Natural Gas for Transport: Tempting Idea at the Current Low Price (APC, CVX, LUKOY)

Summary and Recommendation for May 16: The environmental advantage of natural gas as a transportation fuel over gasoline and diesel is enticing at the currently depressed price of natural gas relative to oil. Over the next six years, natural gas for delivery at less than $9 per million btu translates to the equivalent of about $2.10 a gallon for gasoline. This gasoline price is made up of less than $1.30 at the wellhead and about $0.80 for the current cost of distribution to retail users.

The growing use of buses fueled by natural gas demonstrates its cleanliness and proves the technology. Auto manufacturers searching for a competitive edge might take note. Meanwhile, the price of oil continues in a long-term uptrend while natural gas trades at the low ratio of the oil price divided by 8, as it did a year ago.

Buy recommendations have more immediate appeal with stock prices that are a median 12% below 52-week highs. Some of the best performing non-U.S. and oil stocks are off, while mega caps are showing their lower risk characteristics by receding less. Buy recommendations with low McDep Ratio and positive momentum defined as a stock price above 200 day average are Anadarko (APC), Chevron (CVX) and Lukoil (LUKOY).

Kurt Wulff's McDep Associates offers realtime, independent research services for investors in the energy and utilities sectors. For more information, go to www.mcdep.com or email Mr. Wulff at [e-mail].