Tuesday January 31, 2012
by Jason Cimpl, editor Daily ProfitNatural gas has collapsed for the past four years and has been on a gradual decline for almost a decade. Prices topped near $16 in 2005 and then declined to $2. So did natural gas just bottom?
Boone Pickens and many other billionaire investors back natural gas. But the U.S. continues to focus on foreign crude oil for energy production.
And demand for alternatives like natural gas hasn't increased. It's basic economic theory - if demand doesn't increase, neither will the price.
The lack of demand was also accompanied by an increase in supply, which was a double whammy on the price and the main reason why natural gas prices are near lows not seen in the commodity futures market since 1999.
The increase in supply was directly tied to major gas discoveries in the Barnett Shale, Bakken Shale and Marcellus Shale formations. New techniques, such as fracking, have also increased natural gas drilling efficiency.
With stagnant demand and increased supply, the price of natural gas has had nowhere else to go but down. And ETFs like
iPath Dow Jones UBS Natural Gas Total Return ETN (
GAZ) and
United States Natural Gas Fund (
UNG) have fallen by more than 96%.
But has natural gas finally reached a price bottom? I think so. Natural gas stocks should rise alongside natural gas prices, especially those that remain net income positive when prices are below $3.
A few stocks to consider include:
Rosetta Resources (
ROSE),
Kodiak Oil and Gas (
KOG),
Northern Oil and Gas (
NOG), and
Chesapeake Energy (
CHK).
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