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Remember the "Pickens Plan"? T. Boone Pickens, the 81-year-old Chairman of BP Capital came up with the idea to reduce the nation’s dependence on foreign oil with a combination of wind-generated power and natural gas powered vehicles. In the process, the need for foreign oil could be drastically reduced or eliminated in as little as 10 years.
His timing - with oil prices hovering around $150 a barrel, is part of the reasons his "Pickens Plan" received a lot of attention.The publicly-traded company he launched with his plan in mind, Clean Energy Fuels (Nasdaq:CLNE) became a quick winner with many investors, as the chart below shows (then it dropped from $19.95 to $3.23 last year):
Now it’s one year later: Obama is President, oil prices are less than half of what they were a year ago, CLNE is above $8 a share again, and the country is using less oil and natural gas. Is energy dependence on foreign oill still a concern? Does natural gas still have a role to play in the plans for a cleaner, more sustainable source of energy and fuel?
In short, the answer is "absolutely"!
Energy analyst Matt Badiali, writing for The Growth Stock Wire, made the following observations when asked if natural gas was still a good longer-term investment:
As I've pointed out, the problem is too much supply and declining demand. The graph below shows changes in natural gas production on a monthly basis (kind of like acceleration in a car). As shale gas wells came on line in late 2006, natural gas production exploded... It's kept growing almost nonstop since.
Change in U.S. Natural Gas Production
Source: Energy Information Agency
Production growth has been a disaster for natural gas prices. But here's some small comfort for natty bulls: Shale wells produce most of their gas in the first 12 to 18 months and then taper off sharply. The wells that were tapped in late 2006 should be "running out of steam" any day now. And few new ones are coming to take their place...
There's been an enormous decline in drilling. Last year, 1,555 rigs were drilling natural gas wells... There are only 675 today, less than half.
Over time, reduced supply will catch up with demand, which has been decimated by the sluggish economy. And demand may perk up...
If cap and trade legislation passes, the best alternative to coal is natural gas. I like nuclear energy for a long-term solution. But new plants take five to 10 years to plan and build... if they can be permitted. So natural gas is the only short-term source large enough to step in and replace coal and oil (which produce a combined 70% of our electricity).
I agree with Matt that at the present timenatural gas has horrible fundamentals. Supply is way up, demand is way down.
As I've written many times that will change over the next 12 months as demand catches up with and surpasses the supply-production that the decline in drilling will eventually create. That should be very good for ETF's like United States Natural Gas (NYSE:UNG) and companies like Chesapeake Oil (NYSE:CHK), Southwestern Energy (NYSE:SWN) and Contango Oil & Gas (Amex:MCF).
Concerning MCF, editor Chris Mayer of Capital & Crisis (which I subscribe to) captured my attention when he wrote
The key to Contango is low costs -- and a great balance sheet. Contango’s all-in costs [of natural gas] are less than $1 per MCF (million cubic feet). It has no debt and six employees. The company’s biggest expense is taxes.
We also have Ken Peak, the CEO and largest shareholder. (The management team and board of directors own 23% of the stock). Peak is a proven operator who built this company from practically nothing to its current depressed $700 million valuation.
MANY PEOPLE WONDER WHY NATURAL GAS PRICES FLUCTUATE SO MUCH
That is a long, long story, and too big for the scope of this article. I would recommend the article by the National Information Energy Center which is not hard to read and digest.
From a sustainability perspective natural gas is more abundant and significantly cleaner-burning than its counterparts, oil and coal. Plus the infrastructure for producing, refining, and distributing it is already in place. It will take many years before wind energy and solar energy can be as cost-effective and as plentiful.
If you're a big believer in Alternative forms of energy , you might want to consider the Calvert Global Alternative Energy C (CGACX).
The fund invests 80% of net assets (including borrowings for investment purposes) in equity securities of U.S. and non-U.S. companies whose main business is alternative energy or are significantly involved in the alternative energy sector. It invests in securities of all market capitalizations.
Of course I don't know how much lower natural gas prices will fall, but it seems clear that if it falls to new lows the traders are liikely to step in and drive the prices up again. Just look at the recent lows and highs of UNG from July 13trh ($11.91) to July 23rd ($14.00) and you will know what I mean.
Natural gas has a bright future as a sustainable, low-cost alternative to dirtier forms of energy. It might take a year or two, but eventually I think we will be surprised and rewarded.
Disclosure: I do not currently own any of the stocks or funds mentioned.
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Disclosure: long natural gas.
is it because of supply/distribution limitations?
cost (which seems crazy given the carbon reduction benefits)
for some reason I never read why NG isnt used alot more.
thanks
On Jul 30 12:13 PM AndrewBaker wrote:
> Given that this current market has priced so many stocks at way-over-the-top
> levels, it's hard to find an investment that can reasonably be expected
> to perform well over the next 12 to 24 months or so: natural gas
> (and I also suggest gold) is one of them. Buy an unleveraged ETF
> - and UNG is not the only one out there - and add to it on the dips:
> they will be really good trades overall over the next year or two.
