Where Is The Natural Gas Boom?

 |  Includes: GAZ, LNG
by: Zecco

By Paul Quintaro

In recent years, many commentators have been predicting a natural gas boom in the United States.

The country has frequently been called the “Saudi Arabia” of natural gas—a reference to the fact that Saudi Arabia contains a significant percentage of the world’s known oil reserves.

Texas oil magnate T. Boone Pickens has been pushing to implement a national policy aimed at increased natural gas usage as far back as mid-2008.

At the same time, the phrase “fracking” has entered the national lingo, perhaps due to its controversy—fracking allows miners to access more natural gas reserves, but raises significant environmental concerns.

In theory, the U.S. could use natural gas as a stepping-stone towards renewable energy—shedding some of the dependence the nation has on foreign oil and using natural gas to bridge the gap. While promising, renewables have thus far failed to advance to the point where they can relieve the nation of a significant portion of its energy hunger.

Many have trumpeted the focus on natural gas as a great opportunity for investors, yet is that necessarily the case?

If a lot of money is being put into increasing the usage of the commodity, it should logically drive down the price of natural gas. When oil was first used en-masse decades ago, it was cheaper than clean water in many parts of the United States.

The price of natural gas plummeted to a multi-year low last week after the U.S. department of energy released a report on the status of natural gas stockpiles.

Perhaps the drive to increase natural gas drilling had increased the stockpiles enough to drive the price down, or perhaps the fuel just isn’t catching on as investors had hoped.

Although new technologies take a while to get fully integrated, with oil near $100/barrel and gasoline prices sitting comfortably above $3 per gallon, there seems to be a clear opening for natural gas to enter the market to a greater extent.

Still, no major car manufacturer has thus far offered a vehicle running on natural gas, and there has yet to be a push to get natural gas fueling stations up and running across the country.

In terms of investment, those playing the commodity on the long side may have lost significant capital in 2011, as the price of natural gas trended down during most of last year.

On the other hand, those invested in natural gas companies may have not done as poorly. Cheniere Energy (NYSE: LNG) closed the year with a gain of more than 30%. When compared to the loss the commodity itself experienced, that’s a great move. Further, investors who got in near the year lows in September may have profited even more.

Interestingly, this trend contrasts with other commodities. Gold and silver miners, for example, have mostly underperformed the underlying bullion.

At any rate, the natural gas story lives on. Whether investors can actually profit off of it is another matter entirely.