There is no doubt that demand for oil is high, and will remain high many years into the future. More and more consumers around the world are driving cars and, with electric cars in their infancy, this means increasing demand for petrol.
But the question is: how will this demand for oil be met? Many of the traditional sources of oil, from the North Sea to Texas, are drying up.
Thinking outside the box
This has meant that oil majors such as BP (LSE: BP) (NYSE: BP.US) have to search further afield to obtain oil, from the wastes of Siberia, and the depths of the Gulf of Mexico, to the ice fields of the Arctic.
Rising oil prices and constrained supply has forced energy explorers to think out of the box. A decade ago, the tar sands of Canada were deemed far too expensive and technically difficult to extract.
But since then, the technology of oil extraction has progressed and the tar sands are now suddenly economically viable. Indeed, this is now the new growth area in oil production.
Which brings us to Warren Buffett. Buffett is a master at spotting trends and investing in them early. He invested in Coca-Cola just at the cusp of the consumer products boom, and invested in Salomon Brothers just as the financial boom gathered steam. And now he is investing in the leading producer of oil from tar sands: Suncor Energy.
What is becoming clear is that, alongside traditional sources of energy, we now have a boom in new sources of energy such as tar sands and shale gas, as well as exploration of untapped regions such as the Arctic.
The ARM of the energy world
These new sources are the future of energy, and so this is where investors should be looking to buy into. I would say it’s the energy equivalent of buying into ARM rather than Intel, or Google rather than Microsoft.
Because of all this, Suncor Energy is a definite buy for me. But I would also buy into BP and Shell (LSE: RDSB) (NYSE: RDS-B.US). BP has invested heavily in untapped oil reserves in Russia, the Gulf of Mexico and the Arctic. Shell has chosen a different path, investing heavily in gas, both conventional and shale.
The scarcity of oil means independents such as BP and Shell risk a future of gradual decline. But by seeking out these unconventional routes, these oil producers are shaping themselves as energy companies of the future, rather than energy companies of the past.
Our guide to oil and gas shares
There are a large number and range of oil and gas shares in the UK stock market. The range of stocks in this sector can at times seem bewildering.
Would you like to invest in oil and gas shares, but are not sure how? Small company oil and gas shares in particular, although risky, can produce market-beating returns. Would you like to learn more? Just read our report “How To Unearth Great Oil And Gas Shares”. It is available without obligation and completely free.
> Prabhat owns shares in BP and Shell. The Motley Fool owns shares of Google.
