Investors noting the “renaissance” of the US oil and gas sector in recent months will find the most attractive opportunities in oilfield services and infrastructure and among industries gaining an edge from use of plentiful natural gas, argues Coutts, the UK private bank.

In a Daily Theme note, Henry Lancaster, senior analyst at the firm, lays out the investment case for the energy sector in the US, an area that has also attracted controversy due to technologies such as “fracking” (the use of pressurized liquids to extract energy sources).

“New technology is boosting oil and gas production. While higher output weighs on prices, it also creates significant opportunities for companies that service the renewed activity and those that benefit from cheaper fuel,” Lancaster writes.

“In just a few years, horizontal drilling and hydraulic fracturing have transformed the US from the verge of needing to import gas into the world’s largest gas producer. The same technology is now producing a rise in oil output for the first time in a generation,” he continues.

He points out that West Texas Intermediate (around $87 per barrel at the time of writing), has been trending higher since its collapse in 2008, which is a strong ongoing incentive to explore for and produce oil.

However, as Lancaster goes on to note, WTI has traded at a $10-20 discount to the international Brent oil price since 2011, suggesting that there are “infrastructure bottlenecks, such as a shortage of pipelines, which are hampering the shipment of oil and thereby keeping the local market oversupplied and prices lower.”

“We therefore see a continuing opportunity in US oilfield services and infrastructure for companies supporting the production and transportation of oil,” he said.

Natural gas

The local US Henry Hub benchmark price has trended lower since 2005 and hit new lows earlier in 2012 below $2 per million British thermal units. This contrasts with a rising trend in natural gas prices elsewhere in the world, Lancaster says.

“US gas prices are also at a huge discount to levels in most gas-consuming nations, where prices are around $10 per million BTUs and even higher in Asian markets that rely on imported liquefied natural gas,” he says, arguing that US gas prices will remain cheap.