Favorite Plays in Natural Gas

04/23/2014 10:00 am EST

Focus: STOCKS

Jim Powell

Principal Analyst, Global Changes & Opportunities

International and geopolitical expert Jim Powell sees long-term potential in natural gas; events in Ukraine only boost his bullishness on US gas exporters. The editor of Global Changes & Opportunities Reportalso highlights a natural gas firm poised to benefit from increased use of natural gas by truck fleets.

Steve Halpern: We’re here today with Jim Powell, editor of Global Changes & Opportunities Report. How are you doing today, Jim?

Jim Powell: Fine, Steven.

Steve Halpern: Well, thank you for joining us. You’ve been bullish on natural gas for some time, but recent events regarding Russia and Europe have reinforced your bullish view. Could you expand on that?

Jim Powell: Yes. Europe gets about 30% of its natural gas from Russia, and this big problem that we’re having now with Russia, and the Ukraine, and the Crimea is putting that gas supply in jeopardy, because the United States and some European countries are talking about sanctions.

But if the sanctions get too steep, Mr. Putin can put his foot on the gas hose, as he has done in the past, and that would put Europe in a real bind.

The Europeans have known for some time that they were vulnerable to that sort of a problem and they’ve been expanding their energy supplies as much as possible, but they’ve pretty much reached the end of their rope without turning to the United States.

And so, we have a couple of companies here that are working on export markets for liquefied natural gas and, all the sudden, the Europeans are very interested in getting just as much of it as they can.

I think, over the next eight to ten years, we’re going to see natural gas exports zoom from this country and a lot of it will be going to Europe.

Steve Halpern: One of the stocks that you believe will benefit from this scenario that you lay out is Cheniere Energy (LNG). Could you tell us a little about this situation?

Jim Powell: Yes. Cheniere Energy has liquefied natural gas terminals at Sabine Pass in Louisiana and Corpus Christi, Texas, and they’ve operated these for several years. Actually, they’ve been using them to import liquefied natural gas, as well as move it around within the United States.

Now they’re building a liquefaction plant, which turns natural gas into a liquid for export and they’ve got one that should be online, at least, partially, next year at Sabine Pass and they have one that has been approved for Corpus Christi, Texas that should begin exporting about 2018.

They have a lock on the LNG export market for the time being, and for the next several years, because it takes a long time to build one of these plants and costs a great deal of money. I think that puts Cheniere in the catbird seat for the export of liquefied natural gas over, let’s say, the next decade.

Steve Halpern: For your own subscribers, you’ve recommended Cheniere several times in the past. In fact, the shares are now up over 200% in your model portfolio. Would this suggest that most of the good news is already priced into the shares, or do you continue to believe that there’s longer-term upside potential here?

Jim Powell: I think there’s longer-term upside potential. I think it will come a little bit slower than we’ve seen in the past when it was a new idea to investors. Nevertheless, I do believe that the potential is still there for significant profits.

Steve Halpern: You’ve also been a fan of Encana (ECA), a North American natural gas producer. Could you tell us the situation behind this idea?

Jim Powell: Yes. Encana is just a little bit different situation than other natural gas companies.

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It’s actually divesting itself of, what’s known as, dry natural gas and instead is focusing on natural gas liquids, which includes propane and butane, and the beauty of those products is the margins are far higher than they are for the dry gas.

Encana is a major producer in North America that has interest in the United States, as well as Canada. They’ve been a little slow to deliver to investors because low natural gas prices hurt the producers quite a bit more than the pipeline companies and so forth.

If you take a look at their stock chart now you’ll see that it’s beginning to move up and actually quite rapidly and I think it’s going to be a very good producer for the next several years.

Steve Halpern: In your latest research, you also point out that the company could benefit if more fleets of trucks used natural gas. What’s the situation behind that?

Jim Powell: In the United States, we have gone from essentially zero to about 450 natural gas fueling stations over just the past six or seven years and this has been largely underneath the radar. Many investors have not noticed that this has been going on and I think it has tremendous potential.

Not only is natural compressed natural gas cheaper than diesel, but it's also 23% less polluting, so you put it all together and you see this just tremendous potential for the use of natural gas, especially in trucking.

UPS, as you may know, has already switched over to natural gas and waste management companies are doing a great deal of it as well, and I think that most of the major trucking companies are going to be really, economically, going to be forced to switch to compressed natural gas if they wish to stay competitive.

Long-term, we’re going to have individual passenger cars using compressed natural gas as soon as we have, maybe another 150 to 200 more filling stations spread around in big cities. Honda already makes a Civic for natural gas and other companies are putting them together as well.

Steve Halpern: Encana would be a beneficiary of this trend?

Jim Powell: It would be yes, definitely.

Steve Halpern: Finally, the last time I interviewed you about two months back we had a fascinating discussion on the impact of technology on agriculture and how that benefited Deere (DE). Since then, the stock has been strong, rising about 15%. For our listeners who followed your advice then, would you share your updated opinion on the company?

Jim Powell: Yes. They’re on track for continued gains. They are in the catbird seat with their whole emphasis on high tech efficiency in agriculture.

They’ve modified their machines and are coming out with new machines that have a lot of computer controls and are extremely efficient, even robotic in many respects, where the operator basically just, kind of, goes along for the ride. I think Deere has a very, very bright future.

It’s a hungry world, Steven, and anyone who can supply the food and supply the machines to help produce it and process it is in for a very bright future. I really don’t know how you could possibly go wrong long-term with agriculture or with natural gas for that matter.

Steve Halpern: I always enjoy talking with you. Thanks for taking the time today.

Jim Powell: My pleasure.

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