- Published on Tuesday, 19 June 2012 09:00
- Written by Andrew Snyder, Editorial Director, Inside Investing Daily
- Hits: 530
Don't get burned by natural gas. There is much more to the industry than any headline can describe.
Shortsighted investors are making big mistakes... big, costly mistakes.
Early yesterday, the markets focused on the pro-bailout winners in Greece. Investors were buying.
Two hours later... the microscope zoomed in on Spain's surge in borrowing costs. Investors were selling.
After lunch... they forget all about it and were buying again.
Dismissing fundamentals and investing with the hourly headlines is a tactic that will cost unseasoned investors dearly. To prove it, all we have to do is turn to the natural gas markets.
For the folks who bought natural gas futures at 10:29 last Thursday... the day was good. The week's inventory report sent prices higher by over 10% in less than three hours.
I pray those investors were quick to take their profits. That's because if they hold for any longer than a week... the trend is not their friend. The folks who try to grab the falling knife that is natural gas are almost certain to lose money.
Over the past two years -- no matter the day-to-day headlines -- gas prices have moved in just one direction... down.
Investors were giddy last Thursday after the week's storage report showed injections dipped further than expected. They had been bracing for far less optimistic news.
But let me remind you one data point does not reverse a dangerous, long-term trend. Even a broken clock tells time twice a day.
Let me show you the facts...
Yes, rig counts are down. We lost another 23 natural gas drill rigs last week, taking us to a 13-year low. But who cares? We've been watching the figure dip for weeks.
The industry loves to tell us it's cutting back. It keeps the competition on its toes.
But the truth is few companies are anything close to serious about cutting back.
You see, what really matters is the number of rigs drilling for oil across the United States hit a 25-year high earlier this month... and has barely budged since.
It's a fact natural gas investors need to fear because these fresh wells are spewing enough natural gas as a byproduct of oil production that the market will remain flush with gas as long as oil remains hot.
Get this. North Dakota just set yet another natural gas production record.
It sucked 19.5 million MCF (thousand cubic feet) out of the ground in April. Almost all of its was a byproduct of oil drilling.
It is proof that despite common wisdom, the nation's gas glut is not a result of companies flocking to the gas-rich Marcellus formation. With gas prices this low, that region is getting very quiet.
Instead, the glut comes thanks to oil drillers and their recent foray into fracking.
Despite the gas industry's near-abandonment of the Marcellus region, the number of horizontal rigs spread throughout the States is hovering within a whisker of a recent high reached less than a month ago. Right now, there are 1,162 rigs tapping unconventional deposits. The record is 1,193.
That's all because of the Bakken and its rich crude deposits.
Like I said, the only way the gas surplus will wane is if we lose oil drillers -- and at $83 a barrel, that's not happening anytime soon.
So why in the world would you want to invest in natural gas solely because a single headline shows we shoved less into underground storage last week than originally expected?
It's like sticking your hand into a campfire because you're told it is not quite as hot as you thought. The flames are just 1,500 degrees... not 1,750 degrees.
It's dumb. And it will cost you money.
Over the past six months, I've talked with scores of investors who boasted of their stakes in various low-cost gas producers.
And guess what... all of them are looking at losses.
They forgot one vital variable when they made their calculations -- there are dozens of companies in North Dakota producing gas for free. As long as they are making a buck on oil, they don't give a second thought to how low gas prices go.
For them... every penny is a profit.
Because of the outlook for the Bakken field (it's fantastic!), shares of these companies are already in the stratosphere.
But I recently found a company that has gone unnoticed. It is pulling vast amounts of gas from the ground and, the best part, it would make money from that energy even if natural gas prices went negative.
In fact, I'm positive this is the most incredible business model I've ever seen. There is no other company like it.
If you're an Unconventional Wealth subscriber, you already know the company. But if you're not a subscriber, you're in luck. We plan on releasing the details to the public on Thursday.
When you read my report, you will realize there is far more to the nation's natural gas industry than you ever imagined.
The details -- and the opportunity -- are stunning.
From the Inside,
Editor's Note: Pssst... My Local Congressman Clued Me in to an "All-Party Swindle"... Over breakfast he spilled the beans about one famous entrepreneur and the coming boom in natural gas. I did my research and cannot believe my eyes... Politicos and power brokers are in up to their necks in this affair. One big-name investor alone snapped up 5,547,604 shares of a natural gas specialist with a 'moneymaking patent.' Trust me, you need to get on board before Obama signs H.R. 1380...
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