Valuing commodities is tough. With prices largely market driven, the price of oil, gold, and corn are largely in the eye of the beholder. But my research has lead me to believe that natural gas is trading at a 50% discount right now – here’s everything you need to know to make a profitable trade…
In the past, I’ve written about the importance of owning pipeline players in your income portfolios. I’ve also told you how important natural gas will be as both an investment and an energy source for years to come. But this second point can’t be taken lightly…
While there’s been a recent flurry of talk on reviving nuclear energy and new offshore drilling for oil, natural gas has been left in the dust — as far as speculation goes.
Over the past several years, the amount of recoverable natural gas in the U.S. has taken off. According to Natural Gas Vehicles for America:
In 1990, total U.S. recoverable natural gas resources was 1,172 trillion cubic feet (Tcf). That was about a 60-year supply at the 1990 level of natural gas production. Since then, we have produced about a quarter of that gas (314 Tcf ). In 2006, the Potential Gas Committee estimated the size of the recoverable natural gas resources was 1,525 Tcf — an 80-year supply.
The reason we can use a quarter of our massive tank of natural gas and end up with more is because of that all-important word: “recoverable.”
Recoverable just means that we can access it right now, with today’s technology. In 1990, the resource finders of the day couldn’t look deep in mountains quite like we can today with 4-D seismology. They also didn’t have horizontal drilling, which makes up a great deal of recent U.S. natural gas production.
All of these technologies have kept natural gas prices down lower than oil, which didn’t benefit from new technology to quite the same extent. But because of some very obvious facts in this country, like high energy importation, rising oil prices and an ever-growing consumption base, natural gas will have its day. And anyone invested early enough stands to benefit from this inevitable natural gas hike.
Take a look at this chart:
As you can see, crude oil has been climbing nonstop since the market crash in 2008. Natural gas, on the other hand, has meandered along, with a nice, but too short of rally late last year.
The bottom section of that chart shows the crude oil-to-natural gas ratio during the same period. While that might not seem like much of a concern, it is.
You see, historically, that ratio sits between 6- and 8-to-1. Today, that’s at around 22-to-1. That means it takes about three times as much natural gas to buy a barrel of crude oil now than it did in most of recent history. That’s a very positive sign that natural gas is cheap compared with crude.
And there are a handful of small-cap natural gas plays that stand to profit – plus pay you a handsome dividend in the process. Among them are Delta Natural Gas (DGAS, Financial), WGL Holdings (WGL, Financial), and RGC Resources (RGCO, Financial).
I’m not ready to actually recommend any of these three plays just yet – but I do have some actionable natural gas picks in my Lifetime Income Report portfolio. To learn more about how natural gas fits into my “Retirement, Plan B” strategy, just click here.
Sincerely,
Jim Nelson
Penny Sleuth
April 16, 2010
In the past, I’ve written about the importance of owning pipeline players in your income portfolios. I’ve also told you how important natural gas will be as both an investment and an energy source for years to come. But this second point can’t be taken lightly…
While there’s been a recent flurry of talk on reviving nuclear energy and new offshore drilling for oil, natural gas has been left in the dust — as far as speculation goes.
Over the past several years, the amount of recoverable natural gas in the U.S. has taken off. According to Natural Gas Vehicles for America:
In 1990, total U.S. recoverable natural gas resources was 1,172 trillion cubic feet (Tcf). That was about a 60-year supply at the 1990 level of natural gas production. Since then, we have produced about a quarter of that gas (314 Tcf ). In 2006, the Potential Gas Committee estimated the size of the recoverable natural gas resources was 1,525 Tcf — an 80-year supply.
The reason we can use a quarter of our massive tank of natural gas and end up with more is because of that all-important word: “recoverable.”
Recoverable just means that we can access it right now, with today’s technology. In 1990, the resource finders of the day couldn’t look deep in mountains quite like we can today with 4-D seismology. They also didn’t have horizontal drilling, which makes up a great deal of recent U.S. natural gas production.
All of these technologies have kept natural gas prices down lower than oil, which didn’t benefit from new technology to quite the same extent. But because of some very obvious facts in this country, like high energy importation, rising oil prices and an ever-growing consumption base, natural gas will have its day. And anyone invested early enough stands to benefit from this inevitable natural gas hike.
Take a look at this chart:
As you can see, crude oil has been climbing nonstop since the market crash in 2008. Natural gas, on the other hand, has meandered along, with a nice, but too short of rally late last year.
The bottom section of that chart shows the crude oil-to-natural gas ratio during the same period. While that might not seem like much of a concern, it is.
You see, historically, that ratio sits between 6- and 8-to-1. Today, that’s at around 22-to-1. That means it takes about three times as much natural gas to buy a barrel of crude oil now than it did in most of recent history. That’s a very positive sign that natural gas is cheap compared with crude.
And there are a handful of small-cap natural gas plays that stand to profit – plus pay you a handsome dividend in the process. Among them are Delta Natural Gas (DGAS, Financial), WGL Holdings (WGL, Financial), and RGC Resources (RGCO, Financial).
I’m not ready to actually recommend any of these three plays just yet – but I do have some actionable natural gas picks in my Lifetime Income Report portfolio. To learn more about how natural gas fits into my “Retirement, Plan B” strategy, just click here.
Sincerely,
Jim Nelson
Penny Sleuth
April 16, 2010
