One of the key criteria for a great investment is a sustainable competitive advantage. It’s also the one aspect that commodity companies in the mining and energy industry struggle the most with. Unable to compete on brand loyalty or by monopoly positions, competitive advantage often comes down to size, scale and cost base. BHP Billiton (ASX: BHP) is a company which exemplifies all three, and recent strategic moves towards production of shale gas in the US add weight to the argument that the company is, as they say on American Idol, “in it to win it”.
In addition to the company’s diversified mining portfolio BHP has significant petroleum assets across more than 12 countries. BHP is betting on shale gas in the US which the company is set to quadruple in production by 2020 according to current petroleum CEO J. Michael Yeager.
In 2011 BHP invested US$20 billion buying up shale assets in the US to capitalize on the projected growth. In fact BHP believes in the industry so much it is building a new 30-story tower at its global headquarters in Houston, Texas, to accommodate the additional 1,200 employees it will require by 2016.
Shale gas is found deeper than the coal seam gas being sought by the likes of Origin Energy (ASX: ORG) and Santos (ASX: STO) in Queensland, but almost always involves the use of the controversial fracking process to release the gas.
Locally, concerns have been raised that the shale gas boom could be a threat to Australia’s LNG industry. Origin Energy has cited competing US shale prospects as the reason behind its inability to sell down its stake in the APLNG project. However Woodside Petroleum (ASX: WPL) believes the general view is that US LNG exports are expected to make up less than 10% of global supply by 2025, compared to Australia’s 25% and Qatar’s 20%.
BHP’s foresight on shale gas is an example of the company keeping its eyes on where the ball is going, not where it is today. It is evidence of a long-term focus and prudent decision making, so long-term investors can be less concerned about the daily fluctuation of commodity prices. At the right price, that could make BHP a Foolish investor’s best friend.
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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article.