Natural gas ready to explode
All signs indicate that 2011 will be a turning point, even if the industry isn't quite ready for it.
By Daniel Dicker, TheStreet
2011 is going to be the year for natural gas. Stories keep crossing the wires, subtly pointing to the inevitable fact that natural gas is our guaranteed energy future, whether or not the industry or even Washington is ready for it.
The only thing left for a savvy investor to do is to get on board this train before it leaves the station and builds up too much speed.
Another avalanche of reports appeared this week, all pointing to the same theme: Natural gas is ready to explode. Check out these recent stories:
TNK-BP, the third-largest energy company in Russia, sees a demand explosion coming and announced it will look to double its output by 2020 to 30 billion cubic meters.
In the United States, Newfield Resources (NFX), normally more engaged in the Anadarko basin in Oklahoma, spent $405 million to double its exposure in the Marcellus shale region of Pennsylvania.
Freeport-LNG, an independent liquid-natural-gas terminal operator that is 50% owned by Conoco-Phillips (COP), has just teamed with Australian bank McQuarie to build out their terminal as an export plant -- a $2 billion dollar endeavor.
Someone is clearly convinced of the United States' upcoming role as a viable exporter of natural gas, something we have heard about for years but now is becoming a real watershed moment because capital is finally being committed to the idea.
The first station for refueling natural-gas-fired cars is being built in Albany by the local utility National Grid, ostensibly to support its own growing fleet of cars and trucks but also in preparation for consumer vehicles.
In the Pennsylvania State Congress, talk is turning from a severance tax on shale extraction -- a measure endorsed by outgoing Gov. Ed Rendell but with little support from Republican state representatives -- to talk of locally exacted "impact fees" to replace them.
The significance of the change is not superficial. Severance taxes were a major hurdle to increasing development of Marcellus shale plays because of their universal application and because any talk of fresh "taxes" of any kind was gaining difficult traction among Republicans and Tea Party advocates.
Impact fees are more easily passed, still give local governments reasonable recourse to companies for environmental and safety concerns, and avoid some of the complications of dealing with the state government.
This is just a sampling from the past week of news stories that are becoming more frequent as the natural-gas train picks up steam.
Compared with crude-oil-based fuels, natural gas is cheaper, greener and entirely domestic. These advantages ensure that natural gas will continue to gain traction in replacing oil and take us from reliance on fossil fuels to renewable and sustainable energy sources.
Already, natural gas is trading well above $4/mMbtu, on its way to $7 sometime in the next year. If you could invest in only one sector in energy for 2011, I believe natural gas shows the greatest potential for profit.
I still like Devon (DVN), with its great leadership and nimbleness in switching from dry to liquids and the previously mentioned Newfield Resources.
I also like EOG Resources (EOG). Despite its movement to concentrate more upon crude oil in the short term, it can move back to natural gas at a moment's notice as soon as market conditions improve, and it recently raised $1.5 billion more through a flawless debt offering to continue expansion.
I'm going to add two other recommendations: Southwestern Energy (SWN), because of its best-of-class exposure into the Fayetteville shale play, and Cheniere Energy (CQP), a valuable dedicated liquid-natural-gas play.
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Bill Stiritz owns more than 5% of the company, and has experienced an estimated $145 million in paper losses on his investment.
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