My conclusion: While natural gas prices may have collapsed in the United States, they've soared in Asia. That's because of high demand from Japan -- the country is using natural gas power plants to make up from the shutdown of nuclear plants after the Fukushima disaster -- and increased demand for electricity across developing Asia. (In 2011, demand climbed 12% in Japan, 31% in China and 39% in India.)
Spot prices for liquefied natural gas have risen to $18 per million BTUs. The current spot price is a 35% increase in the past year and a huge premium to the $2.52 per million BTUs price in the United States. If they can get liquefied natural gas to the markets that want it, natural gas producers can make a very nice profit. Unfortunately, the first U.S. liquefied natural gas export terminal isn't scheduled to go into operation until 2015 or 2016.
How to jump in
I'd like to add the company with the first permit to build that export terminal, Cheniere Energy (LNG), to my portfolio at the right price. I added it to my watch list (registration required) on May 11 with an $11 buying price in my column, "10 stocks for the bad old summertime."
So Cheniere Energy is one of my three stock picks in natural gas for this column (even though it's not yet time to buy).
I'd also recommend Norwegian energy company Statoil, which is already a member of my Jubak's Picks portfolio. The company has the export infrastructure in place to ship liquefied natural gas -- its Snoehvit plant, which is capable of liquefying 5.8 billion cubic meters a year, is the only such production facility in Europe. And the company recently signed a deal to buy into exploration permits in Australia's Northern Territory. Australia is on a path to become a major platform for the export of liquefied natural gas to Asia by 2015.
My third pick in natural gas is BG Group (BRGYY). The company has equity stakes in liquefied natural gas terminals in Trinidad and Tobago, and in Egypt. It is building an export terminal in Queensland, Australia, with operations scheduled to begin in 2014. It has plans to open a U.S. export plant in Lake Charles, La., with construction to begin in 2014. And it is in site studies for a terminal in Tanzania. Tanzania may be an oil frontier that's new to you, but recent discoveries have almost tripled estimated natural gas reserves to 28.7 trillion cubic feet. Word of the latest discoveries came from BG Group in May and from Statoil on June 14.
And those are my three suggestions on how to profit from the natural gas boom.
Updates to Jubak's Picks
These recent blog posts contain updates to the stocks in Jubak's market-beating portfolios:
- A new opportunity for income growth
- Can Costco thrive on Wal-Mart's international woes?
- Are fertilizer stocks set to rally?
- How will OPEC drama affect oil prices?
- Why Apple focused on the Mac
At the time of publication, Jim Jubak did not own or control shares of any company mentioned in this column in his personal portfolio. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not now own positions in any stock mentioned in this column. The fund did own shares of BG Group, Pioneer Natural Resources, Schlumberger and Statoil as of the end of March. See a full list of the stocks in the fund as of the end of March is here.
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Jim Jubak's column has run on MSN Money since 1997. He is the author of the book "The Jubak Picks," based on his market-beating Jubak's Picks portfolio; the writer of the Jubak's Picks blog; and the senior markets editor at MoneyShow.com. Get a free 60-day trial subscription to JAM, his premium investment letter, by using this code: MSN60 when you register at the Jubak Asset Management website.
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I'm still trying to sort out WHAT the 3 picks were??
A lot of extra fill included in the story...
These guys should be the last people we listen to for information and advice. If you want the truth, go to sites like Energy Bulletin, ASPO and The Oil Drum
"tural gas boom? More like a going away party. Gas fracking and extraction of "tight oil" is a sure sign the end of the rise of the oil era is near. We reached global peak production in 2008 (we'll never produce more than we are right now) and there are already signs this new production of shale gas and tight oil is slowing down.
These guys should be the last people we listen to for information and advice. If you want the truth, go to sites like Energy Bulletin, ASPO and The Oil Drum"
That's funny. The world just produced a *single day record* 91 million barrels a day with a 2 million barrel a day usage gap (highest since 1998).
"They gambled that natural gas would rise as gas prices went up and now are nervous with the market falling so they write this article .Since 2004 or prior these stocks have been going up and peaked just do a 10 year research and see for yourself they are ready to take a dive anytime ..These people writing the articles are invested and want you to buy up so they can bail with huge profits .."
If you look at JUBAX, there's a lot of other stocks in there besides oil or gas ones.
And who would argue against STO? It got driven in the entire oil Bubble to a 2008 peak, you can now buy it much cheaper and it's in a solid uptrend. With a great dividend and also the benefit of that dividend being paid in the Norwegian Krone, it's not subject to the Euro mess, and if the dollar devalues (which it will over the next few decades) that means you are getting a benefit of not having your value eroded by dollar devaluation.