> Also, the price volatility permits trading in and out if you have
> a shorter time horizen, and leveraged ETF are also out there for
> those with a more adventurous nature.
>
> Disclosure: long natural gas.
On Jul 30 07:55 AM H. T. Love wrote:
> Marc,
>
> Yesterday, seekingalpha.com/insta...
>
>
> How will this affect UNG? I can't quite decide the likely end-results.
>
>
> HardToLove
On Jul 30 09:46 AM fran wrote:
> wouldn't pipeline and other key NG infrastructures be a good place
> to buy? their costs are relatvely fixed vs NG EPs[less exposure
> to shale drilling cost variables]. these rise more directly with
> demand increase.
On Jul 30 10:49 AM Ferdinand E. Banks wrote:
> This is not just a good article - it is an important article. The
> comment about 'shale gas' is something that needs to be brought to
> the attention of the decision makers.
>
> As for nuclear, the problem there is fantasies on the part of the
> high and mighty, and of course the voters. They believe that they
> have a 'choice' where energy options are concerned. They do have
> a choice, but more nuclear has to be in the picture. And when they
> figure that out, then nuclear plants will be constructed in 4 or
> 5 years, or less.
On Jul 30 11:51 AM nakedjaybird wrote:
> And throw natural gas exploration, drilling, transportation, etc.,etc,
> in with the rest of the fossils ...........
>
>
> nakedjaybird: Comments (579) Follow
>
> Yes; go Wal-Mart. As big boxers put their roofs to work they will
> show the power generation world what alternative power can do.<br/>
>
> As soon as the power generators no longer "worry" about sunk costs
> and idled capacity in all their fossil plants, they too will gladly
> go for the
> - no moving parts,
> - corrosion-free
> - low to non-existant maintenace,
> - nearly regulatory- free,
> - basically no-personnel risk (coal mining to nuclear waste if we
> were to include nuc)
> - and finally, basically, enviornmentally clean, throughout (sans
> some sand and Si processing).
>
> Theirs not a power generator around that would not give up mining,
> processing, regs, water-wall repairs, bag houses, slag, generating
> system maintenance (and radiation workers, regs, NRC, etc., etc.,)
> FOR SOME SILENT, CLEAN, SIMPLE, UNCOMPLICATED POWER GENERATION.<br/>
>
> The US Mission should be to teach the rest of the world all this
> instead of trying to sell them the stuff we already make to then
> have them go down the same yellow brick road we have, AND THEN UNDO
> IT!!!!
>
> I'm all for solar on huts in hinderland - (and Wal-Mart rooftops!)..
On Jul 30 01:30 PM elfie wrote:
> why cant someone explain why most of coal isnt being replaced by
> NG?
>
> is it because of supply/distribution limitations?
> cost (which seems crazy given the carbon reduction benefits)
>
> for some reason I never read why NG isnt used alot more.
>
> thanks
On Jul 30 12:13 PM AndrewBaker wrote:
> Given that this current market has priced so many stocks at way-over-the-top
> levels, it's hard to find an investment that can reasonably be expected
> to perform well over the next 12 to 24 months or so: natural gas
> (and I also suggest gold) is one of them. Buy an unleveraged ETF
> - and UNG is not the only one out there - and add to it on the dips:
> they will be really good trades overall over the next year or two.
> Also, the price volatility permits trading in and out if you have
> a shorter time horizen, and leveraged ETF are also out there for
> those with a more adventurous nature.
>
> Disclosure: long natural gas.
Thanks for taking the time and effort to respond, not many do.
HardToLove
On Jul 30 05:15 PM Marc Courtenay wrote:
> UNG is a unique, futures and options oriented ETF. Please make sure
> you read their prospectus carefully. That being said, if wild speculation
> that natural gas will be in short supply ever ensues, it should cause
> UNG to go through the roof. But in the short-term, it's anyone's
> guess. It is my hope that anyone who buys UNG below $12 will someday
> be very satisfied, but who knows. Again, read the prospectus very
> carefully and follow the day-to-day correlation between UNG and natural
> gas so you can see for yourself whether it has a high degree of reliability
> or not.
On Jul 30 05:21 PM Marc Courtenay wrote:
> Some has to do with how powerful and influential the coal industry
> still is in many parts of the world, especially China. Other factors
> are traditions, costs and the existing infrastructure, as well as
> our willingness to put up with coal despite the high amounts of pollution.
