Foreign investment hints at life in natural gas
The private sector suggests that one way or another, Obama won't be a headwind for long.
By Jim Cramer, TheStreet
Every time I think that I am being too optimistic about the Marcellus Shale, I get shocked into discovering there is much more natural gas in the play than I thought and much more value than anyone realizes.
This morning's announcement that Mitsui (MITSY) will pay $1.4 billion for a third of Anadarko's (APC) Marcellus' assets is breathtaking both in its surprise value -- another new player with lots of cash coming in -- and its price tag given that Anadarko is not a huge player in the Marcellus.
I just had Range Resources (RRC) on last week, the first and biggest player in Marcellus, and this new valuation makes me think that RRC, which is regarded as overvalued by some analysts because of its premium valuation to the big established Barnett players (thought to be the highest-grade shale deposit, and one that Range and Anadarko have stakes in) is actually cheap.
The astonishing thing about all of this Japanese involvement (Sumitomo's there, too) is how much money is going into the play, with Mitsui's contribution equivalent to what it put into the gigantic Sakhalin field in Russia.
Until this announcement I would never put Marcellus on par with that field, which is considered to be the biggest in the world.
One thing's for certain -- if Marcellus, which is in a much more "stable" place than Sakhalin, can get that kind of investment, you can be sure that the Japanese believe that the country is going to go more toward the cleaner fuel than we have now.
There's no way you make this kind of commitment if natural gas is just going to remain the heating fuel (63% of our homes use it) and a sometimes fuel for industry.
You would think that it means we are going to embrace natural gas as the "transition" fuel to non-carbon sources.
Here's the problem. The president favors coal as the transition fuel and is adamant about that because he has such high hopes for carbon sequestration. Of course, it's a technology that has never been proven, but his administration has embraced it like no other. That leaves no room for natural gas as an important fuel, and without some sort of incentives for using natural gas as a truck fuel, you have to believe that the U.S. is headed for the ridiculous situation where we will become a huge exporter of natural gas.
I know, it's really amazing. We have a cleaner-burning fuel than oil or coal that we will be exporting because of a president's intransigence. But haven't we seen that same quality with health-care debate? Haven't we realized that with Obama it's his way or the highway, even though the traditional media remains fearful of saying just that?
So we go about the absurdity of setting up what were once liquefied natural gas (LNG) import stations to being LNG export stations, and we stay coal- and oil-based.
How sure am I of this export bent? John Pinkerton, the CEO of Range Resources, suggested that on "Mad Money" last week, pointing out that the vast Alaska natural gas field pipeline project will send natural gas to Asia because we will have a surfeit here. Remember, despite one of the coldest and most endless winters on record with nationwide snowstorms, the price of natural gas hasn't even rallied because of the surfeit ... and we aren't pumping anywhere near what we can pump.
So, Mitsui must know this. It must know that the shale's huge, that it's going to make a profit long term, which therefore includes a projection that the nat gas critic Obama is a one-termer, and that the United States will become an important exporter because it has no place to put all of its natural gas.
The natural gas proponents keep telling me that there is "movement" and that Congress is going to be offering some incentives for trucks to transition from diesel, but that seems farfetched to me given that it is the least in-favor fuel with the president.
But it is heartening to note that the industry is taking a longer-term view and is setting up for the U.S. to be a powerhouse provider of energy, as it was in the 1920s when there were discoveries everywhere and the vision of having to import oil from the Middle East was just a bizarre fantasy.
At the time of publication, Cramer had no positions in the stocks mentioned.
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