Brian McMorris'  Instablog

I am a long term fan of Natural Gas (nat gas) and have posted pro-nat gas articles on this website in the past.  The price of nat gas is weak now due to its "junk energy" status during an economic downturn.  It is highly leveraged to the economy and does very well in a strong economy and very poorly in a weak economy.  This is due to its current primary use as an industrial energy source, its seasonal use for building heating in North America and its status as an "off-peak" electricity source. 

If (when) nat gas becomes a primary transportation fuel source alongside gasoline and diesel, its utility and value will soar.  I think that time is coming soon.  The easiest way to achieve a significant global reduction in green-house gas is by a conversion of transportation systems from gasoline to nat gas and electric power from coal and oil to nat gas.  This hasn't happened in the past for two reasons: (1) lack of distribution infrastructure (i.e. nat gas fuel stations on every corner); and (2) perception of uneven nat gas distribution across the geography (nat gas is expensive to transport other than through a pipeline due to its low density as a gas).  A third issue is the conversion of vehicles from gasoline to nat gas powered, but this is a manageable economic issue that can be addressed with tax policy, and is not a technology issue.

I see the Obama administration addressing the greenhouse gas problem through policies that favor nat gas production, distribution and use.  He will announce the foundation of those policies today (Tuesday).  Hopefully more detail is close at hand once we can get past the health care debate.  Nat Gas is a good solution to provide energy independence and a cleaner environment.  It provides a technology bridge to developing renewable energy sources like solar, wind and hydrogen fuel cells.  The transition will happen and should be the cornerstone of every portfolio.  It has Boone Pickens as its primary cheerleader and policy financier.  He is a person who wants to leave the world with a legacy of cleaner energy.

The nat gas ETF, UNG, is flawed as an investment vehicle, but is the only pure play on nat gas pricing (using nat gas futures as its asset base).  The premium on the ETF due to a moratorium on adding futures to the ETF is down from 20% to 5% in the past two months.  That premium is manageable and makes UNG once again a decent way to play nat gas.  North America energy producers are the other way to play nat gas: CHK, XTO, LINN, PWE, APA, PVX, MRO, PGH are some of the stocks and MLPs one can use to gain exposure to nat gas.  The actual producers also issue very attractive dividend to make the wait worthwhile.