We've seen how the U.S. shale oil and gas boom has created a lot of new investing opportunities in the energy sector. As U.S. production soars, however, so do the risks to the infrastructure required to get the oil and gas out of the ground and into people's homes and autos.
Money Morning Global Energy Strategist Dr. Kent Moors first told Money Morning readers about liquefied natural gas in 2010 - when our favorite LNG stock was trading around $6 a share.
Then in April 2012, this company received federal approval to build the first major LNG export facility in the United States.
There's a new global capital shift that's affecting how to invest in natural gas today for maximum profit.
You see, there was a time when U.S. manufacturing companies invested heavily in the Middle East because of the region's low-cost energy sources.
Today, that money is coming back home.
International companies have noticed that the United States is a cheap source of natural gas. That's because the rise of hydraulic fracturing triggered a boom in U.S. natural gas production.
An array of energy's sub-industries are making a fortune from America's natural gas boom.
Rigs, pipelines, rail, wastewater treatment, trucking, seismic imaging, well-site security... And a lot more opportunity is on the way, like the deal Kent just uncovered.
But perhaps the most unlikely beneficiary of the shale revolution is the coal industry.
After all, "King Coal" has been dethroned in recent years by the swelling supply - and bargain prices - of clean-burning natural gas. Indeed, thermal coal at the Australian port of Newcastle, the Asian benchmark price, is currently near lows not seen since November 2009.
Australian producers have especially been struggling. They've been cutting costs and paring back production because U.S. and large project financiers like the World Bank are pulling away from coal projects.
And overall, ever-increasing environmental regulation is discouraging coal-powered electricity.
But the dynamic is suddenly changing.
As Money Morning Global Energy Strategist Dr. Kent Moors told us yesterday, the United States on Aug. 7 finally approved its third application to export LNG (liquefied natural gas).
The delays in the U.S. LNG export approval process have been frustrating an industry that's ready to capitalize on the price differences between North American and Asian natural gas prices. Asia LNG sells for about $16 per million BTU versus less than $4 per million BTU in the United States.
While the U.S. Department of Energy streamlines this lengthy approval process, our neighbor to the north is also using its abundance of shale gas to race into LNG exports.
You see, Canada has a lot of natural gas.
Natural gas companies have a huge opportunity with LNG, but there’s another huge export boom already happening, that you can invest in now. Read More...
President Obama is about to make an end run around Congress and sign some executive orders that will virtually doom the lifespan of coal-fired power plants.
But in his effort to clean up the U.S., he’s costing the economy more than it will save.
Natural gas prices are on the rise, but natural gas stocks have failed to respond. Wait, if we look at what happened about 10 years ago… oh, wow… Read more...
There is an easy way to find out where the market thinks a particular sector is heading: Check out the movement of futures contracts held by top hedge fund managers. These days, the signal is clear and pointing in one direction. Check this out.
There is still some way to go before prices hit the $4+ level - still the perceived "breakeven" point for many producers. But low temperatures in the Eastern U.S. are certainly bringing gas back into play. Here are two ways to profit.
As we move into the winter season, two things are becoming clear. First, this one will be colder than last year, nationwide. Second, natural gas prices are moving up.
A colder season ahead is an almost statistical certainty. The likelihood of having a repeat of last year's mild winter is quite low. And my second assertion is now supported by several factors.
Until very recently, the changing of seasons was a determining factor in gas prices.
The warm winter throughout much of the U.S. last year certainly contributed to the dive that saw gas prices plummet to near $2 per 1,000 cubic feet (or million BTUs), the NYMEX futures contract unit.
The bigger issue, however, has been the game-changing entrance of unconventional natural gas supply in North America. Both the surplus of in-market stored gas and the ready availability of expanding reserves have been driving factors in lowering prices.
The amount of available gas is staggering.
Known reserves of shale and tight gas, coal bed methane, and remaining free standing volume now allow up to a 25% increase in supply per year into the foreseeable future.
Now, nobody would actually drill that much, because they would destroy the market (the classic example of "drilling" oneself in the foot).
