That's a collective sigh of relief coming from those investing in natural gas companies after a torrid first quarter for the sector. Natural gas prices have collapsed below $2 per 1,000 cubic feet for the first time in a decade.
And that's not even adjusted for inflation...
But on Tuesday came the first positive sign in months.
The U.S. government approved the development of the Sabine Pass plant, the first natural gas export facility in the lower 48 states.
CNN Money reports:
"The Federal Energy Regulatory Commission [FERC] voted in favor of Texas-based Cheniere Energy's plan to build a giant natural gas liquefaction and export terminal at Sabine Pass, which straddles the Texas-Louisiana boarder just north of the Gulf of Mexico.
Although environmentalists have threatened to sue to stop the 500-acre, $10 billion project, Cheniere says it plans to start building before July."
But surprisingly, amid all the rhetoric, there have been no real answers to some of the key questions driving the energy debate... until now.
Is President Obama truly responsible for high gas prices, and can his opponents really bring them back down?
What role has Federal Reserve Chairman Ben Bernanke's loose monetary policy played in soaring energy costs?
Is more domestic drilling the answer?
Renowned energy expert Dr. Kent Moors answers all of these questions - and more - below.
Dr. Moors, an adviser to six of the world's top 10 oil companies and a consultant to governments around the world, also talks about the effect political turmoil in the Middle East could have on energy prices in the immediate term and how North America will gain energy independence in 15-20 years.
Here's what else Moors - a bona-fide energy expert - had to say...
Dr. Moors on Gas PricesCan a U.S. President actually impact gas prices- at least enough to get gasoline back to $2.50 a gallon? Or is this just talk? I don't know whom to believe anymore...
The rise in demand for everything from electricity to petrochemical feeder stock, liquefied natural gas (LNG) exports, and even usage in vehicle fuels, will start driving that price up over the next two years.
You already know that, of course.
We've talked about it many times before.
But now there's something else on the horizon that is likely to provide a boost to investor prospects even sooner.
Utilities, one of the main beneficiaries of the gas boom, are moving to capitalize on the accelerating transition in power generation.
And in the process, two important trends are emerging that will be of interest to retail investors.
First, the low current prices and the prospect of rapid increases in extraction rates, if the market warrants, are allowing electricity managers the opportunity to plan for multi-year cost projections.
That, in turn, is propelling the intensified replacement of aging capacity with new gas-fueled plants.
As Pacific Gas & Electric Co. (NYSE: PCG) CEO Tony Earley noted this week, infrastructure investment becomes a priority when projected fuel prices are low. The system has to be upgraded and replaced in any event, as large segments of it reach the point of "retirement."
Earley also has advanced the idea that the power industry needs to speak with one voice in its dealings with regulators and policy makers.
This need for solidarity has been reflected in comments from other leaders in the power industry as well.
As policymakers increase capital expenditure spending in infrastructure replacement and expansion, we are also likely to see a renewed interest in developing a consensus on where the next "generation of generators" is going to be moving.
And one of the drivers coming onto the scene moves right into familiar - and profitable -territory, at least for us.
In Washington D.C., everything is an emergency. Legislation is always the antidote.
So now politicians are pushing the Natural Gas Act as a solution to high gas prices, rather than allowing the market to work.
Of course, none of them want to take the time to understand the true reasons why gas is going to $5 a gallon.
That would require a basic understanding of business or economics, something few in Congress seem to have.
Instead, what you can expect is the typical Washington response-a task force to investigate speculation in the oil futures markets.
U.S. President Barack Obama announced one last week without recognizing the futures markets actually improve liquidity and oil production certainty.
It's how Washington works. The Natural Gas Act is just more of the same.
I started scanning the energy and agricultural stocks I monitor, and began combing financials, looking for some undervalued little company about to pop.
Then I stopped.
I already knew a failsafe way to ace Kent's challenge. And so do you. We talk about it all the time.
It's the midstream sector of the energy supply chain, particularly in Master Limited Partnerships or MLPs
And it's the best and easiest way to make money in energy today.
I want you to understand the value of these companies that are involved in the gathering, transport, and storage of oil and gas. Not in terms of just how important they are to the industry, but also how important they can be to generating very strong returns for your wallet.
Because if you're ignoring them, you're missing out.
That's why today I'm going to share with you one investment opportunity in Kent's Energy Advantage portfolio that is blowing the doors off and making investors a killing.
And you can join in.
MLPs: The Golden Age ContinuesThe United States is in the early stages of one of the greatest financial booms in its history.