"A way to play the increase in LNG demand and delivery from the terminals that already exist, as well as those to be brought on-stream in the next few years, is Teekay LNG Partners, L.P. (symbol TGP). Teekay LNG Partners generates cash flows from long-term, fixed rate contracts with major oil and utility companies around the world, by transporting LNG via its 32 LNG/LPG carrier seagoing ships and 11 conventional oil tankers."
I also found CQP which is the energy partner for LNG and actually owns the terminal in Sabine LA (first domestic export terminal scheduled to complete and actually approved thru congress).
Nice yield at 7.62%.
Also, Dominion Resources, D (which check out it's 20, 30 year chart). They are buying up pipeline and investing heavily in new energy resources, so not only is it a power distributor for nice utility yield and protection, it also is able to generate from others who may use their pipelines.
I owned D thru the 2008 collapse, and although it got taken down along with the whole market, it's fall was less than the S&P 500, payed a nice dividend the entire time, and has come right back. Look at the legs from 2009-2012. Has never broken its downtrend once, not in 2011 spring breakdown, not in the 20% market drop last fall, and not this year either. This is one of those "buy and hold" stocks that supposedly no longer exist.
A way to play the increase in LNG demand and delivery from the terminals that already exist, as well as those to be brought on-stream in the next few years, is Teekay LNG Partners, L.P. (symbol TGP). Teekay LNG Partners generates cash flows from long-term, fixed rate contracts with major oil and utility companies around the world, by transporting LNG via its 32 LNG/LPG carrier seagoing ships and 11 conventional oil tankers. TGP reported in a presentation made June 18, 2012 that it is the 3rd largest independent operator of LNG carriers. The case for increased shipping demand for LNG includes Japan's ongoing shift to natural gas fired electric power generation from nuclear power electric generation. This Japanese demand may well be a long term shift as none of its existing nuclear plants were operating as of June 18, 2012 (according to the TGP investor presentation), and many of its nuclear plants may never be restarted.
Just a thought. And yes, I am long shares of TGP, have been an owner of the shares for over a year, and given the yield, likely will be a long-term holder of the units. TGP is a master limited partnership, and MLPs, common in the energy/natural gas transportation segment, have unique tax aspects that all investors need to be comfortable with. I believe Jim has written columns about MLPs in the recent past.
STO, LNG, BRGYY.
STO is a huge buying opportunity. How often do you get US listing access to a company with a strong reserve currency and a strong divided? This is right in the sweet spot. 4.66% yield, just made a huge discovery in oil that is set to replenish their reserves for decades to come, and like Jim mentioned, a play into Natural Gas as well.
With Oil under pressure and every stock in Europe being unfairly nailed regardless of its business, this is a nice stock to own. One caution it just made a lower high than 2011 and came back down, though, it did make a higher low, so it's uptrend is still intact for now.
Like LNG for a few reasons, which it was still 2010 and this stock was still $2. It's frothy at $12 considering it has no income, no dividend. But the one thing it does have is the only approval of any domestic company to build an export terminal. Assuming it is able to maintain access to credit markets (which Corporate debt is well financed currently) it should be able to start exploiting the Natgas difference quicker than anyone else. $2 to produce here, anywhere from $15-25 in the rest of the world. Easy money if they can get it done.
I would add WPRT. Westport Innovations Inc, they specialize in technology to convert engines from diesel/gasoline to Natural Gas. Just recently got into a deal with Caterpillar for offhighway engines. This is like a services play in the oil fields except it doesn't require a high price of Nat Gas to be successful.
Both LNG and WPRT are speculative. But could be one of those set up for split after split after split into the future or just nice price gains. One of those you might wish you pulled the trigger on.
Natural Gas (and in particular it's going to be LNG, liquified natural gas) is going to reshape the future of the energy industry. With governments broke globally, solar power and wind power are on the way out (for who knows how long). Natural gas is cleaner than coal, cleaner than oil, and more abundant domestically. Even without fracking it's still a good bet (in particular in Texas, they aren't going to outlaw fracking in west texas in the Eagleford Shale).
I'm not a fan of playing the big suppliers, Exxon, Chesapeke, etc. Too dependent on having the price much higher than it is now and no export licenses (though, those will come). Exxon has many other segments and Nat gas won't push the stock price, Chesapeke could, but that seems like a broken company right now.
Play the services, the small exporters, or STO for a little bonus to their main business (and because it's a great international stock to have, dollar devalue makes you more, Norway one of the strongest world currencies, huge stable dividend for decades to come).
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