Wednesday, April 22, 2009

Investors hopeful for a recovery in Natural Gas

A year ago people there was hysteria because of sky rocketing energy and commodity prices. In this analysis I focus on Natural Gas, which last summer reached a record setting high of $13.69 a million British Thermal units.

Things have changed (as you can see in the graphs below. The global economy now finds it self in the middle of a world wide economic crisis. Expensive commodities are the least of the world's problems right now.

Natural Gas Prices - 3 months

Natural Gas Prices - 12 months

So does this present a investment opportunity?

It definitely does, albeit one with a fair amount of risk... Commodity prices not withstanding, the fact remains that without commodities there would be nothing to fuel the global economy. Eventually when macroeconomic demand for goods and services pick up around the world so too will demand for energy.

However, how do you go about picking the companies that stand to benefit from a potential rebound?


1. Companies with low debt and viable growth plans. Try do your homework so that the companies you choose fit your time line and expectations on when natural gas prices will recover. You don't want to choose a company exploring for the largest deposit of natural gas in Brazil only to find out it won't be extracting and selling the gas until 2015.

2. Look for natural gas producers with operations in NORTH America. As this Dow Jones Newswire article articulates, "Domestic gas producers that learned how to tap natural gas trapped in rock formations known as shales and that have enough credit or cash to survive the current lower price environment are expected to benefit the most from the possible in surge prices."