Two Top Energy Picks: Anadarko and Quicksilver

Not only do weather issues and natural gas’ severe discount to oil make it a compelling and less-risky investment option these days, but it is a more defensive place to be if a severe economic downturn occurs. This view from Citigroup’s Gil Yang means natural gas stocks offer less downside risk in the first half of 2008.

Another factor that should prevent prices from falling is higher natural gas storage capacity during injection season, the analyst told clients in a note. While storage levels at the start of 2008 were 160 bcf below the previous year, which were partially offset by a 240 bcf supply increase, they are currently roughly 300 bcf below levels a year ago, Mr. Yang said. He forecasts a peak of 3,571 bcf in 2008, which is 0.7% above the storage high in 2007.

The 240 bcf supply increase meanwhile, is a result of expectations for “considerably stronger natural gas production and higher LNG imports to more than offset Canadian import declines.” Consumption is expected to decline on reduced weather-related demand effectively offsetting greater electric power-related consumption.

Citigroup’s top picks in the sector are Anadarko Petroleum Corp. (APC) given the company’s improving track record for results, and Quicksilver Resources Inc. (KWK) due to its ability to grow reserves quickly at a low cost in North Texas’ Barnett Shale.