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Business/Finance See other Business/Finance Articles Title: Natural Gas to $10.05 When I was a young chap, a hoary old trader told me oil prices are easy to understand... When prices are high, companies spend money to produce more product. This creates higher supply and drives down prices. When prices are low, the fly-by-night firms run out of financing and go out of business. This creates a supply squeeze and drives up prices. Rinse and repeat. . Can't Afford to Pump Estimates for what it takes to get natural gas out of the ground and to market are somewhere between $4 and $6 per thousand cubic feet. This means the vast majority of producers are losing money. No one goes to work to lose money. The industry will consolidate or go bankrupt. The Economist says: Extracting natural gas from tightly packed shale deposits costs around $5-$6 per thousand cubic feet. At today's spot prices for natural gas, producers are losing money hand over fist. Many could cease to exist as the industry is forced to contract. And consolidate it will. There are so many firms that the top ten producers account for less than half the market between them. It's starting to happen... In yesterday's biggest energy news, the Chinese supermajor CNOOC just bought out Canadian natural gas and oil producer Nexen for a 60% premium! That puts its P/E at 27.85. (For comparison, ExxonMobil sports a P/E of 10; BP sports a value of 5.) Look for more of these deals coming down the pike. Winter is Coming And last but not least, the demand for NG goes up when it gets cold. Now, I'm not a weatherman, but it is unlikely we will have another year without winter as we did last year. In my 17 years of experience trading stocks as a contrarian, I love buying assets that are out of favor once they start to percolate. This keeps you from catching a falling knife, but puts you in low enough to get the vast majority of the upside. As we've seen by the ten-year chart, when NG moves, it moves fast. It's time to average into some NG companies... My good friend and associate Keith Kohl knows the U.S. natural gas business like nobody else. He's been riding this wave for ten years with some truly amazing profits — like 574% returns from Brigham Exploration, 140% gains in UTS Energy, and 103% gains in Northern Oil. His advice on how to play this natural gas boom can be found here. Or if you like more risk, follow me as we ramp up the leverage on the NG price surge. Christian DeHaemer follow basic@TheDailyHammer on Twitter Post Comment Private Reply Ignore Thread
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