>
confirms my belief that the media in this country is horrible
NG could be a real plus to our situation yet we continue to use oil and coal - why cant the media focus on a rationale why NG might be alot better - seems so obvious - what is everyone missing???
1) it's much cleaner than both coal and oil (gasoline)
2) america has abundant NG reserves and therefore we save "green" dollars that we would otherwise be sending to foreign oil suppliers.
the fact that congress (and obama) cannot see these truths and seriously promote and back natural gas transportation borders on neglect of their oaths of office.
NG is the favored alternative for the new peaking generating capacity.
Solar and wind should be the preferred alternative for new peaking capacity instead of NG, and when it's done that is should be used to replace base-load coal ASAP. NG should not be promoted over solar and wind for right thinking folks (so happens, a lot of greedy folks own the gas and want to use it now, instead of maybe never; IT'S EVENTUALLY GOING TO GONE, PERIOD. IT'S FOSSIL (GET IT??).
Hydro and nuc will continue. Pumped hydro will come to be, in many dry canyons in the SW and NW. And some compressed gas storage (along with some giant capacitors etc., for regulation purposes).
You keep mentioning small scale CSP. I am intrigued, having never seen such a thing. Could you enlighten us. Give us a link, or send me a mail at abarrelfull at gmail dot com
On Jul 30 10:43 AM jerrydd wrote:
>
> A few technical details. For transport NG will be best used in Semi's
> as they can be converted quickly and use, thus save more.
>
> Coal's share is dropping, 46% now and going down as NG turbines generators
> replace coal with their exhausts running the old steam plants raising
> eff enough, 55-60% to cover the higher NG costs though coal's price
> will go up soon as it's forced as oil to pay it's real costs.
>
> NG is the key to wind with it's variable output, using wind when
> available and NG when not.
>
> Solar is very different than wind as solar happens at peak power
> needs usually so is much more valuable. Plus CSP solar can be cofired
> by NG , biomass or any other fuel if needed and the sun don't shine.
> And it can store heat for use after the sun goes down so it's not
> fair to call it variable as it's worth much more than that.
>
> Though in the long run, distant wind, solar, CSP in home sizes will
> beat the solar, wind farm model with 1/2 the cost and twice the savings.
> And in most cases now or the near future, most RE will beat coal
> in installed price plus not need to buy, handle coal makes coal the
> big loser of the future.
>
> I have no problem with nuke except one, cost. It cost 2-6x's as much
> installed than most RE,coal or NG. So anyone investing in nukes is
> going to lose as these facts become well known.
>
> As they say, follow the money and 2 places it's not going is coal
> and nuke.
NGAS tracks the DJ-AIG Natural Gas sub index (before fees and adjustmenst), whilst NGAF tracks the 3-month forward version, to reduce contango (and backwardation when applicable) effects.
LNGA tracks the index and aims for a return equal to 2x the daily move. (Treat leveraged etf with respect.)
They also offer SNGA, which is a short, and aims to track at -1x the index.
Do note that these are the tickers on the London Stock Exchange (LSE), so do not confuse them with securities elsewhere.
As well as being traded in London and on several European exchanges, I understand that ETF Securities are looking to boost their presence in the US.
I have traded NGAF, LNGA and SNGA, and am currently holding LNGA.
I believe that Claymore have just started offering GAS on the Canadian market and which tracks the Canadian Natural Gas index. This is priced in Canadian dollars. I have not traded this.
On Jul 30 05:26 PM Marc Courtenay wrote:
> Great points Andrew. What other ETF besides UNG would you use for
> natural gas trading? Thank you.
Home size CSP is just like the big solar thermal farms of 2 types, the one I prefer is the trough collector driving a steam or other Rankine/heat engine. MAN makes big dish types but so far no complete home size units. They are about 25% eff and produce much waste heat for processing, building heat or hot water. That they can be fired by any fuel if the sun don't shine is a bonus.
The solar tower, mirror field type would work great for big roofs like Walmarts, etc.
This company is one to watch if it ever goes public, good people running it I use to work for 25 yrs ago. They are about to go into production in a number of areas with a very eff steam engine for waste heat, CSP and CHP.
cyclonepower.com
AC companies like Trane should get in this business as a Rankine engine is just a modified AC unit in reverse, making power rather than using it..
Michael Fit, Take off your political blinders, Obama does support NG ..
jUST plain ole silent running and no dockside time for refueling, motor/pump maint or tube plugging (something any submariner understands!). Worst enviornmental hazard is cooling the desert (or rooftops) and rattlesnake bites (assuming the Obama environmentalists protect the rattlers from roughback spitting snuce chewers).
but he is willing to go in hock bigtime to get it up and running. No one
else has come up with anything like the reasonable method for reducing our need for foreign oil that Pickens has. Obviously, Big
Oil will do everything possible to blunt the thrust of Pickens Plan.