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Natural Gas Companies

One Natural Gas Buy for Winter. . . And One Investment Pitfall

Written by Keith Kohl
Posted November 2, 2009

Picking your next natural gas play isn't so easy anymore. . . or is it?

Back in March, we saw the first real buying opportunity for oil and gas stocks. At the time, nearly everyone I came across was in the trenches. Every company was either at or approaching a 52-week low.

I wasn't kidding when I suggested that those stocks were a screaming buy. Most of you agreed. Since then, energy stocks have taken off. And I'm not talking about a few gains here or there. . .

Unfortunately, not everyone agreed.

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I remember one reader in particular who didn't pull any punches. Yet after asking him whether or not he was taking advantage of that buying opportunity, he adamantly refused.

His reason?

He was too afraid to trade.

Right now, he's probably looking for a DeLorean and a bolt of lightning — flux capacitor and all.

If you were on board with us at the time, you made an absolute killing with your energy trades.

But let's face it: my hesitant readers shouldn't be looking back with regret. And this gentleman comes to mind because he recently sent me an e-mail. This time, however, he was less cynical when asking how I felt about getting back into natural gas.

And you should be able to guess what my sentiment on the matter was in my e-mail, and is today, as I write this. . .

U.S. Natural Gas

Last week, Baker Hughes Inc. reported the number of oil and gas rigs operating in the U.S. has increased to 1,069. If you're keeping track, that's 21 more rigs than the previous week. That number compares to 1,600 rigs drilling in September 2008.

Then again, if there were that many rigs operating right now, I'd be more than worried. And one glance at the latest EIA natural gas storage report would have you worried, too. . .

Take a look for yourself:

EIA Working Gas Storage

As you can see, inventory numbers are still rising. The last increase of 25 Bcf puts our working gas in underground storage at 3,759 Bcf. Although natural gas is currently trading around $5/Mcf, we're still a far cry from 2008 price levels.

Don't worry, we're not holding our breath for natural gas costing $14/Mcf anytime soon.

Once the cold weather kicks in, people will start turning the heat on and up. It might not be the massive demand spike the bulls would love to see, but couple the heating season with more industrial demand and prices could easily reach $6/Mcf.

Natural Gas Trading

So where to look when investing?

It's no secret that we're sticking with what works. In the case of the North American natural gas market, the clear winners are the various shale plays. Make no mistake, we're going to tap those resources. I've reiterated the importance of shale gas time and time again.

It makes sense, too.

After all, it's because of these shale basins that we can keep a positive outlook for U.S. natural gas production.

Your Next Shale Play. . . and the ETF to Avoid

This natural gas stock isn't a surprise.

We've been following Range Resources (NYSE: RRC) for quite some time. The company first attracted my attention with its Barnett success. As you're probably aware, the Barnett shale is what sparked this unconventional boom in natural gas.

Range recently announced another production increase, despite selling its Fuhrman Mascho Field in West Texas. The company's third-quarter production rose 13%. Production growth is something we've come to expect from these guys; this is their 27th consecutive quarter of growth in the third quarter.

According to Range's CEO, John Pinkerton: "The Fuhrman Mascho sale proceeds, coupled with our operating cash flow, should more than fund our 2009 capital spending program."

The company still expects to drill another 20 horizontal wells in the Marcellus shale before the end of the year.

Keep an eye on this one.

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Of course, there are some investment pitfalls.

When it comes to the United States Natural Gas Fund (NYSE: UNG), I can't help but side with my readers. You see, it didn't take very long for you to express your concern after the last time I brought up UNG. This ETF invests in the near-month contracts of natural gas on the NYMEX that are set to expire.

The problem is that we're not going to see the same price shock that we did in 2008. The downside to the unconventional boom is the large amount of supply. Add the weaker demand we're experiencing, and a price spike is simply out of the question.

Shale Profits

I'll let you make your own call on this one. Personally, I'd stick with our shale plays. And if you're looking for even better natural gas plays, feel free to check out our free report below.

The good news is that most of my readers have already established their natural gas positions from the $20 Trillion Report. In fact, they're still holding on to gains, despite the sell-off late last week. If you're interested in sharing their success, feel free to check our free natural gas report. If you haven't yet. . . I don't know what you're waiting for.

A year from now, I don't want you looking back with regret.

Until next time,

keith kohl

Keith Kohl

Energy and Capital

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