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Robert Duval
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Professional Independent Trader, 15 years. Started as a equity index futures floor trader, now day and swing trade, stocks, treasury futures, index futures and commodities. Believe in correlation of markets, must undertand all markets to trade one well. (aka Jim Rogers) Self taught by... More
  • The Case For A Secular Move In Natural Gas Producers.  5 comments
    Apr 12, 2014 6:45 PM | about stocks: ECA, CHK, UNG

    Natural Gas has long been in a secular decline; primarily due to a massive rise in supply from fracking technology.

    This post will very briefly outline the bullish case both for Natural Gas itself, and the producer sector in particular.

    (click to enlarge)

    UNG data by YCharts

    I've posted (NYSEARCA:UNG) here, but will comment on Nat Gas futures pricing. Nat Gas has endured a long slide, from well over $10 in mid 2008 to a low of $3.50 mid last year. (June 2014 futures). It is currently at $4.63 and entering a sustained uptrend. This is especially impressive as April is an "injection month" for the shoulder season between the recent very cold winter and the upcoming air conditioning season.

    This past winter was exceptionally cold, the upcoming summer is forecast to be especially hot. Natural gas supplies enter the spring far below their 5 year average, and it is doubtful they will be built up to last fall's levels before the next winter hits.

    Also bullish from a longer term demand perspective, are both the current Administration's focus on Natural Gas as a primary source for electric power instead of coal, and the upcoming flood of LNG exports to Asia, where gas is up to $15.00; from both the US and Canada. The Sabine Pass export terminal is nearing completion, and exports will begin in 2015. Many other projects in the works.

    Any acceleration in the US economy, would obviously help on the industrial demand side, as well.

    On the supply side, there are some questions about the effects on fracking safety in some juristictions, a question mark which may affect some projects going forward.

    There is also some ongoing questions, about the sustainability of the 5 largest shale gas plays, and well productivity.

    On specific ideas; one consideration has to be (NYSE:CHK). The company has been heavily restructured with a new management team, and has experienced heavy insider buying. Carl Ichan is a major investor, and the stock has moved up into a multi - month bullish consolidation. (see chart) A break above 27.50 would be a confirmation of this trend.

    (click to enlarge)

    CHK data by YCharts

    Another restructured stock with quailty management is (NYSE:ECA). They have sold non - core assets and the stock is responding well to their corporate efforts.

    (click to enlarge)

    ECA data by YCharts

    To summarize; this is still a deeply out of favour value sector. $5 or $6.00 sustained Natural Gas prices would be a catalyst for outsized moves in these producers.

    On a future article, I will examine the Coal sector. I have long been looking for a bottom here. One day, a Combination of a more friendly regulatory environment, higher Nat Gas pricing, and an accelerating real economy with higher Capex spending, may make the coal sector an attractive investment.

    Long (CHK) (ECA)

    Note -- I do not recommend (UNG) due to the constant rebalancing erosion.

    Disclosure: I am long ECA, CHK.

    Additional disclosure: Not investment advice. Only my own thoughts. Consult a qualified advisor.

    Stocks: ECA, CHK, UNG
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Comments (5)
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  • John Wilson
    , contributor
    Comments (2010) | Send Message
    Thanks, good article.
    We hold some CHK. In fact I had bought some in the early 2000 timeframe when it was about $8. Then it went to $75 in 2008. I wasn't watching the stocks very close at that time, and in the summer of 2008 we had relatives visiting and had do some traveling and was not watching what was happening. I assumed that CHK would just have a 2 for 1 split and keep going up from there.


    That was my lesson on not taking profits.


    Hope you are right. I thought there would be more market recognition of possible NG supply run down with the severe winter we had. Looks like they need more time to assess supply situation.


    One concern is the life span of NG well and how they drop off.


    13 Apr 2014, 08:56 AM Reply Like
  • Robert Duval
    , contributor
    Comments (7852) | Send Message
    Author’s reply » I confess, as a top down investor, to not knowing CHK as well likely, as you might. This is a macro, top down outlook.


    Question is, would shorter than forecast NG wells -- hurt producers like CHK more than higher prices might help?


    ECA is mainly drilling in different formations -- as I understand.
    13 Apr 2014, 09:05 AM Reply Like
  • Robert Duval
    , contributor
    Comments (7852) | Send Message
    Author’s reply » For those following, have sold (CHK) to make some tech room, holding (ECA) (T-POU) (T-BIR) in the space.
    16 Apr 2014, 03:46 PM Reply Like
  • Robert Duval
    , contributor
    Comments (7852) | Send Message
    Author’s reply » On the drilling side; I am long (PDS) which has scored an upgrade today.
    16 Apr 2014, 06:26 PM Reply Like
  • Robert Duval
    , contributor
    Comments (7852) | Send Message
    Author’s reply »


    PDS results.
    28 Apr 2014, 07:49 AM Reply Like
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