By Sifisio Takirambudde
Prices in natural gas have maintained reasonably well over the past year in comparison to other energy commodities. Both Uranium and Oil have recently been clobbered by macro economic shocks; the Arab revolution dying down has brought Oil Prices back under the $100 level, and the Japanese earthquake/tsunami disaster has curbed demand for Uranium which is down 29% from Feb highs. With such a shake up in the energy market why has Natural Gas maintained a relatively stable price level? The truth is that applicable use of the "clean fossil fuel" has yet to be fully realized. Demand is expected to pick up dramatically in the next 25 years. Targets set by the IEA expect Natural Gas usage to rise 50% by 2035.
The significant increase in usage was thought to be driven primarily by China, which is currently heavily dependent on fossil fuels like coal. Why does this matter now? China and Russia are currently ironing out the final details of a deal that would partner the largest natural gas exporter with the largest energy consumer. Through this deal, China would to triple its inventory of Natural Gas to 300 billion cubic meters by 2020. Presently, signs point to stark differences in terms of appropriate pricing between China National Petroleum Corp. and Gazprom. However, this deal is far too enticing for both parties not to be completed by the end of the year. Here are some Nat Gas plays I found using HiddenLevers Macro Trend screener : Ultra Petroleum Corp. (UPL) and Quicksilver Resources Inc. (NYSE:KWK)
Chart created using Hidden Levers app
One thing to keep in mind is that this agreement could potentially trigger an energy arms race. As a society we may start being intoxicated with notions of staying competitive with China (similar to the Soviets in the 1980’s). For now though, I’m keeping my eyes on the opportunity for serious alpha if we continue seeing the increase in global demand for natural gas.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.