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?

Choose:

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."

Enap, Chile's state oil company declares $958 mil net loss in 2008

Chile's state oil company, Enap, the second largest company in the country after copper giant Codelco (according to this FT article) declared a $958 million net loss in 2008 yesterday.

Enap produces 230,000 barrels of oil per day and 13m cubic meters of fuel a year. The company also has interests in Argentina, Ecuador, Egypt and Iran and . It supplies about 85 per cent of Chile’s fuel needs and exports to Central and South America.

Sadly, Enap is what will go down in history as a classic victim from the volatile markets of the world economy during the global economic crisis of 2008-2009.

Record high commodity prices reached in 2007-2008 forced Enap to purchase a great deal of the crude it refined for use in the domestic economy for around $140 a barrel. When oil prices dropped to $34 a barrel in December, the company was forced sell its refined crude products for the lower market price. In all, this macro swing in the global economy cost the company around $650 million.

Two other factors also contributed to the loss. Drought in northern Chile forced Enap to shut down some hydroelectric plants. Second internal problems in Argentina lead the government to implement subsidies on petrol products, igniting demand in Argentina. When push came to shove and Argentina realized there wasn't enough gas to go around, the country diverted some of its supplies meant for Chile to the domestic economy. Thus forcing Chile in both instances to import energy from new and more expensive sources.

All in all a bad year for Enap in the global economy.

According to this FT article, Enap has pinned its hopes on hydrocarbons exploration in the Magallanes region in the far south of Chile, but the state auditor has raised questions about the viability of the project, and Enap has yet to announce whether it will go ahead.