An equity investment that has it all: limited supply, high demand and a looming shortage of unknown proportions

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The Wall Street Journal (“Heard on the Street”) describes the situation and outlook perfectly in “Natural-Gas Market Conditions Look Unnatural”:

  • Supply struggles to catch up with strong global demand
  • The stocks needed to meet the surge in winter demand are abnormally low
  • Uncertainties surrounding the effects of winter are compounded by unknowns related to climate change

In this situation, “uncertainties” are the friend of the investor. This means the normal increase in winter demand could be abnormally high. Therefore, the treatment of winter mismatch will be left at the cost, as is now discussed:

Natural gas falls between the social, environmental and political cracks

Desirability rankings are for the most part clear:

  • Solar and wind – yes, absolutely
  • Hydroelectric and nuclear – yes, but …
  • Oil – no, but …
  • Coal – no, absolutely

“Clean combustion” natural gas? Yes? After all, this is where utilities went after coal. And then there are all those home furnaces and stoves and water heaters. And what about the environmental movement “this vehicle is fueled by natural gas”? In addition, natural gas is a necessary by-product of oil production; and there are natural underground storage areas; and significant investments have been made in LNG facilities; and LNG transportation is a large and growing business. More importantly, all of this benefits the US economy.

Therefore, natural gas is likely to be rated “correct at this time”. So don’t worry about the discussion of Biden trampling natural gas anytime soon:

UKTN (9/9): “Natural gas producers on the march, Biden could be a roadblock”

The bottom line: the potential stock price gain from a rise in the price of natural gas could be significant

Rises in commodity prices can dramatically increase producer incomes and free cash flow. Even a seasonal boost can increase the financial and operational well-being of a business. More importantly, increasing funds can accelerate prospects for future growth.

For equity investors, the benefits can be just as significant, even before the results are released. It is the anticipation of events, especially when there is a significant windfall opportunity, that can drive investor enthusiasm and the stock price ahead of actual results.

In other words, now seems to be a good time to invest in natural gas producers.

Disclosure: Author purchased First Trust Natural Gas ETF on September 13

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