Their Panic Makes Us Even More Bullish

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Their Panic Makes Us Even More Bullish By Keith Kohl | Tuesday, July 5th, 2011 Earlier today, I lit the fuse over which energy bet to take. By the time the smoke cleared, my friend had taken an adamant stance against any such comeback. “It's taken such a beating, there's no chance it'll ever recover.” I won't hold it against him. The idea of holding a stock for more than a few hours would make some day-traders like him uneasy. A week would make him cringe. Long-term prospects didn't even register as a blip on his radar. To a certain extent, he's right to be cautious. If there's a market that has taken a brutal beating over the last three years, it's natural gas. We've heard just about every excuse in the book for weak prices, too — be it weather-related problems, a supply glut overwhelming demand, or even the raging controversy over hydraulic fracturing. And we can't deny that prices are dirt cheap. What my friend failed to see, however, is opportunity. Advertisement Secret Geology Opens New Oil Region The Soviets were planning to use this as a weapon against NATO... But instead, this piece of "secret geology" has just given the oil industry one of its most important discoveries ever. Find out how this never-before-published information will change the face of the crude oil business. Drilling Shifts and Price Shocks He isn't alone in his pessimism toward natural gas. In turns out some of the biggest U.S. producers have been forced to adapt to stale prices. Chesapeake Energy, for example, is the second-largest natural gas producer in the United States. With natural gas prices in the basement, Chesapeake expects to spend three-quarters of its capital expenditures developing their liquids-rich plays. That's an about-face in spending, considering 90% of capital expenditures in 2009 was slanted towards their natural gas assets... Prices plummeted nearly 80% between 2008 and 2009 and are now stagnant, trading between $4-$5/Mcf for the better part of a year. Now is the perfect time to get bullish. Why We're Long on Natural Gas First on the list concerns our drilling activity. You see, Chesapeake isn't the only company gearing more toward their liquids-rich assets. Approximately 53% of the 1886 rigs operating in the United States are drilling for oil. Meanwhile, natural gas consumption is only moving higher... We're already above our 2008 consumption levels — at which time, prices were at record highs. That year, the U.S. consumed about 23 Tcf of natural gas. The subsequent price drop led to a 1.7% decline in demand during 2009. Last year, however, our demand reached 24.1 Tcf — a new record. Although production grew 3% between 2009 and 2010, things could get much tighter from here on out. As you can see, we have more producing gas wells than ever before: With the lack of drilling over the next few years — due to both weaker prices and companies changing their drilling priorities — the United States won't be able to continue increasing the amount of natural gas wells, easing the current supply-demand imbalance. Now imagine how tight things will become if shale opponents come out on top. Almost half of our natural gas production is expected to come from shale formations by 2035. According to the latest report by the INGAA, natural gas consumption is expected to increase by 1.6% each year for the next twenty-five years. By 2035, demand from both the U.S. and Canada is estimated to be 110 Bcf per day, or nearly 40 trillion cubic feet per year. Approximately three-quarters of that demand growth will come from the power sector. Of course, any hope of ever reaching that amount is impossible without developing the various unconventional gas plays across North America. Furthermore, shale gas is projected to make up more than 90% of our unconventional production increases. Supporting that production growth won't be cheap. The report estimates over $8 billion per year will need to be spent on infrastructure alone. Advertisement The 21st Century's "Top Fuel" If 89 years from now, you total up every single kilowatt-hour produced in the 21st century... This single element will have provided a large majority of it. In the next 30 years alone, demand for it is set to shoot up between 500% and 1,000%... Find out where the world's next big supply of this material is coming from. The Ultimate Bet in Natural Gas At first glance, the ultimate contrarian bet in natural gas would be the United States Natural Fund (NYSE: UNG), which appears to mirror the performance of natural gas prices. Any of us who have dipped our hands in UNG in the past might want to turn away. This is easily one of the most painful charts to view: Things may not improve much for this ETF. A sudden spike in natural gas prices isn't in the stars; prices are expected to average between $6 and $8 per MMBtu until 2035. But there are much better opportunities becoming available — including one that can clear the air of controversy over unconventional production. Many of my readers have had tremendous success with a play that doesn't own a single acre of land. Instead, this outfit offers an alternative to hydraulic fracturing. Imagine tapping into 2,552 trillion feet of potential gas resources from shale formations without using a single drop a water... Until next time,   Keith Kohl Editor, Energy and Capital Related Articles New Ways to Top Natural Gas Profits Stealing OPEC Profits Natural Gas Stocks Vs. Coal Stocks Peak Oil Investments From the Archives... Energy and Capital's Weekend Edition 2011-07-02 - Keith Kohl The Wind Turbine Company Teams Up with EDF Energies 2011-07-01 - Brianna Panzica First Country to Outlaw Hydraulic Fracturing 2011-07-01 - Brianna Panzica Consensus Grows for Looming Peak 2011-07-01 - Nick Hodge Iran Requests Payments 2011-07-01 - Brianna Panzica Economic Releases for the week of Monday, July 4th, 2011: Jul 05 - Factory Orders Jul 08 - Hourly Earnings Jul 08 - Nonfarm Payrolls Jul 08 - Unemployment Rate Jul 08 - Wholesale Inventories Jul 08 - Consumer Credit Jul 06 - MBA Mortgage Index Jul 06 - ISM Services Jul 07 - Initial Claims Jul 08 - Average Workweek Jul 08 - Nonfarm Payrolls Brought to you by Wealth Daily

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