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Natural Gas Stages Comeback

Written By Brian Hicks

Posted June 7, 2010

It’s hard to make money when you’re following herd mentality… and that’s because herd mentality is a sucker’s bet.

Recently, the herd was so hell-bent on betting against natural gas that they missed the rally. 

Now I don’t know about you, but I’m here to make money…

So I say screw the herd and go long natural gas.

Since May — as the Dow plunged from 11,200 to less than 9,400 — natural gas ran from about $4 to more than $4.85. Heck, natural gas plays like United States Natural Gas (UNG) rocketed from $6.75 to more than $8.50. 

The sucker’s bet here is to avoid natural gas any further.

Time to go long natural gas

The usual arguments have long been that supply is out-pacing demand… That our ability to horizontally drill for shale gas has made the supply picture seem unlimited… That the short-term outlook was bleak…

Those are all examples of herd mentality — but this is the same herd that missed a sizeable rally that’s just getting underway:

  • We have a disaster in the Gulf, where 15% to 20% of natural gas production originates. The BP spill is sure to put a crimp in future production.  Heck, if the worst oil spill in history isn’t enough to push natural gas on Americans, I don’t know that anything ever will…
  • We have predictions for a disastrous hurricane season and very warm weather ahead;
  • We have a president who is now supporting a natural gas future:

The time has come, once and for all, for this nation to fully embrace a clean energy future,” Obama said. “That means [making] everything from our homes and businesses to our cars and trucks more energy efficient. It means tapping into our natural gas reserves, and moving ahead with our plan to expand our nation’s fleet of nuclear power plants. And it means rolling back billions of dollars in tax breaks to oil companies so we can prioritize investments in clean energy research and development.

Obama’s support in and of itself is a game-changer!

If those weren’t enough, we have affirmation from a proven sector analyst  

Henry Groppe, an 80-year-old Texas petroleum analyst with a long track record of betting against the herd, believes natural gas will double by the end of this summer.

Groppe argues that shale wells are depleting rapidly, and that there is a real shortage of gas “which will become apparent this summer in dramatic fashion… Gas inventories are about to get a lot tighter… new supplies are overstated, and prices are headed north of $8 by the end of summer.”

Why the confidence?

Horizontal drilling advancements are not worth nearly the hype the media and oil companies have given them. “Not even close. Horizontally-drilled wells face a huge amount of rapid depletion once tapped, and so the supply that we are all counting on to be there is ephemeral at best,” he says.

And Groppe’s opinion is not one to be ignored…

According to reports: In 1980, when oil approached $40 a barrel and forecasters predicted $100 oil was inevitable, Mr. Groppe said crude would fall below $15 by the mid-1980s.

And it did…

In 1998, when crude dipped to barely above $10 and some prognosticators were hailing a new era of cheap energy, Mr. Groppe said oil was set to soar.

By 2000, oil topped $30…

And just two years ago, when oil threatened to breach $150 and forecasters were calling for $200, Groppe said oil would fall back to the $60 to $70 range in the second half of the year…

Again, he was right.

“Now,” he says, “a slow-but-gradual decline in North American natural gas reserves — regardless of shale — means an average price in the $8 range is inevitable to trigger the ‘demand destruction’ necessary to keep the supply-demand picture in balance… Eventually, that price will creep up toward $10 by the end of the decade, as gas production slowly depletes.”

We stand behind Groppe as his past success with market calls precedes him.

Screw the herd… Let them miss out.

We issued four new natural gas bets to subscribers of our Pure Asset Trader just the other day.

And all are expected to perform exceptionally well.

You too can join in the profits with our team that’s now 62 for 65 since February 2009 — the same team that just called the turnaround in one of the most controversial sectors.

Stay Ahead of the Curve,

Ian L. Cooper
Wealth Daily