Natural Gas Investing: Terrible Short-Term News, Great Long-Term News
On Tuesday we looked at the outlook for natural gas investments and natural gas prices.
The short-term outlook for natural gas investing is not very bright.
Energy Stocks Mixed, Supplies Weigh on Natural Gas Shares:
The Energy Information Administration reported that natural-gas inventories rose by 54 billion cubic feet during the week ended Aug. 21. Analysts surveyed by Platts expected an addition of between 48 and 52 billion cubic feet, while IHS Global Insight projected a build of 52 billion cubic feet.
That is a huge build-up. And it’s not going to get worked off anytime soon.
This is going to cause all sorts of problems for natural gas investments. The natural gas storage areas – old oil wells, abandoned salt mines – are on the verge of being completely full.
Natural gas companies are on the verge of running out of places to put the stuff. The only place left is store it in the hundreds of thousands of pipelines crisscrossing the country.
After that, natural gas companies will be forced to shut down even more rigs. All this will continue to weigh on natural gas prices for months and months into the future.
That’s the bad news. The good news, which is very tough to see in this environment, is the government is stepping in to help cut future supplies.
Natural Gas Franking Fluids under Investigation by the EPA
Of the dominant three fossil fuels America consumes for energy, natural gas is the cleanest; but the method of hydraulic fracturing used to get the natural gas is being brought under review by the EPA.
"Hydraulic fracturing was exempted from the Safe Drinking Water Act in 2005, the EPA assessed the process and concluded it did not pose a threat to drinking water. That study, however, did not involve field research or water testing and has been criticized as incomplete.
In two other cases, Encana provided filtering systems or outright purchased the land from complaining parties. In this case, Encana is waiting for definitive results from the EPA that pins natural gas activity to the found chemicals in the groundwater wells.
Fracking is the only way to tap most of the U.S. vast natural gas reserves. The EPA’s involvement will only make producing natural gas more expensive. Which, in turn, will only accelerate the downturn in natural gas production.
This is a big “fracking” mistake. On the bright side, it will also accelerate the true bottom that’s on its way in natural gas.
As contrarian investors, you’ve got to love what’s going on here. The short-term is ugly and on the verge of getting much uglier. Natural gas producers are going to shut down. They’re going to survive. And a few, if this last long enough, will go bankrupt. The long-term however, is looking much, much brighter.
This is exactly the type of opportunity we look for in our free investment newsletter, the Prosperity Dispatch. You have an impaired asset over the short-term. Most everyone is selling out. And we’ll be able to pick up a lot of investment opportunities at truly rock-bottom prices.
