Join        Login             Stock Quote

3 Ways To Invest In The Coming Rebound In Natural Gas

 February 01, 2012 10:23 AM

As I laid out in my deep look at the changing dynamics in the natural gas sector (click here for Part 1), the entire industry may soon start to rebound as a falling rig count eventually leads to falling output, which in turn should help bring supply down to a level where natural gas prices firm up.

What kind of snapback can investors expect?

Well, a return to the glory days of 2008, when natural gas briefly touched $13 per thousand cubic feet (MCF) seems nigh on impossible. It's simply hard to envision a scenario where natural gas is once again scarce -- at least in terms of any reasonable investing time horizon. Still, a clear case can be made that supply and demand will be in rough equilibrium, perhaps as soon as a few quarters from now if the falling rig count finally starts to curtail output.

Natural gas currently trades for around $2.70 per MCF.

As a rough framework:

• A sharp drop in temperatures in the U.S. Northeast in the second half of this winter would quickly push gas above $3.
•  A drop in the rig count to around 725 or even 700 is probably good for another $0.50 move.

• Further conversions in multi-fuel power plants from coal to natural gas is another clear, but hard-to-quantify catalyst.

• And legislation that advances the opportunity for natural-gas powered vehicles  could add $1 to natural gas prices.

Add it all up, and natural gas prices could be trading between $3.50 per MCF and $4.50 per MCF a year from now. Goldman Sachs believes an inflection point is at hand and sees a slow rebound in natural gas prices to $3.75 by the end of this year, $4.25 next year, and $5.50 by 2014 as supply finally drops to appropriate levels.

In case you're wondering where the downside exists, industry-wide cash costs average about $2.30 per MCF. Any price below that and production would HAVE to fall. In any event, prices appear to have already bottomed in the current $2.60 to $2.70 range.

If the upside scenario plays out according to plan, here are three stocks that would surely benefit...

1. Chesapeake Energy (NYSE: CHK)
No one would be happier to see gas prices rebound than Aubrey McClendon, CEO of this beleaguered industry giant.

Next Page >>123
iOnTheMarket Premium


Comments Closed

rss feed

Latest Stories

article imageLong-term Relationships and Credit Scores

Unlike many commentators, I tend to think credit scores are a good read on...

article imageIn Defense Of Rolling Return Charts

Robeco’s Lukas Daalder has a bit of an issue with rolling-performance graphics. Bashing a recent chart of read on...

article imageThe S&P 500’s Worrisome Downturn In Drawdown

Last Friday I reviewed some of the bearish signals that were casting dark shadows across the US stock read on...

article imageADP: Private-Sector Employment Rises A Solid 200k In September

The pace of growth for private-sector employment picked up in September, according to this morning’s ADP read on...

Popular Articles

Daily Sector Scan
Partner Center

Fundamental data is provided by Zacks Investment Research, and Commentary, news and Press Releases provided by YellowBrix and Quotemedia.
All information provided "as is" for informational purposes only, not intended for trading purposes or advice. iStockAnalyst.com is not an investment adviser and does not provide, endorse or review any information or data contained herein.
The blog articles are opinions by respective blogger. By using this site you are agreeing to terms and conditions posted on respective bloggers' website.
The postings/comments on the site may or may not be from reliable sources. Neither iStockAnalyst nor any of its independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. You are solely responsible for the investment decisions made by you and the consequences resulting therefrom. By accessing the iStockAnalyst.com site, you agree not to redistribute the information found therein.
The sector scan is based on 15-30 minutes delayed data. The Pattern scan is based on EOD data.