3 Picks for the Natural Gas Boom
Production is surging, but with US prices at rock bottom, investing isn’t easy. It helps to know the global picture, and these stocks seem poised to profit from it, writes MoneyShow’s Jim Jubak, also of Jubak’s Picks.
How do you make money out of the current US and global natural gas boom?
It’s harder than it looks, since the explosion in US gas production—a 21.6% increase from 2002 to 2011—has helped crush natural gas prices in the United States. Natural gas futures in New York closed on Wednesday at $2.52 per million BTUs. That’s down from $10.36 in June 2008, a 75% decline.
With the break-even cost of producing natural gas in the United States somewhere between $4 and $8 per million BTUs, you can see how this might not be the most profitable time to be a natural gas producer. Shares of Chesapeake Energy (CHK), for example, were down 31% for the 12 months that ended on June 20.
But I think three recent news items give investors the skeleton of a strategy for profiting from what is a global boom in natural gas. I’ll finish by putting some flesh on that skeleton with three stock picks in the sector.
The First News Story
On June 18, Exxon Mobil (XOM) announced that it was shutting down its efforts to find natural gas in Poland’s shale formations.