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Natural gas prices have gone from $1.85 per million British thermal units in April to $3.14 Tuesday – a seven-month high – for a 70% increase in three months.
Natural gas prices declined to a decade-low in 2012 thanks to oversupply. But with unusually mild winter weather followed by scorching summer heat, natural gas has seen a slight resurgence in prices over the last few weeks.
This gives investors hope natural gas has broken out of its rut.
The price change started last month. On June 14, natural gas futures saw a 12% jump, hitting $2.46 per million British thermal units (BTUs) after a surprising bullish storage report, according to CNBC.
At that time, CitiFutures energy analyst Tim Evans told CNBC that the U.S. Energy Information Administration (EIA) natural gas weekly storage report meant "there's not much reduction in coal-to-gas switching as had been anticipated or that production may have declined a bit in the latest period."
Regardless, Evans said, "it's a bullish surprise, and supportive" of prices.
Indeed, prices have continued rising as July has delivered record-breaking hot temperatures.
In its July Short-Term Energy Outlook on July 10, the EIA reported Henry Hub natural gas prices (NG-W-HH) in 2012 will have an average of $2.58 per million BTU; this comes in a little higher than June's $2.55 estimate, although still well below 2011's $4 estimated average.
But this is pushing natural gas toward a slight improvement in 2013 as the EIA has forecast prices increasing $0.64 (25%), to $3.22 per mm BTU.
The Natural Gas Companies Better Positioned for Profits
While natural gas prices are on the rise, not all companies will profit. Some will fare much better than others.
In the long-term, say the next two or three decades, large pipeline and other natural gas infrastructure investments are poised to make trillions of dollars in investments, as well as strong investments in the short-term, according to CNBC.
Companies affiliated with shale gas have great profit potential. While shale hit 27% of U.S. natural gas production by 2010; in September 2011, it reached 34%.
This growth will continue with a projected increase of 43% by 2015 and 60% by 2035, according to anIHSGlobal Insightreport.
The study further noted that shale gas capital expenditures will grow to $48 billion by 2015, reported CNBC.
Jumping on the shale bandwagon is China with its rising natural gas consumption.
In a June report, the International Energy Agency (IEA) wrote, "Asia will be by far the fastest growing region, driven primarily by China which will emerge as the third largest gas user by 2013."
And natural gas companies working with transportation are also set to see higher profits. Natural gas use for fuel will increase each year.
Three Natural Gas Stocks to Check Out
Take a look at these three natural gas stocks ready to ride the price rebound:
Clean Energy FuelsCorp. (Nasdaq: CLNE) is up 6% year-to-date. The company provides natural gas fuel for U.S. transportation services. On June 29, the company announced it will begin offering natural gas fuel to well-known brands of trucking fleets. The company said in a press release this will assist in the trucking industry's conversion to natural gas fuel.
Kinder Morgan Inc. (NYSE: KMI) is up almost 10% year-to-date. The company owns and oversees an assorted portfolio of energy transportation and storage assets in five business segments including natural gas pipelines. In June upon initiating coverage on the stock, Goldman Sachs Group (NYSE: GS) gave Kinder Morgan a "Buy" rating. Analysts supported their bullish stance by citing the company's "strong general partner (GP) cash flow outlook, which should drive double-digit dividend growth from a higher proportion of stable, fee-based natural gas pipeline assets." Kinder Morgan already boasts a 4% dividend yield.
Niska Gas Storage Partners LLC (NYSE: NKA)is up 46% year-to-date. The company is the owner and operator of North American natural gas storage assets. The company offers a whopping 11.2% yield for investors. The company reports earnings Aug. 2 and is expected to surpass expectations, which could give the stock another nice pop.
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