Natural gas prices are finally turning around, hitting multi-month highs - and piquing the interest of legendary investors who say the commodity has a lot higher to climb.
While most commodities are moving lower in price - some quite sharply - natural gas has soared in 2013.
The June natural gas futures contract on Monday settled at $4.392 per million BTU, putting it up 31% so far this year. This makes natural gas the top performer among the 24 commodities in the Standard & Poor's GSCI index.
Noted contrarian investor Jeremy Grantham of GMO Asset Management is among the natural gas bulls. He recently told a value investing conference in Toronto that investing in natural gas at today's low prices is a no-brainer.
Grantham believes the current glut in natural gas will turn into a shortage. With the price in the U.S. so low in comparison to global prices, he says overwhelming demand for natural gas from users such as plastics manufacturers, petrochemical companies and fertilizer makers will push the commodity into a shortage situation.
He expressed to everyone in the audience how bullish he is when he stated that within five years "the price will have tripled."
Indeed, natural gas prices have room to run.
As famed investor Jim Rogers pointed out in an exclusive interview with Money Morning, natural gas is about 70% from its all-time high.
Natural Gas Prices 2013: Short-Term Drivers
There are several short-term reasons for the rise in natural gas prices.
First, there has been the unanticipated long and cold winter that finally seems to be ending in most parts of the country. That led to higher natural gas usage.
Secondly, the number of rigs drilling for natural gas in the United States fell to near a 14-year low last month. The present rig count, according to Baker Hughes Inc. (NYSE: BHI), is roughly one-quarter oof the peak level set in September 2008. This restriction of new supply coming online stems directly from low prices for natural gas the last few years.
This combination took a toll on natural gas inventories. The supply of natural gas in the week ended April 19 was 5.1% below the five-year average. This is the biggest disparity from the five-year average since February 2011. It is also 32% lower than where inventories stood last year at this time, according to the U.S. Energy Information Agency.
Current market conditions led analyst Gene McGillian of Tradition Energy to tell Bloomberg News, "Until we see the weather warm significantly and we see robust injections, we are going to see prices above $4."
But the best news for investors is that natural gas prices are slated to rise in the long term, too.
5 Reasons Natural Gas Prices Are Headed Higher
Money Morning Global Energy Specialist Dr. Kent Moors has been saying for months what Grantham echoed.
In fact, Moors recently gave five reasons as to why he thinks prices are headed to $4.85-$5.15 per million BTU by the end of 2014.
And as prices rise, so can your profits - if you are invested in the right place...
The first two reasons are along the lines of Grantham's thinking.
First, natural gas is quickly replacing oil as a feedstock for the petrochemical industry, raising demand.
Second, broad-based industrial use of natural gas has returned. According to Moors, demand is back above the levels seen prior to the financial crisis.
Third is the move toward using liquefied natural gas (LNG) and compressed natural gas as fuel for vehicles. This move is occurring mainly in the high-end truck market at the moment. But there is a gradual move also in the heavy truck and bus markets. Even railroad companies are considering making the move.
The fourth and fifth of Moors' reasons for a higher natural gas price are really the key investors need to grasp.
The fourth reason is the transition from coal-fired electricity generation to power generated from gas.
Our country is expected to see the retirement of about 90 gigawatts of electricity generation by 2020. In addition, perhaps 20-30 gigawatts more of generating capacity will be forced to close by EPA regulations on mercury, sulfurous oxide, nitrous oxide and other pollutants.
For every ten gigawatts of coal-fired power replaced, Moors calculates it will require 1.2 billion cubic feet of natural gas daily!
The fifth and final reason is the very likely prospect of LNG exports from the United States to the rest of the globe. Asia, with natural gas prices about four times that in the U.S., is particularly keen on buying cheap U.S. gas.
Exports will not begin for a few years, but Moors says that the U.S. will account for 9% of global LNG trade within a decade.
That's why Moors is tracking the best ways to profit from natural gas prices. One of his favorite picks delivered an 82% gain for his energy-service subscribers. It's one of about a dozen double- and triple-digit gainers in his portfolio.
With natural gas prices ready to triple, don't miss the profits. Just go here to learn more about Moors' profit picks.
- Money Morning:
Betting on the Coming Boom in Natural Gas Prices
- Money Morning:
Jim Rogers Exclusive: Once Gold Bottoms, We're Looking at "A Multi-Year Bull Market"
- U.S. EIA Weekly Report:
Weekly Natural Gas Storage Report
- Natural Gas Intelligence:
Baker Hughes Rig Count
- Tulsa World:
Natural Gas Price Now Up 31 Percent in 2013
- Globe and Mail:
Buy Natural Gas, Jeremy Grantham Says