Natural gas might be the next big thing in the energy sector, and the stocks to pay attention to are the ones that know how to adapt. Flexibility and diversification of revenue streams will go a long way in maintaining profitability for the big companies in this industry, in my opinion, and I expect that the continual price hikes for oil are going to force them into new areas of exploration, including renewable energy sources.
The bad news for stocks like Exxon Mobil (XOM) is that so much natural gas is being pulled out of the ground in the United States that the industry might burst its own bubble. In fact, The Wall Street Journal reports that natural gas prices are at their lowest in ten years, so investors might be better off looking for shares in companies that buy natural gas, rather than those that try to sell it.
However, it is not all gloom and doom for the natural gas industry. In the Middle East, the Russian energy giant Gazprom (OTCPK:OGZPY) is proposing a $1.5 billion pipeline between Iran and Pakistan. However, this endeavor will not be open to international bidding, so Exxon Mobil and others will not have a chance to even consider getting involved. It looks to me like the natural gas market might be slipping out of American corporations' hands, unless they can get their act together and stop over-producing at home.
Exxon Mobil's stock value has been bouncing around since 2012 hit, but the overall trend is pretty much a flatline. At the same time, smaller companies like Anadarko Petroleum (APC) are continuing to grow. Anadarko is getting ready to drill 4,000 new natural gas wells in the Uinta Basin in Utah, which many are heralding as a step towards clean energy, although this view flies in the face of evidence that natural gas drilling poisons ground water. For investors, this misguided view might pay off for a while, but as soon as the people affected start realizing what is going on, I expect to see stocks plummet as ethical investing takes over the marketplace.
However, as it stands, any step away from oil will probably be seen as a positive one, especially since consumers are footing the bill as prices skyrocket. In my opinion, other energy alternatives will be even more laudable as far as investors are concerned, because the tide of environment awareness is going to make it difficult for big oil to defend its practices much longer.
Other big companies also seem to be jumping aboard the natural gas bandwagon, even as supply continues to exceed demand. In Alaska, BP (BP) and ConocoPhillips (COP) are teaming up with Exxon Mobil to study the feasibility of a pipeline to export natural gas to Asia, where prices remain higher than in Canada or the United States. Right now, however, even if natural gas is the best option, this move will not have any effect on profits for any of these companies, because studies like this take years to complete. Furthermore, once the results are in, the verdict could very well be that such a project is not a good idea at all, which leaves shareholders exactly where they are today.
The companies themselves remain optimistic, though, with P/E and forward P/E for all three at a decent ratio, with roughly $5.40 for BP, about $8.40 for ConocoPhillips, and just over $10 for Exxon Mobil. BP has an EPS this year of almost 778% at the time of writing. This number is more than double the ConocoPhillips EPS, and Exxon Mobil seems like a pittance in comparison, with its measly 35%. Nevertheless, a close examination of the stocks' recent trends suggests that their lucky streak will not last, in my opinion. Over the past month or more, all three have started to drop, to varying degrees, and it looks to me like Exxon Mobil is taking the hardest hit. Although Exxon Mobil has not fallen as far proportionately, it seems to be struggling to maintain its current price, and has been doing so since the beginning of the year.
That being said, I think that shareholders in Exxon Mobil are probably the best off at the moment, which is not to suggest that it holds a piece of a gold mine, so to speak. But the only reason for this idea is that Exxon Mobil is a very established company. Additionally, it is becoming increasingly challenging for everyday citizens to win lawsuits against renewable energy companies, which means to me that these stocks are the real moneymakers for those investors who are willing to have a little patience before the payout.
I believe that alternatives to oil and even gas are on their way in. Oil spills and other disasters are hard to forget, and nobody has yet heard of a wind or solar disaster. Two years ago, BP came in first in a sustainability ranking, but its gold prize is soured by the fact that it only reached the 59% mark on the scale. Other companies like Shell Oil and Exxon Mobil, second and third place winners, respectively, also fell far from consumers' ideal.
With all these negative factors against oil stocks, I would say it is time for investors to start looking elsewhere. Although natural gas has been a good choice up until now, this bubble looks ready to implode in the face of healthier and more profitable alternatives. The best thing for investors about renewable energy sources is that the companies can continue to be profitable without continually pursuing new ventures, because once their generators are set up, they can produce energy for a long time with minimal maintenance. As the oil stocks get ready to swing down, I'm afraid they might never come back up again, at least not to the same highs they have experienced in the past.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.