Editor's Note: Now that the winter months are finally here, we're finally seeing a rally in natural gas. What most investors don't know, however, is that prices will continue to rise as an economic recovery takes place. That alone will send our favorite natural gas stocks soaring. I've put together a new report highlighting one area in particular that could make you a small fortune when natural gas supplies balance out. Simply click here to read more.
I'll be the first to admit my head has been wrapped around natural gas lately.
For the last few weeks, I haven't been able to think of much else. Last week, I cautioned my readers to stay away from liquefied natural gas. Judging from the large number of responses, I could tell you agreed.
Since last week, the question I've been asked the most was, "If you don't see LNG as a strong investment, where do you see the U.S. turning for its natural gas."
Thankfully, that's an easier trend to spot...
U.S. Unconventional Boom
In recent articles, I've been trying to point out the latest EIA Short-Term Outlook to my readers. Based on the report, there are several highlights worth noting:
U.S. natural gas production increased 6% in 2008.
Production from unconventional sources in Texas, Wyoming and Oklahoma will increase supply from the lower-48 non-Gulf of Mexico by 10%.
Federal Gulf of Mexico production is expected to decline by 14.8% in 2008 due to repairs to the supply infrastructure.
One thing has become clear to North American natural gas markets: Unconventional resources are going to play a much bigger role in the future.
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The first question to address is where natural gas prices are headed.
In the wake of oil's fall from grace since July, natural gas has also declined from record highs. However, unlike oil, I believe we are a lot closer to bottom for natural gas prices.
Although we are still 2% above the 5-year average, the latest 64 Bcf drop from storage was enough to give us pause. Analysts had only anticipated a drop between 43 billion to 48 billion cubic feet.
Now take a few other factors into account...
Winter is no longer around the corner, it's here. If they haven't already, people will start turning the heat on. As a result, storage levels will continue dropping. If the temperature begins to drop as we move through the winter season, heating demand will inevitably rise.
Top Natural Gas Stocks
These three natural gas stocks won't come as a surprise to some of my longtime readers. From what I've been told, a strong number of those readers have been riding trading the highs and lows of these companies for the last two years.
Even though I've mentioned these stocks in the past, there's one thing they all have in common. All three have been oversold during this tumultuous market. If you've been looking for a window to jump into one of these three stocks, now is your chance.
Here's the three top natural gas stocks:
Devon Energy Corp. (NYSE: DVN): With over 2 Bcf of production per day, Devon covers approximately 3% of all the gas consumed in the U.S. In 2009, I expect the 580,000 net acres in the Haynesville shale will come in handy when they look to replace production from aging Barnett fields.
EOG Resources (NYSE: EOG): EOG has dipped their hand in nearly every major basin I've covered. I'm particularly interested in their Horn River Basin play in Canada. The Horn River Basin has been compared to the Barnett shale in Texas.
Range Resources (NYSE: RRC): This is one of the first stocks that comes to mind whenever I think of the Marcellus shale play. Last week, Range reached a production milestone of 400 million cubic feet per day.
Staying Ahead of the Curve
Much like the rest of the energy sector, these three stocks made healthy gains during trading today.
Although energy stocks have taken a beating during the second half of 2008, my bullish outlook for natural gas in 2009 hasn't changed in the slightest. Then again, I wouldn't wait and watch from the sideline as other investors scoop up these natural gas gems.
Until next time,
Keith Kohl
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Where did you get Devon's 580,000 net acres in the Haynesville shale play?
To have that acreage DVN would have had to lease 773,000 total acres at the current 75/25 leasing rates. Chesapeake (CHK) is acknowledged as the largest lessee in the play at 440,000 acres of the 3,500,000 total acres in the Haynesville shale.