Are We Entering a New Era for Natural Gas?

Crude oil, with its whipsaw pricing during 2008, clearly has received most of the attention given to energy over the past year. Indeed, who would have expected its per-barrel price to fluctuate from more than $145 in July to a winter levy below $35?

But lest you think that natural gas is taking a decided and irrevocable second place to its crude sibling, you need to know about the gas goings-on in a couple of areas of the world. In the U.S., for instance, a group of gas producers -- including Chesapeake (NYSE: CHK  ) , the nation's top natural gas producer, and Devon (NYSE: DVN  ) , its Oklahoma City neighbor -- are in the process of joining other independent producers in forming a lobby group aimed at promoting natural gas for  power generation and transportation.

The difficulty in the current U.S. natural gas market -- as opposed to as recently as a couple of years ago -- is too much supply chasing too little demand. On the supply side, volumes have been pushed up by the discovery of vast new quantities of gas in tight rocks (shale). These discoveries have been in places like the Barnett Shale of North Texas, as well as the giant Haynesville Shale of Texas and Louisiana, where both Petrohawk (NYSE: HK  ) and EXCO Resources (NYSE: XCO  ) recently found gushers.

At the same time, the now nearly worldwide pullback in demand from such slowing industries as petrochemicals has precipitated a natural gas glut. The result has been a near 70% decline in gas prices just since July.

And then there's Australia, where a group of sizable companies, including Royal Dutch Shell (NYSE: RDS-A  ) and ConocoPhillips (NYSE: COP  ) , have become active in coal-bed methane plays. The target: natural gas trapped within coal seams, primarily in Queensland in the northeastern part of the nation. One of the many benefits to coal-bed methane -- also known as coal-seam gas -- is that it is far greener and cleaner-burning than fossil fuels.

So while much of the world continues to be fixated on the deepwater oil discoveries offshore Brazil and Eastern Russia, for example, I urge my Foolish friends to keep your eyes glued to the stronger gas producers. Two of the names I've already mentioned are Chesapeake and Devon. I fervently believe that within the next couple of years, the world of gas will pick up significantly. On that basis, I'd recommend that you remain represented in this slow-moving -- but promising -- sector. 

Both Chesapeake and Devon have received five-star ratings from Motley Fool CAPS players. Why not weigh in on your feelings about the two companies?

For related Foolishness:

ChesapeakeEnergy is a Motley Fool Inside Value recommendation. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned above. He does, however, welcome your questions or comments. The Fool has a disclosure policy


Read/Post Comments (5) | Recommend This Article (13)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 26, 2009, at 5:16 PM, macbeth76 wrote:

    One problem with Chesapeake is that they overpaid on alot of property in PA and southern tier NY in Marcellus shale. They were paying over 2k/acre and 18% royalties. Gas is going to have to go over $10 to make those leases profitable.

  • Report this Comment On February 26, 2009, at 9:26 PM, richovertime wrote:

    Since these are slow plays (meaning years) why invest in the commodity at all. Why not invest in the transmission line carriers instead. ETP, ETE, EPE, PAA, TK.

    ETP and ETE are associated companies but I am only going to speak to ETP since I currently own it.

    ETP gets long term contracts for transmitting the gas to the marketplace. Long term contracts that pay regardless of price fluctuations. Plus ETP and ETE are limited partnerships and they have to pay out dividends................

    YEAH dividends...............

    Oh yeah I guess I should tell you if you didn't catch it the first time. I personally own ETP

  • Report this Comment On February 27, 2009, at 12:36 AM, mapboys wrote:

    The ball to keep your eye on here is the EIA's weekly natural gas storage number and its relation to injection/withdrawal. If the price of natural gas is a concern in owning these stocks then 'guessing' what the price will be in the future is pretty important. That these folks may have hedged part of their position for 2009 matters little if the possibility exists for 2010 natural gas to be $4.00 and they are in a $9.00 play.

  • Report this Comment On February 27, 2009, at 2:06 PM, anopenmind wrote:

    What's with the Doug Miller fellow at EXCO opening an important quarterly meeting with some rumor about Joe Biden having back problems for standing up so many times with Mrs Pelosi Tusday night? Guy is paid well to run a stock-traded company and we stockholders wonder if his political ramblings cloud his duty as an executive of our company. Since price of stock in in toilet, he would better serve all by sticking to business. Save the jokes for cocktail hours with fellow believers of such.

  • Report this Comment On February 27, 2009, at 6:10 PM, HowdoUknow wrote:

    How come we are moving faster on CNG cars? Would seem the natural progression

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