Fewer areas of investment are as politically charged as energy. This is especially true of the recent years due to the oil spike, new natural gas technologies and headlines like the Keystone Pipeline recently.
Interestingly, natural gas is approaching some serious low levels and the ratio of the price of oil to natural gas is at levels not seen in decades. What is driving this widening spread?
First, the investment community and political community is going on and on about the glut of natural gas supplies being discovered mainly due to new “fracking” technology which enables retrieving gas from rocks that was previously unrecoverable. The problem is that every party involved now seems to be touting this supply with more hype than actual numbers. There seems to be a mini-bubble in the gas exploration and production world, whether it is the producers, the investment bankers or the politicians. All anyone can talk about is how we have 100 years of natural gas now.
I’m not denying the increase in supply or the new technological breakthroughs, but it seems like the hysteria has pushed natural gas prices to unsustainable lows. If the supply discoveries aren’t what people are claiming them to be, and I would guess they aren’t, we should see an increase in natural gas prices over time from current levels.
This is the type of environment that can cause distortions in the market. A politically charged industry. A new technology with some great breakthroughs. Politicians using the “100 year supply” almost as a political talking point. I think buying investments that will be exposed to an increase in the price of natural gas could be a nice play.
Of course, timing is always an issue. The price of natural gas could remain suppressed for some time and could even go lower. I’m not too concerned with that. I prefer these types of investments and am willing to remain patient and let them play out as I expect. We’ll monitor the natural gas thing here and update you from time to time…