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 Feb 16, 2010 8:37AM
Jim Cramer

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.

 

Find a new broker and start trading

 

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.

 

Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.

 

Related Articles:

 

 

Eight most important credit card changes

 

Olympics portfolio: Companies go for gold

 

Top cybersecurity stocks for 2010

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123
123 rated 1
262
262 rated 2
480
480 rated 3
651
651 rated 4
649
649 rated 5
629
629 rated 6
616
616 rated 7
496
496 rated 8
346
346 rated 9
111
111 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
EXCEXELON CORPORATION9
TAT&T Inc9
VZVERIZON COMMUNICATIONS8
CTLCENTURYLINK Inc8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.