become an obsolete company. HP likely does not want to miss out on this revolution and may just buy one of the main players in the sector.

Bottom line for investors? This 3D printing technology will most likely be more disruptive than expected and be a gold mine for those companies in this field. The stocks of these companies should turn out to be bargains for those who hold on to the shares for years down the road.

This article was originally written for the Motley Fool Blog Network. Make sure to read all of my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.

A Look at the Corporate Tablet Market

In the battle for the consumer market in tablet PCs there seems to be a clear winner so far – the iPad from Apple (Nasdaq: AAPL). The latest figures from research firm IDC for 2012 show that Apple's worldwide market share grew from 54.7 percent in the fourth quarter of 2011 to 68 percent in the first quarter of 2012. Samsung was second and Amazon was third.

But it is still anybody's game in the corporate market for tablet PCs, although Apple is leading. A survey earlier this year by NPD In-Stat found that 68 percent of tablets provided by companies to their were iPads. Then there is the whole BYOD phenomena. More and more corporations are allowing their employees to bring their own device to work, adding even more growth in this sector.

Companies are doing so because, once security issues are addressed, BYOD projects result increased employee satisfaction, greater worker flexibility and significant cost savings. Take Citrix Systems (Nasdaq: CTXS), the cloud networking and visualization technologies company, for example. Just three years after launching a limited BYOD program, it has already met the 20 percent cost savings goal it initially set thanks to a large drop in desktop PC support requests.

The other major players in this market include tablets based on either the Android operating system from Google (Nasdaq: GOOG) or ones based on Windows from Microsoft (Nasdaq: MSFT). Google's Android does lead Apple in sheer numbers in the smartphone sector but that success has not translated to tablets. Its growth seems to be hindered by security concerns (very important to corporations) over a lack of control over the download of apps. Meanwhile Microsoft is being held back by the fact that many employers are awaiting the release of the new Windows 8 later this year as to whether to allow employees' Windows devices.

This is a fast growth market for the telecommunications companies. In fact, AT&T (NYSE: T) recently said that over the past year it has seen “an explosion in use” of tablet PCs by corporations. The company reported that the number of companies using tablets grew by 194 percent in the first quarter of 2012 versus the same year-ago period. It added that more than 27,000 business customers have adopted mobile device management deals with the company.

AT&T and its main rival, Verizon Communications both view the trend among companies to mobilize their business operations as a significant opportunity to add a large amount of revenue to their bottom line. Both firms have invested heavily into mobile app development and services that target business customers. AT&T says that 50 percent of Mobile Enterprise Applications Platform customers purchase additional software or services from the company, justifying the investment into these apps.

Investors can be assured that this macro trend of companies adopting BYOD will only continue in the future. This is probably good news for Apple, although rivals are still nipping at its heels. But for certain, this trend will turn into a major cash generator for the large telecommunications companies as they offer to manage BYOD programs for their customers.

This article was originally written for the Motley Fool Blog Network. Make sure to read ALL of articles daily for the Motley Fool at http://blogs.fool.com/tdalmoe/.

Alaskan Pipeline to Fuel US LNG Exports

The glory days of the Alaskan oil boom are long gone. Alaska's oil production, which at just above 2 million barrels a day in 1988, was less than a third of that at 563,000 barrels a day last year. Oil production from our 49th state is expected to continue declining. However, there is hope.....

Alaska may be able to relive past glories if the huge reserves of stranded natural gas on the state's North Slope can be brought to anxious buyers around the globe, particularly from Asia. Alaska's North Slope has proven reserves of 35 trillion cubic feet of gas, about one-eight of the US total, and unproven reserves estimated at 236 trillion cubic feet. The state already has significant gas production, the equivalent of about 1.5 million barrels of oil a day. But almost 90 percent of that natural gas is reinjected back into the fields because there is no existing way to deliver that gas to customers.

Initially, plans were being laid to ship some of that stranded gas to the lower 48 via a pipeline which was to built by ExxonMobil (NYSE: XOM) and TransCanada Corporation (NYSE: TRP). That idea is still alive technically since it is awaiting approval from the US Federal Energy Regulatory Commission. But for all intent and purposes, it is dead. The US shale boom and plunge in US natural gas prices has made it difficult to justify the project's estimated $40 billion cost.

Alaska's hope was rekindled though several months ago when three of the major international oil companies – ExxonMobil, BP PLC ADR (NYSE: BP) and ConocoPhillips (NYSE: COP) – reached agreement with the state of Alaska to move forward on a $40-$50 billion project to export liquefied natural gas (LNG) to Asia. The companies agreed on a target of 2016 for the large scale project which would include not only a pipeline but a gas liquefication plant to turn the gas into LNG for export to Asian markets.

There is a ready market in Asia for US exports of LNG. Even ignoring China, there is abundant demand for LNG from Japan where all nuclear power facilities have now been shut down. Before the Fukushima accident last March, nuclear generation accounted for about 30 percent of total electricity supply. No wonder then Japan needs some other fuels to power their electric plants and that LNG is selling there for 6-7 times what the US benchmark for natural gas is currently traded.

