The global energy economy is changing. Coal is falling out of favor for the production of electricity, the locus of demand growth is shifting from developed to emerging economies, and behind it all the United States is poised to become a major net exported of oil and, perhaps more importantly, natural gas.
An early release overview of the 2014 Annual Energy Outlook, the U.S. Energy Information Administration outlines what this transformation could look like over the next few years. U.S. domestic oil production is projected to reach historically high levels by 2016, and natural gas production is expected to increase by about 56 percent through 2040. The U.S. will be so flush with natural gas that exports are projected to increase significantly, while at the same time natural gas overtakes coal as the fuel of choice for domestic electric power by 2040.
Behind this changing tide is the U.S. oil and gas industry. As a group, the industry as measured by the Energy Select Sector SPDR (NYSE:XLE) has lagged the S&P 500 in 2013, climbing 19.5 percent through Christmas compared to 25 percent, but the outlook for 2014 is more optimistic. A report by analysts at Merrill Lynch, which was seen by 24/7 Wall St., highlights six themes that could support the energy industry in 2014 and some companies that are set up to capitalize on the changes. Here are some of the top picks.