I have been recently doing some research and speaking with a mining engineer friend of mine about natural gas and its prospects as an investment going forward. I’m in the process of developing a general strategy for investing in natural gas. As many of you probably know natural gas prices have been depressed while oil and other resources have been enjoying a boom. This point is be painfully clear if you are one of the many investors that have a gas stock or two tucked away in your portfolio…as many of them have literally been cut in half ie – CMT, GZ, GNY
Now it’s not all bad news. The good news is that because natural gas prices are so low many companies have either greatly reduced (or stopped) their drilling levels. Despite this fact there has been no movement in gas prices, why? Well the reason is simple we still have a ton of the stuff in reserve so there hasn’t been any pressures on the supply side…yet…but what happens when those reserves start to diminish? Well the answer’s obvious increased gas prices. This of course will cause increased stock prices of the gas producers. So in a sense the gas business is largely self-regulating over time.
Other factors that will affect the demand for natural gas are listed below:
3. Economic Growth
4. Fuel Competition
I’ll elaborate on each of the criteria tomorrow and talk a little more about what I’m planning on doing with natural gas stocks.