IPFS
North America's Greatest Natural Gas Hoards
Written by Sierra Hancock Subject: Economy - Economics USAAs I've shown you over the past two days, huge forces are escalating natural gas consumption.
This demand won't cause a short-term explosion in natural gas prices. But it's a no-brainer to start hoarding the stuff right now... in advance of the coming consumption boom.
You see, the natural gas price may be at historic lows today... but
it will rise again at some point. Many roads may lead to higher natural
gas demand. But the simplest is this...
Natural gas is the cheapest source of clean energy in North America today.
According to the EIA, solar power costs about $4,800 per kilowatt.
The cost of wind ranges from $1,800 to $3,500 per kilowatt. The cost of a
natural gas turbine is just $650 per kilowatt.
On the other hand, it costs about $2.91 to buy enough coal to
generate 1 million BTUs of energy. A million BTUs of natural gas costs
$4.58. The tradeoff comes from the soot and pollution generated by
burning coal. Natural gas combustion produces one thing... carbon
dioxide. That difference will matter more and more in the future.
To quote legendary commodity investor Jim Rogers, "The best cure
for low prices is low prices." Eventually, the utility of natural gas
and its low cost will create demand. We simply have to be patient.
In investment terms, we want to own enormous reserves that can be
produced when the natural gas rally cranks up. We want to buy companies
that the market has left for dead... but that will have enormous natural
gas production in the future. Essentially, we want a "call option" on
natural gas.
We want to own "PUDs."
PUD stands for Proven Undeveloped Reserves. These are undrilled gas
wells with zero exploration risk. Typically, PUDs are located between
two producing wells or in the middle of proven fields just waiting to be
drilled. We know the gas is there... The company that owns it just
hasn't drilled it yet because prices are too low.
Right now, the stock market is practically giving away natural gas PUDs.
The price of natural gas is so low, investors aren't willing to pay
for the future production of PUDs. Companies only get credit for
current production and cash flows... Promising, nonproducing properties
are selling for peanuts.
Below is a table of natural gas producers that trade on the stock
market. I figured out the price of each company's PUDs per share, in
thousand cubic feet (MCF) equivalent increments. We want to buy massive
amounts of PUDs as cheaply as possible.
Company |
PUD per Share |
Price per MCF |
Galleon Energy |
8 MCF |
$ 0.53 |
ATP Oil and Gas |
14 MCF |
$ 1.18 |
Penn Virginia |
11 MCF |
$ 1.62 |
Petroleum Development |
22 MCF |
$ 1.86 |
Goodrich Petroleum |
7 MCF |
$ 2.79 |
Berry Petroleum |
15 MCF |
$ 3.02 |
Sandridge Energy |
2 MCF |
$ 3.35 |
Chesapeake Energy |
9 MCF |
$ 2.95 |
EQT Corporation |
15 MCF |
$ 3.02 |
Energy XXI Bermuda |
9 MCF |
$ 3.13 |
Since I first showed you this table in November,
prices have climbed. But it's just a fraction of what could happen if
natural gas heads up from $4 to $6 or $8 in the coming years. If that
happens, these assets will skyrocket in value.
The best resource investors I know are slowly building up a
portfolio of the best undeveloped reserves they can find. Now is the
time to buy, when the market hates natural gas. With a little patience,
your investment will double or triple over the next few years.
Good investing,
Matt Badiali
P.S. I just told my S&A Resource Report readers about
my favorite way to buy one of the largest gas hoards in the world… at a
dirt-cheap price. The stock is safe, shareholder-friendly, and pays an
inflation-proof dividend. Its vast portfolio of undeveloped reserves
also act as a large "call option" on rising gas prices. Even if gas
rises 25% from these levels, the stock will enjoy a huge uptrend. To
learn more about this idea, click here.
Further Reading:
Today, many developed countries are turning to
natural gas for a "greener" way to produce electricity. Cheap, clean,
and abundant, the U.S. government loves it... And with increasing
Westernization, "Chindia" is consuming more and more of the stuff.