Friday, January 27, 2012
If Steve Farris is right, we may never see $4 natural gas prices again.
Farris is the CEO of oil and gas producing giant Apache. He has over 40 years of experience in the energy industry. I was fortunate to see him speak at the first-ever "natural gas vehicle infrastructure" conference in Houston, Texas this week.
The theme at the conference was creating a nationwide network of natural gas fueling stations. Once the network is built, companies like Ford, Toyota, and General Motors would build more vehicles that run on natural gas.
Farris talked about how lower natural gas prices have created an "economic reality" for natural gas to become an alternative to gasoline as a transportation fuel. And if his predictions come true, we're going to see some monumental changes in the natural gas industry.
Take a look at the chart below... Over the last eight months, natural gas prices plummeted as much as 50%.
Based on the current numbers, it's 50% cheaper to fuel a vehicle using natural gas compared to gasoline. Natural gas is even cheaper compared to diesel – which is used to fuel heavy-duty trucks.
As Growth Stock Wire readers know, natural gas has gotten so cheap because of massive "unconventional" supplies coming online. And according to Farris, that trend is just starting...
According to most estimates, the U.S. has almost a century of natural gas available. In 2010, we consumed roughly 24 trillion cubic feet (tcf). Based on estimates provided by the Potential Gas Committee, a nonprofit organization, the U.S. has roughly 2,170 tcf of natural gas reserves. Dividing 2,170 by 24 gives us a 90-year supply.
But during Farris' presentation, he said, "As far as I'm concerned, we have 300 years' worth of supply."
The difference between 90 years and 300 years is like comparing a firecracker to a nuclear explosion. And I'm siding with Farris.
Apache is one of the world's largest natural gas producers. It has operations in every major shale area in North America. If there's anyone who knows how much natural gas we have in the U.S., it's Farris and Apache.
Also, the company does not benefit by overstating supply numbers. Apache receives about 30% of its revenue from natural gas. Its bottom line would increase significantly if natural gas prices were higher.
If Farris is right, the industry is headed for major change.
Some producers will have to shut down operations. It just won't be worth pulling cheap gas out of the ground. (Chesapeake Energy just announced a 50% production shut down this week.)
And oil services companies like Halliburton and Schlumberger – which have the technology to drill these unconventional wells – would likely see fewer orders going forward.
However, natural gas transportation stocks like Westport Innovation, which makes natural gas engines, have a bright future. My Small Stock Specialist readers are already up 151% on their Westport position. And the cost savings from using natural gas as a transportation fuel – as opposed to gasoline or diesel – will lead to more business for Westport and its peers.
This stock has been ramping higher over the past few months as natural gas prices pushed lower. Based on the 300-year natural gas supply call by Farris, it will likely have plenty more upside. I suggest buying on any pullback.
"Pretty soon, every heavy-duty truck in the world will run on natural gas," Frank says. That may seem like a bold prediction... But as the world's biggest companies go "all-in" on this trend, the boom is already off to a profitable start.
A new drilling technique is revolutionizing the natural gas industry... causing more and more of the stuff to be discovered every day. Learn more about it here: How to Invest in America's Biggest Energy Trend.
Gold is up more than 10% already in 2012... Silver is up more than 20%.
Big copper miner Freeport-McMoRan touches a five-month high... still 20% below its 2011 highs.
Uranium giant Cameco is breaking out of a year-long downtrend... up 35% since bottoming two months ago.
Ag boom continues... seed-maker Monsanto breaks out to a fresh two-year high.