Technological advances in horizontal drilling have allowed companies to access natural gas and oil resources once thought to be unattainable.
Upstream gas drillers continue to develop shale deposits in Pennsylvania, New York, Utah, and other states. So someone has to take care of all the gathering, feeder and transport pipelines, terminals, storage facilities, fractionating, and initial processing of these fuels.
This is what has made Master Limited Partnerships (MLPs) such attractive opportunities.
These midstream companies make their money by charging transport fees for the fuels they process. And over the past few years, these fees have remained almost constant, even though natural gas prices have dropped considerably.
MLPs offer investors the opportunity to make profits in two ways.
- The stock appreciates in value, due to growth in the sector and strong financial returns.
- The stock pays higher-than-average yields and quarter distributions to investors (otherwise known as dividends).
And when we identify MLP plays that do both at the same time, that's when we really start to see some profits.
A 139% Return in Under Three YearsMLPs are attractive investments. So are the indices that track their overall performance.
And for the last 18 months, Energy Advantage readers have benefited from growth of one fantastic index.
The JPMorgan Alerian MLP Index ETN (NYSE: AMJ) tracks the performance of the booming energy MLP sector. Created in 2009, the market cap-weighted index currently pays an attractive yield of 5%, while the underlying share price has doubled in a little less than three years.
The index offers many of the same benefits of investing in a traditional MLP. The two biggest benefits are those opportunities to acquire a strong yield and to reinvest those dividends into appreciating shares.
This two-step process unleashes the power of income investing.
Just how much potential are we talking about?
So, as we await the latest developments in the European debt mess, today seems like a good time to answer a few. This time around, I am addressing some of your questions and comments that deal with natural gas.
By the way, my staff and I read all of the input and feedback you send our way, and we're very grateful for it. Please email me at firstname.lastname@example.org. (I can't offer any personalized investment advice, but I can address your questions and comments in future broadcasts.)
Let's get started...
Q: I've just read recently several articles stating that the EIA has revised downward its estimate of our natural gas shale reserve potential by deciding to accept, unconditionally, the most recent U.S. Geological Survey stating that the Marcellus, Eagle Ford, Barnett, and other shale formations hold only 20% of the heretofore accepted reserves. This is an 80% reduction! This changes everything if true.
That's the question - is this bogus, or is there factual evidence to conclusively support this new estimate? ~ Howard B.
A: Howard, this reminds me of a famous statement from the 19th-century British Prime Minister Benjamin Disraeli (though the comment is also variously ascribed to Mark Twain, Alfred Marshall, and many others): "There are three ways to hoodwink the masses - lies, damn lies, and statistics."
The Energy Information Administration (EIA) - a unit of the U.S. Department of Energy - continues to wrestle with the distinction between reserves and extractable reserves.
The first is the volume of gas indicated by field tests and analysis. The second is gas available for extraction at current methods. I would also stipulate as "extractable" reserves only the volume that market conditions allow.
When you equate the two, we are still in the same ballpark.
Current estimates put no more than 20% of known reserves as "extractable." As technologies improve, that figure could improve, too.
For now, the EIA estimate falls in line with most others.
So to answer your question, nothing much has changed here, aside from some government bureaucrats wanting their figures to be more accurate.
Q: Kent, your work appears to be expanding into areas of advisement that could affect the future profitability and wellbeing of nations and their business relationships with existing partners. A delicate balancing act if there ever was one! If such arrangements are not handled carefully, could sanctions and/or military skirmishes be the outcome? Are we facing the possibilities of "gas wars"? ~ Fred P.
I bought a nice position in Cheniere Energy Partners LP (AMEX: CQP). It is not clear to me if they are in a position to benefit earnings-wise from future expansions of the business. Is a future dividend increase in the cards?
- Harry M.
The broadening initiative to export liquefied natural gas (LNG) from the U.S. to Europe and Asia has put a few companies in the spotlight.
Cheniere is certainly one of them.
Actually, we are dealing here with two tradable securities - Cheniere Energy Inc. (AMEX: LNG) and Cheniere Energy Partners LP (AMEX: CQP).
With Cheniere, we have both the company pioneering the LNG exports (Cheniere Energy), and the partnership controlling the company's Sabine Pass terminal on the Gulf of Mexico at the border between Louisiana and Texas (Cheniere Partners).
As my Energy Advantage advisory service subscribers will tell you, we're always discussing the new age of natural gas. This includes the impact LNG trade will have on profitability, and the position of Cheniere in this process. And Cheniere Partners is just one of the high dividend/high return stocks I have identified for them.