But the ready availability was restraining pricing. That resulted in a period in which gas rig utilization has fallen each month - to its lowest level in over a decade. The industry has been slowing the introduction of accelerating volume into what had been an oversaturated market.
The hottest summer on record also contributed to a steady improvement in price. As the power-generating sector moves quickly toward low-priced gas as the fuel of choice, rising temperatures also increase the need for gas.
But now, at last, the balance is forming.
The inventory is now the smallest in the last two years, as demand picks up in petrochemicals, industrial usage, and even vehicle fuel prospects.
The major thrust is beginning.
This will not be a straight line for natural gas prices. Volatility cuts in both directions.
But one thing is clear.
The gas market is about to get a whole lot stronger...
In the wild days of the 1980s, made famous by a generation of traders who emulated the likes of Gordon Gekko, few could ever match the Pickens eye for the big deal.
Never eat anything bigger than your head?.... Pickens never heard that one.
As the head of Mesa Energy, his first deal was to purchase the Hugoton Production Company - made notable by the fact the company was 30 times the size of his own.
His thirst for Goliaths continued for decades to come. He once even went after Gulf Oil, which is now Exxon Mobil.
The point is Pickens has never shied away from risk when he saw reward. And for all his bold achievements there is always less "crazy" there than there seems to be.
And if you're looking for a guy who knows:
- How Wall Street traders and Texas wildcatters think.
- Who can read a geological map.
- Who can manage a hedge fund.
- And who can make money in a volatile industry... Pickens is your guy.
That's why there is more there than meets the eye in his unique venture into the natural gas market with Clean Energy Fuels Corp. (Nasdaq: CLNE). Pickens is its founder and largest individual shareholder.
State policy leaders around the country are coming to realize the long-term importance of natural gas exports to the health of their economies.
They are struggling to pass their 2013 budgets this year.
The recent low in natural gas prices is doing more than just hamstring production around the country. It's also slashing government budget forecasts due to the loss of tax revenue associated with natural gas sales.
So much so, that states are predicting steep decreases in revenues through 2014.
USA Today reported this week that "Energy-producing states are bracing for lower tax revenue from the plummeting price of natural gas, which is just above half of what some states forecast when they put together budgets for 2013 and beyond."
Low natural gas prices could cost Wyoming $125 million next year, and that the state will likely have to enact budget cuts of 8% for the year 2014 if prices don't recover by then. In Oklahoma, just a $1 drop in gas prices leads to a roughly $70 million shortfall for the state each year.
It's a rather staggering figure.
But Oklahoma's state Treasurer Ken Miller states that the "free market" will work itself out over the long term and natural gas prices will rise, particularly as large-scale coal-fired power plants convert to natural gas use.
More on that in a second.
As we've said before, the price rebound is inevitable. But we have to look at how we got here and where we're going to make sense of this situation.
First, the major technological breakthroughs in fracking and horizontal drilling have significantly increased the amount of unconventional resources available around the country. So much natural gas has been produced, combined with an unseasonably warm winter, that natural gas prices have slumped significantly.
This has naturally affected producers in the short-term, although midstream storage and pipeline companies remain healthy due to their contract structures as value chain suppliers.
But low natural gas prices won't last forever. Overtime, we're going to see prices begin to rise for four reasons.
What's got everyone so heated?
It seems a lot of people are concerned, confused, and even outraged over a recent Executive Order signed by President Barack Obama regarding the development of unconventional natural gas formations here in the United States.
The executive order, issued on April 13, calls for greater coordination in federal oversight of "fracking" - a revolutionary, yet-still-nascent process of extracting natural gas from rock bed.
Concerns stretched from sector performance questions all the way to the highly alarming and somewhat foolish argument that such an order precipitates a "government takeover of the natural gas industry."
Now, I'm overly cautious when the government announces any role in business. But when you take a close look, this announcement is actually rather benign.
And yes, I know it's easy to get caught up in the immediacy or negative impacts of a single act. But in the age of 24-hour media, we usually only hear a fraction of the real story.
The truth is there's a lot to like here.
That's why I'd like to take a few minutes today to explore the ongoing developments in this story, set a few eager minds at ease, and explain a few benefits - yes, benefits - of this Presidential directive.