A Huge Week for Natural Gas Investors
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- Published on Tuesday, 26 June 2012 08:00
- Written by Andrew Snyder, Editorial Director, Inside Investing Daily
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The natural gas industry is scrambled. Play the headlines and you could be in for some quick and easy profits.
It is going to be a huge week for the natural gas industry. We've got rumors of collusion, fresh word on the size of America's energy reserves and gas prices tearing through global headwinds.
Let's start with the industry's bad boy... Aubrey McClendon.
Earlier this month, the CEO of Chesapeake Energy (CHK:NYSE) was in the news due to his shady-side business of securing loans with his personal stake in gas wells. The scandal cost McClendon his seat at the head of the board.
Now... he may lose his job.
Early yesterday, Reuters stunned the market with a report that virtually proves collusion between Chesapeake and its biggest Canadian rival Encana (ECA:NYSE).
Wall Street did not like the idea of $100 million fines and restitution that adds up to "triple the amount of damages."
Shares of Chesapeake sank by over 7% and Encana followed closely behind.
Our friends at Reuters cite several rounds of damning emails between the two gas producers. Concerned they were bidding against each other and sending public and private land prices higher, the companies apparently conspired to work together to keep prices low.
From Monday's report:
In one email, dated June 16, 2010, McClendon told a Chesapeake deputy that it was time "to smoke a peace pipe" with Encana "if we are bidding each other up." The Chesapeake vice president responded that he had contacted Encana "to discuss how they want to handle the entities we are both working to avoid us bidding each other up in the interim." McClendon replied: "Thanks."
Somebody's got some 'splaining to do.
But if the U.S. Geological Survey has its figures correct, drillers soon won't have to worry about land prices in Michigan. They've got plenty of other places to explore.
According to the government's latest research, America's East Coast sits atop a natural gas bonanza -- maybe as much as 7.1 trillion cubic feet.
I am sure you're familiar with the riches of the Marcellus and Bakken regions. Now you need to get used to hearing about the Deep River, Taylorsville, South Newark, Dan River-Danville and Richmond basins.
Add the gas locked in these formations together and the government's experts guess there are anywhere between 1.8 trillion to 7.1 trillion cubic feet of undiscovered natural gas.
Some of the gas is buried beneath the rolling hills of the East Coast and some of it lies beneath the nation's nearshore waters.
Either way... it's a fresh target for the nation's booming natural gas industry.
But let's be clear. We won't see drillers like Chesapeake or Encana flocking to the Delmarva Peninsula or the Atlanta suburbs anytime soon. Let's not forget the country is already awash with so much natural gas we're not sure where we're going to put it all.
As recently as a month ago, we were very worried (and very excited) about the idea gas prices could actually go negative as storage facilities reached their peak capacity. If the nation's salt mines and pipelines filled to the brim, drillers would be forced to pay consumers to suck gas from pipelines.
But thanks to a quick surge in demand -- chiefly from power producers -- the latest handful of weekly inventory reports show a slowdown of storage injections.
The action has created a profit opportunity in an otherwise horrific market.
Last week our high-flying options expert Zach Scheidt told his Velocity Trader subscribers to take advantage of the quick turnaround in natural gas prices. And yesterday -- after a week of bullish action in the gas pits -- he sent out a profit bulletin advising his readers to lock in gains of 50%.
The trade illustrates the beauty of today's natural gas industry.
The story changes by the hour.
At the very same time the USGS tells us we've got even more gas under our soil... prices were rising... and the share price of the leading drillers plummeted.
The industry is scrambled.
For a short-term investor, it's a dream market. With every new headline comes a fresh profit opportunity.
We've got plenty of headlines these days. And we're about to get a whole lot more.
From the Inside,
Aaron
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