Lucrative LNGAs you probably already know, LNG is a major remedy for the accelerating glut of American and Canadian unconventional natural gas production, which runs the risk of oversaturating the market and depressing prices.
Exporting the gas, on the other hand, taps into widening international demand and carries the prospect of actually improving profitability for gas producers in North America, even while the domestic need for the energy does not keep pace with rising supply.
In so doing, U.S. and Canadian producers are simply paralleling developments already in place in Australia, New Guinea, Russia, and above all Qatar - the first dominant gas producer in the world to commit all of its exports to LNG shipping.
This worldwide trend has transformed the LNG trade from import to export.
As recently as five years ago, we were still talking about importing more LNG into the United States, as conventional production declined.
Now with shale gas (along with coal bed methane and tight gas), the unconventional sources provide more available gas than we ever imagined.
The issue now is how to export the surplus gas.
Enter Cheniere's Sabine Pass terminal.
To continue reading, please click here...
They tell me his name is Saad, which means "happiness" in Arabic. Seems a strange name for what I'm still hoping is a Jeep.
Nonetheless, I have a few moments before he shows up to reflect on my government meetings in the capital city of Rabat.
This is an impressive city, with large areas of greenery and beautiful gardens. It also boasts one of the largest palace grounds I have ever seen.
Our meetings dealt with setting the legislative and regulatory agenda for shale gas development in the country. Morocco has been exploiting shale oil for more than a decade, but the gas is new. And it's creating some problems for the existing Oil Law.
If all goes according to schedule, the first evaluation wells will be spud over the next few months. That means there is little time left, before drilling starts, to establish the production, environmental, and royalty/profit ground rules.
One thing, however, is already apparent - both here and elsewhere internationally: Having a known volume of gas in the ground is one thing; being able to provide the working structure necessary to exploit it is quite another.
Without Infrastructure, Field Development Will LanguishYesterday I traveled some 1,250 kilometers round trip, between Agadir in the south and the capital city of Rabat (north of Casablanca).
It's a 16-hour train ride, all told. But the trip would have been much more difficult only a year ago. That's because the new 250-kilometer extension of the motorway between Agadir and Marrakech is barely one year old.
Most of the gas Down Under is in giant underwater deposits, located more than 100 miles from Australia's shores. Developing some of its largest fields, far from any landmass, has been a problem without a solution... until now.
This is an interesting opportunity for investors looking to capitalize on innovation in natural gas production outside of the United States.
Spot prices for crude oil and liquefied natural gas, or LNG, have risen disproportionately to the low price of natural gas on the U.S. market.
"Why didn't natural gas bounce like its two other energy brethren?" Barnes asked. "That's easy. Once the United States discovered an abundant supply of natural gas in its shale basins, the fear that this country would run out of this critical source of energy basically disappeared. This new supply of natural gas is changing the way the United States views energy. In the past, we expected to have to use imports to meet our energy needs. But that may not be the case going forward."
Not so when the government is Beijing, and Washington politicians halfway around the world are busy looking for votes.
This tiff could be filed away as just another tempest in a teapot... if it were not for the other important projects it could derail along the way. Those projects just happen to have a major impact for American natural gas technology and the companies likely to benefit from its foreign introduction.
If the two countries can get it together, it could mean profitable new opportunities for both.
To find out how the energy sector would benefit from U.S.-China cooperation, read on...
CNOOC initially will pay $1.08 billion for a 33% stake in Chesapeake's Eagle Ford shale acreage in Southern Texas. China's third-largest oil company will invest an additional $1.08 billion by paying 75% of Chesapeake's drilling and completion costs in coming years, allowing Chesapeake to tap hard-to-extract shale gas deposits and boosting its weak balance sheet.
The deal highlights China's need to develop its shale-gas extraction techniques. The country has 26 trillion cubic meters of shale gas reserves that are largely unexplored due to a lack of drilling ability - and Chesapeake is a pioneer in the shale gas industry.
In short, now's the time to start thinking about such winter-related topics as heating bills, and such cold-weather investments as natural gas, heating oil and coal.
According to the American Petroleum Institute (API), natural gas provides heat for 55% of homes in the United States, followed by electricity, which warms 39%. Heating oil, propane and coal play only minor direct roles, although coal is used to fire 49% of America's electric generating plants, with another 20% fueled by natural gas.
That means natural gas is the natural choice of investors looking for winter-related profits - although Dr. Kent Moors, editor of Oil & Energy Investor newsletter and a frequent contributor to Money Morning, cautions that factors other than routine home-heating demand play a major role in setting prices.