Natural Gas Stocks Continue To Stay Hot

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As we all know, the major stock indexes such as the Dow Jones Industrial Average, and the S&P 500 Index are in a confirmed correction at this time. The major stock indexes in the United States have all fallen by more than 5.0 percent since topping out in mid-January. Traders and investors that are looking for stocks to buy should look for stocks and sectors that are showing relative strength when compared to the major stock indexes.

 

One sector that has shown strength in the near term has been the large natural gas stocks. Some of the leading stocks in the sector include Cabot Oil & Gas Corporation (COG), Chesapeake Energy Corporation (CHK), Southwestern Energy Co. (SWN), and Devon Energy Corporation (DVN). All of these stocks mentioned are holding up well despite the recent downturn in the major stock indexes.

 

Traders can watch for near term daily chart support on Devon Energy Corp (DVN) around the $56.00 level. This is an area on the chart where the stock should find institutional sponsorship. The $56.00 level was also an area where the stock broke out in August 2013. Often stocks will revisit their breakout levels before rallying higher again.

 

Nicholas Santiago

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Five Factors to Consider in Natural Gas Prices

 

First, broad based industrial use has finally returned and exceeded pre-crisis levels. This is always the last of the main traditional demand areas to return after a recession (and the most recent was the worst in seventy years).

 

Second, natural gas is replacing oil as a feeder stock for petrochemicals – everything from ingredients used in the production of plastics to fertilizers and widely used chemicals. This flow is actually increasing quicker than I had initially anticipated.

 

Third, we continue to witness a move to liquefied natural gas (LNG) and compressed natural gas (CNG) as a vehicle fuel. The transition remains primarily noticeable in higher end trucks, with the emphasis on passenger vehicles still awaiting cost reductions. Nonetheless, heavy truck, bus and equipment fleets are moving to natural gas.

 

However, it is the last two categories that are the main stimuli.

 

Fourth is the move from coal to gas for the production of electricity, a development occurring more rapidly than even the rather optimistic predictions I made last year.

 

The background is this.

 

The U.S. will retire at least 90 GW of capacity by 2020, with an additional 20-30 GW likely from the imposition of EPA non carbon emission standards (mercury, sulfurous and nitrous oxides). Most of this capacity is currently fueled by coal.

 

Last year, I estimated that for each 10 GW transferred, 1 billion cubic feet of natural gas per day would be required. Well, based on the initial figures, it's actually coming in at 1.2 billion. It sets up this startling conclusion. If half of the transition I expect from coal to gas actually takes place, it will eat up three times the current volume in storage.

 

Certainly, some of that will be offset by increasing production. But the operators have learned that flooding the market does not help any of them. That is another lesson taught by the shale gas age.

 

Finally, we have the advent of LNG exports from the U.S. and Canada. These are not likely to begin in earnest until late 2014, but will transform the sector. From providing none of the current global LNG trade, the U.S. will account for at least 9% within ten years.