WITH LISA FERRARO, MANAGING DIRECTOR, ENERGY AND INFRASTRUCTURE PORTFOLIO MANAGEMENT
Daily oil usage is expected to rise to over 100 million barrels of oil equivalent (BOE) by 20301; therefore, the market for oil, coal, natural gas, and alternative energy sources is steadily increasing. Although the United States is rapidly executing processes to develop alternative energy sources, most of the oil usage in the world is coming from developing countries that are using oil to build their infrastructure.
TIAA-CREF is actively investing in oil and natural gas; the organization understands natural gas is one of the main sources of clean energy and the recent fuel of choice for building new power plants. As the United States and the rest of the world continue to move toward more alternative energy projects, natural gas will be the bridge fuel used to advance toward a renewable energy solution.
“Natural gas is one of the major fuels that’s used in the United States to produce electricity and heat our homes. It’s a very important commodity,” explained Managing Director for Energy and Infrastructure, Lisa Ferraro.
TIAA-CREF’s standard for long-term investing is a strategic position to have for fuel investments. The organization has considerable utility portfolio tenure—a 20-year history of investing in alternative energy power projects. TIAA-CREF believes owning the hard asset over a long period of time will continue to build value for the organization; TIAA-CREF aims to meet economic goals, as well as provide for the greater good.
“Regardless of the marketplace, you can have oil and gas in the ground in the form of reserves and then bring them out when the time is right. We tried to build a portfolio to balance what kinds of fuels we’re pulling out of the ground at the time based on the prices in the marketplace,” added Ferraro.
Investing in the energy sector now should help position the organization to capture potential demand and price increases in the future. Long-term, diverse energy portfolio investing is intended to assist the portfolio in weathering the volatility of the energy market by diminishing the severity of periodic lows. However, regardless of the current prices, over time the demand and usage of oil and natural gas is expected to continue to rise and TIAA-CREF plans to be well positioned in order to benefit from that rise.
In 2009, TIAA-CREF solidified its position in the energy sector with the purchase of a hard asset in the oil and gas space: Polar Star Canadian Oil and Gas. After searching the marketplace for an entry point into oil and gas reserve ownership, TIAA-CREF jumped at the opportunity to acquire a company in the public market that was trading below the value of its reserves. TIAA purchased 100 percent of the company and structured it as a private company with the name Polar Star Canadian Oil and Gas.
Polar Star is an oil and gas company that produces about 5,000 BOE a day. TIAA-CREF sits on the board of directors at Polar Star. TIAA-CREF’s main roles as sole owner are to oversee all policies and procedures, especially in such a highly regulated industry as Canadian oil and gas; make budgeting, property purchases, and capital expenditure decisions; and direct general management of Polar Star and its production.
“For anybody in the oil and natural gas business it is exceptionally important to be concerned about environmental issues and to make sure you are doing things to encourage sustainable practices… It’s very important to us,” said Ferraro.
TIAA-CREF’s energy and infrastructure team has ambitious plans for Polar Star Canadian Oil and Gas. The analysts and consultants are working together to build on existing reserves and acquire additional reserves so Polar Star can store fuels inexpensively until the market is ripe—hopefully increasing the company from 5,000 BOE to 20,000 BOE a day. To diversify and stabilize the portfolio, TIAA-CREF also plans to add resources in locations around the world. By building a larger company and bringing in more capital, TIAA-CREF seeks to expand the energy-efficient operations and drilling processes—in an effort to increase capital and advance TIAA-CREF’s sustainability and environmental initiatives.
The long-term view TIAA-CREF and Polar Star Canadian Oil and Gas have in regards to energy assets should place them in good standing over time as commodities become sparse. And the energy efficient and environmentally sustainable practices they apply by strategically holding or pulling fuel assets from the ground should help preserve the valuable resources that will keep the world operating for generations to come.
1 Sources: History: U.S. Energy Information Administration (EIA), Office of Energy Markets and End Use. Projections: EIA, Generate World Oil Balance Model (2010).
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