It's hard to tell whether natural gas drilling is coming or going these days. The most popular method of extraction, hydraulic fracturing, is highly productive but also highly controversial. It's so productive, and gas so plentiful, that supply outpaces demand, resulting in depressed prices domestically -- a stark contrast to foreign markets, which can't get enough of the stuff.
There is no need to dismiss the entire industry, however, because outside of drilling there are different ways to think about investing in natural gas: liquefied natural gas exports, pipelines and gas processors, and leaseholders.
Angle 1: LNG export
Early last month, Dominion Resources
Dominion joins Cheniere Energy
Angle 2: Pipelines/gas processing
Last month, The New York Times reported that oil companies drilling in North Dakota's Bakken oil field burn off excess natural gas in a process called flaring; some readers were appalled at the waste of resources. It is not in the companies' economic best interest to bring the product to market, so they flare it instead.
As recently as 2007, Whiting Petroleum
Angle 3: Leaseholders
Chesapeake is the largest landholder in the Utica Shale, controlling 1.25 million acres of the 108-million-acre region. A stake that size allows Chesapeake to drill but also to monetize a significant portion of acreage through joint ventures or other means.
Plenty of companies are looking to acquire acreage in the Utica, and Chesapeake should have no problem making a profit. The company estimates it cost about $1.5 billion to $2 billion to build its Utica position. For comparison, Hess paid $1.34 billion for 185,000 Utica acres, a significantly smaller position.
Investors intrigued by Utica land sales should also consider EV Energy Partners
Foolish bottom line
The natural gas industry will be an exciting one to watch over the next few years. Interested investors should keep an eye on drillers and gas prices, but also watch for LNG export facilities to come on line, oil producers to make the most of excess gas, and shale play acreage to increase in value.
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