The Japanese are already hunting for LNG export deals in the United States. In April, its two largest companies – Mitsubishi and Mitsui – signed a 20-year supply agreement to import at least 4 million tons a year of LNG from a new export facility to be built at a site in Louisiana owned by Cameron LNG, a subsidiary of the utility Sempra Energy (NYSE: SRE). The facility could begin exporting LNG to Japan by 2016, if regulatory approval is received.

Probably the key to the success of the proposed Alaskan pipeline will be if long-term contracts are signed for LNG delivery to Chinese energy companies which have been scouring the globe for such deals. It is highly likely that such deals will be forthcoming since final delivery costs for Chinese buyers will be approximately $10 per million BTU, which is less a third of the current rate in Asia.

These contracts with eager Asian buyers will make the project a profitable one for the companies involved and their shareholders. The logistics of the project should be solved within a year, so the only possible obstacle will be a political one if US politicians think its smarter to reinject gas back into the ground rather than selling it on the world market. Hopefully, the politicians will just stay out of the way on this one.

This article was originally written for the Motley Fool Blog Network. Make sure to read all my daily articles for the Motley Fool at http://blogs.ffol.com/tdalmoe/.

A Look at the Social Media Marketing Sector

It is one of the hottest spaces in the technology sector right now...social media marketing. The torrid growth over the past several years of social networking services such as Facebook (Nasdaq: FB) and Twitter has presented companies with both new marketing opportunities and new marketing challenges.

Companies today need to keep pace with their customers, many of whom now use social media to talk about firms and their products. Companies gaining intelligence from conversations by consumers across social media will allow them ideally to create a stronger brand image, products more suited to consumer tastes and improved customer service. Since this industry is still in its early stages, even companies in the same sector such as GM and Ford, are pursuing differing social media strategies as my recent article pointed out.

Because of the rapid growth in this area, there is hotly-contested race between software powerhouses – Oracle (Nasdaq: ORCL), SAP AG ADT (NYSE: SAP) and Salesforce.com (NYSE: CRM) to become a dominant player in the sector. The field is one where Facebook has generated a ton of traffic, but with no direct revenues flowing through to the bottom line. As many analysts have said, it is a “missed opportunity” for Facebook to generate additional revenues.

Facebook allows companies to market on its platforms for free. As companies look for ways to monitor and manage an increasing number of Facebook pages and fans along with other social media sites like Twitter, social media marketing firms (which did not exist not long ago) are stepping in to help companies. Facebook calls these firms “partners” and gives access to its platforms free of charge. But, in turn, these firms are charging corporations a fee for use of their software which track their performance on Facebook and other sites.

A number of these firms have been snapped up recently by the aforementioned Oracle, SAP and Salesforce.com, folding these companies into their portfolio of software offerings. Some of the most recent deals include Salesforce.com's $689 million deal to acquire Buddy Media and two purchases by Oracle – Virtue for $300 million and Collective Intellect for an undisclosed sum. Last year, Salesforce.com started the feeding frenzy with its purchase of Radian6.

These deals highlight a growing macro trend technology investors should be aware of...the line between marketing and technology firms is becoming increasingly blurred and morphing into one. As Salesforce's CEO Marc Benioff said recently, “The marketing industry is undergoing the biggest transformation it has seen in 60 years. Facebook has become the new corporate homepage.”

Investors should expect the trend of software firms acquiring social media intelligence companies to continue. Zach Hofer-Shall of research firm Forrester stated this week “This social technology arms race is the start of something very big to come.” He should have added that the big – Oracle, SAP and Salesforce.com – will only get bigger in the field. Their profits will grow larger too unless, maybe, Facebook decides to monetize the marketing occurring on their site and start charging the software companies fees for access to their platforms.

This article was originally written for the Motley Fool Blog Network. Make sure to read all my daily articles for the Motley Fool at http:blogs.fool.com/tdalmoe/.

Social Media and the Automakers

Automakers are finding it difficult to decide where to spend their advertising budget dollars to get the most bang for the buck. Take General Motors (NYSE: GM) for example whose $4.47 billion ad budget remains unchanged from the 2011 budget. Among the ad decisions it made, GM decided to skip advertising during the last Super Bowl (with 111 million viewers), but is a major sponsor of this year's upcoming Summer Olympics on the NBC networks.

It not long ago decided to pull paid ads from Facebook (Nasdaq: FB). The move to pull ads from Facebook, despite its 900 million members, highlighted something that new investors to the social media giant are finding out about the hard way with its falling stock price. There is yet little consensus in the ad industry as to what sort of return companies will get by advertising on Facebook.

So until that consensus emerges, some firms like GM will opt to not advertise there. Advertisers like GM are still coming to grips trying to understand the more interactive platforms – social media and mobile devices – and will not commit to Facebook and Twitter until there is a definitive way to measure the success of an ad campaign.

