Henry Groppe: Time to Go Long Natural Gas
The Ultimate Contrarian Bet
It's hard to make money when you're following herd mentality...
But plenty of money has been made betting against the herd; that is, investing in a position everyone else hates.
Time To Go Long Natural Gas
You've heard it all before: Supply is out-pacing demand... Our ability to horizontally drill for shale gas has made the supply picture seem unlimited... The short-term outlook is bleak...
Those are all fine examples of herd-mentality thinking.
Contrarians like us, on the other hand, keep a close eye on natural gas. Companies like Chesapeake Energy (CHK) have the potential to make you a killing.
And we're not the only ones who think so...
This 80-Year Old Oil Man Thinks So, Too
Henry Groppe, a Texas petroleum analyst with a long track record of betting against the herd, believes natural gas will double by the end of summer 2010.
He's arguing that shale wells are depleting rapidly, and that there is a real shortage of gas "which will become apparent this summer in dramatic fashion," according to The Globe and Mail. "Gas inventories are about to get a lot tighter... new supplies are overstated, and prices are headed north of $8 by the end of summer.”
Why the confidence?
Horizontal drilling advancements are not the Holy Grail they've been cracked up to be, he says. "Not even close. Horizontally-drilled wells face a huge amount of rapid depletion once tapped, and so the supply that we are all counting on to be there is ephemeral at best."
But still... a double by summer's end?
Let's Take a Look at Groppe's Track Record...
According to reports, "In 1980, when oil approached $40 a barrel and forecasters predicted $100 oil was inevitable, Mr. Groppe said crude would fall below $15 by the mid-1980s."
And it did.
"In 1998, when crude dipped to barely above $10 and some prognosticators were hailing a new era of cheap energy, Mr. Groppe said oil was set to soar."
By 2000, oil topped $30.
And just two years ago, when oil threatened to breach $150 and forecasters were calling for $200, Groppe said oil would fall back to the $60 to $70 range in the second half of the year.
Again, he was right.
"Now," he says, "a slow-but-gradual decline in North American natural gas reserves — regardless of shale — means an average price in the $8 range is inevitable to trigger the 'demand destruction' necessary to keep the supply-demand picture in balance... Eventually, that price will creep up toward $10 by the end of the decade, as gas production slowly depletes."
We stand behind Groppe as his past success with market calls proceeds him. There's also Mario Gabelli, another shot-caller in the sector...
Meet Mario Gabelli, who just made a big play on natural gas
Gabelli just bought 800,000 shares of National Fuel Gas — his "cheap way to play America's energy."
"With the economy improving, we think natural gas is undervalued," he says. "America will increasingly depend on gas... "
Let the herd keep hating natural gas... We'll roll in profits by the time they catch on.
Stay Ahead of the Curve,
Ian L. Cooper
Editor, Energy and Capital
Investment Director, The $20 Trillion Report
Editor's Note: While investors have been waiting for the boom in natural gas, there's a North American oil play that couldn't be more urgent... It's what my colleague Keith Kohl calls North America's oil comeback, and the company leading the charge, Keith says, could be an easy double by fall of this year.
Energy Demand will Increase 58% Over the Next 25 Years
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