To pick the best natural gas stocks to play the natgas price rise, you need to look not just at company fundamentals, but one crucial factor: Where these companies' assets lie…
That's because companies with assets in Texas are booming, and will deliver some of the best gains ever seen by energy investors.
Texas is the historical center of the U.S. energy industry. Today it's a major producer of natural gas.
Joel D. Moxley, president of the Gas Processors Association, told the Houston Business Journal, "Booming is the only way to describe the natural gas industry in Texas."
Texas holds about 23% of the U.S. natural gas reserves and accounts for approximately 30% of current U.S. output.
Its present output is roughly 19.7 billion cubic feet of natural gas per day. That means if ranked globally, Texas would rank third for natural gas production – behind Russia and the other 49 U.S. states.
One main area of focus for natural gas in the Lone Star state is the Eagle Ford Shale Formation. Production there nearly tripled between 2009 and 2012.
The Eagle Ford shale formation stretches from the Mexican border to East Texas, and is roughly 50 miles wide and 400 miles long. The first wells were drilled there in 2008 by Petrohawk Energy, which is now part of BHP Billiton Ltd. (NYSE ADR: BHP).
And the Eagle Ford is incredibly important to anyone investing in natural gas stocks right now because of its close relationship with this neighbor to the south…
How Eagle Ford and Mexico Play Into Natural Gas Stocks
Mexico is hungry for U.S. natural gas.
Just since 2007 natgas usage in the country has jumped nearly 17%.
Some of the increased demand comes from multinational corporations moving there and using Mexico as a manufacturing base.
But most of the increased demand is driven by the country's own power needs. From only 20% in 2000, today well over 50% of Mexico's power generation comes from natural gas.
By 2027, with another 28 gigawatts of electric power capacity expected to be added, the country's natural gas needs will rise by more than 5 billion cubic feet a day.
Gas production from Mexico's state-owned oil and gas company, Pemex, has plummeted in recent years as the country's gas reserves become harder to reach. Mexico has largely untapped gas fields, but much of its remaining natural gas is in hard-to-reach shale formations. Pemex – unlike U.S. natural gas companies – doesn't have the technology to drill.
This gives Mexico one workable solution: Import natural gas from the United States, through pipelines.
And that's exactly what it has been doing…
Since 2009, natural gas exports from south Texas pipelines have grown by about 600%, or 240 billion cubic feet per year. U.S. exports of natural gas to Mexico rose by 24% in 2012 to 1.69 billion cubic feet per day, according to U.S. Energy Information Administration (EIA) data. The EIA also states that 75% of gas exports to Mexico came from Texas.
Most of this gas comes from the Eagle Ford formation, since it is the southernmost major shale gas producing area in Texas.
The increased pipeline capacity and demand from south of the border will be good news for those companies producing natural gas in the Eagle Ford – and for investors who play the right natural gas stocks…