Investors should not freak out though as this is really nothing new. In the last century, advertisers were also reluctant to begin advertising on the new forms of media such as the television and the radio until they became better established.

Where GM and the other automakers spend their ad dollars is a high stakes game for media companies, both new and traditional such as the television networks. Why? Because no other sector spends more on advertising than the automotive sector which spent a full 17 percent of all the US advertising dollars last year, according to Kantar Media.

Many of those dollars went to the TV networks such as the number one network, CBS Corporation (NYSE: CBS), although the numbers are slowing drifting downwards for the networks. Automobile companies are expected to allocate 39.6 percent of their ad budgets to TV this year. This compares to 41.4 percent last year and 42.3 percent in 2010.

That gradual downward trend for firms like CBS is due to the rise of non-traditional media outlets like Facebook. Global ad revenue at Facebook will top $5 billion in 2012, up from $3.15 billion last year. Mobile ad spending in the US is expected to jump from $1.45 billion in 2011 to more than $10 billion by 2016, says research firm eMarketer.

This change in the allocation of ad budgets has been led by other industries, but it seems the automobile industry (despite the GM-Facebook parting) is catching up. In fact Ford Motor (NYSE: F) took a jab at GM after it made the announcement to drop Facebook advertising. Ford tweeted “It's all about the execution.” Ford went on to say that its Facebook ads are effective since they are combined with engaging content and innovation.

Overall online ad spending is forecast by ZenithOptimedia to climb by 16 percent this year. However, automakers will spend $11.9 billion of their total $30.9 billion advertising budgets online in 2012, up 39 percent from last year, according to Borrell Associates. This shift to online media only makes sense for the automakers. Think about the shift in how consumers purchase vehicles today who gather much of their information and comparison shops for cars online.

The macro trend of shifting to online advertising by the auto industry and others will continue in a big way. The only question facing investors in companies such as Facebook will be how much you are willing to pay for such growth in their ad revenues?

This article was originally written for the Motley Fool Blog Network. Make sure not to miss any of my daily articles for the Motley Fool by going to http://blogs.fool.com/tdalmoe/.

Tech Patent Wars Ongoing

There is a conflict going on in the technology space that many investors are still not aware is occurring. The ongoing battle involves the future of the industry and who the winners will be. The ongoing turf war involves innocuous items, often overlooked...patents.

All of today's tech devices could not exist without a myriad of patents. It is estimated, for example, that inside the average smartphone is embodied about 250,000, often overlapping patents of various kinds from both the computing and the mobile communications world.

All of these varied patents have multi-billion dollar lawsuits flying between among some of the best-known names in the technology industry including Samsung, Facebook (Nasdaq: FB), Apple (Nasdaq: AAPL), Google (Nasdaq: GOOG) and Microsoft (Nasdaq: MSFT). In the aforementioned smartphone business alone, where much of the legal action is occurring, $15-$20 billion has been spent in the last year alone buying up patents with legal bills conservatively estimated at half a billion dollars.

Proof of this new force at work in the technology industry came nearly a year ago when patents owned by bankrupt telecom equipment manufacturer Nortel Networks fetched $4.5 billion at auction. That was five times the initial estimate!

Among the losers at the auction, when compared to Apple and Microsoft, was Google. So what did it do? Several weeks later, it went out and spent $12.5 billion for Motorola Mobility. The main reason behind this deal was so Google could get its hands on Motorola's intellectual property.

And the action continues unabated. Just last month, Microsoft paid $1.1 billion for a number of important patents held by AOL (NYSE: AOL). All parties involved seemed to benefit. AOL received a lot of cash for patents it was not longer using, while Microsoft took home some of the first social networking patents ever granted. Facebook, a Microsoft partner, is now insulated form the possible legal attacks which would have followed if those patents had gotten in some other companies' hands.

This latest transaction again highlighted what is going on in the industry.....

The haves, cash-rich companies like Apple and Google, are buying up lots of legal protection for their business from the former leaders in the industry such as Nortel, AOL, Motorola and even Kodak that have little valuable left except for their intellectual property. In the long run, this could stifle innovation in that only giant companies may be able to compete in promising new areas like smartphones and social networking since they will be the only ones with the financial wherewithal to not only afford buying patents but also fend off lawsuits (think of the Yahoo versus Facebook lawsuit).

In the past, when this was not such a litigious society, disputes between converging technologies like the radio and the telegraph were settled amiably with cross-licensing agreements which benefited all the parties involved. But such an outcome today is highly unlikely...many more lawsuits are sure to follow soon. Some likely ones which come to mind are Yahoo suing Twitter, Amazon suing Facebook, and Amazon being sued by the tablet computer companies including Apple.

That's what makes technology investing so tough today. Picking the right company in which to invest may not come down to who has the best product or the best management, but who hires the best lawyers. Or who has the most cash with which to snap up the most patents. That likely means firms like Apple and Google may be on top longer than expected and perhaps for many years to come.
 
This article was originally written for the Motley Fool Blog Network. Make sure to read all of my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/.