US energy companies have the potential to outstrip rivals in Russia to make the nation the world’s largest energy producer in the next 10 years, according to PIMCO’s global head of corporate debt.
In a market commentary, Mark Kiesel said technological advancements and high levels of capital allocation had made the onshore and offshore energy names in North America an increasingly attractive play.
The California-based manager runs the PIMCO Global Investment Grade Credit fund, one of the top ten best selling funds of 2011.
He added that oil and gas shale developments will lead to the US becoming increasingly more self-sufficient in its energy production and consumption.
‘While the US economy is still heavily reliant on foreign oil, we should see improvement over the next several years given significant technological advances in horizontal drilling, new discoveries, growth in emerging oil shale developments and rising capital investment,’ he said.
‘Energy producers are applying techniques from horizontal natural gas wells to new horizontal oil wells, helping open new unconventional basins as well as increasing production from existing basins,’ added Kiesel.
Independent exploration and production and pipelines account for the third and fourth highest sector allocations in Kiesel's highly-diversified Investment Grade Credit portfolio.
Kiesel said the US energy sector is currently growing at a faster rate than the country’s economy and this growth will see it bypass rival energy producing nations such as Russia in the near-to-medium term.
‘In combination, we believe increasing natural gas and onshore oil production could potentially see the US overtake Russia as the world’s largest energy producer in the next ten years, and over time, America should make great progress in becoming more energy self-sufficient as a nation.’
His comments come at a time when other fixed income managers have warned of potential shocks in energy prices – with one manager wary of crude oil reaching $200 per barrel. Kiesel said this was leading to a number of countries becoming wary of over-reliance on other nations.
‘Political and environmental risks are also important. Many countries are adopting a more nationalistic attitude toward foreign oil companies, increasing the risk that governments alter existing contracts or raise royalty payments and taxes,’ he said.
The PIMCO Investment Grade Credit fund has returned 40.7% over the past three years while its benchmark, Barclays Capital Global Aggregate Credit TR, has risen 36.2% over this period.