Monday, June 25, 2012

Search Wider to Profit from Natural Gas. Asian and North American Price Differentials Present an Interesting Opportunity.

Trying to profit in natural gas is difficult. The United States Department of Energy estimates that production of natural gas liquids hit a high in March and is now 50% above production levels in 2009. As a result, prices of some natural gas liquids have plummeted by 60%. Natural gas producers are becoming strapped for cash and there is now a lot of uncertainty about the viability of another of natural gas properties throughout North America. 

This is actually good news, however, for some chemical manufacturers that may need to use natural gas liquids, such as butane, in their processes. Examples of such companies include Dow Chemical (NYSE: DOW) and Dupont (NYSE (DD). 

The market for natural gas, however, is not the same throughout the world. While in North America supplies have spiked and prices have plummeted due to basic supply and demand dynamics, Asian prices have increased over 30% in the last year. Demand for Natural Gas Liquids in Japan, China, and India have all increased for 2011, meaning there is a huge spread between North American and Asian prices.

Essentially, if a North American producer can develop the terminals and infrastructure necessary to ship the natural gas liquids overseas, they will profit handsomely. Statoil (STO) out of Norway is a very interesting and reliable choice in this area. They currently have the only LNG production facility in Europe, and they have a terminal in Singapore, and soon Malaysia as well. This will bode every well for future cash flows.

Conclusion: For the Intelligent Investor, natural gas prices are making it very difficult for North American natural gas producers, but for those interested in profiting from the current low-price environment, try Statoil or other producers that have the capacity to profit from the differential between prices in Asia and Europe or North America.

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