5 Charts for a Big Natural Gas Bull Market

A little more than a month ago, I wrote to tell you that natural gas was a hot investment. And that proved true.

After dipping below $4 recently, nat-gas pushed back above it. And I think it could go a lot higher.

That is VERY bullish news for stocks that are leveraged to the price of natural gas. Let me show you why in five charts  …


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Chart #1: U.S. Dry Nat-Gas Production

First, let’s look at a chart of U.S. domestic natural-gas production through February.

As you can see, monthly natural-gas production dipped sharply in February. It fell to 1.85 trillion cubic feet, the lowest level since November 2010.

Now, natural-gas production zigs and zags. And the big trend in nat-gas production is up.

Production hit an all-time high of 25.3 trillion cubic feet last year. And U.S. natural-gas production is projected to increase from last year’s 69.2 billion cubic feet per day (Bcf/d) to 69.9 Bcf/d in 2013, and to 70.1 Bcf/d in 2014, according to the U.S. Energy Information Administration.

But in the SHORT TERM, production looks like it could be squeezed. Is that bullish for prices? Bet on it.

But there’s natural gas in storage, right? What’s happening there?

Chart #2: Nat-Gas in Underground Storage

Natural gas used to be in excess. Now it has fallen to the lower part of its range. Recently, inventories were 26.1% less than a year ago, and 4.1% below the five-year average.

Well, that will be OK as long as we have a normal summer, right?

Ri-i-i-i-ight  …

In fact, the latest weather forecasts are calling for much-warmer-than-normal temperatures across the South, Midwest and East Coast by the end of May, which should boost demand for gas at power plants that have to power air conditioners to keep customers cool and happy.

Just a reminder, natural-gas demand for power generation grew to a record 25 billion cubic feet per day (Bcf/d) in 2012, a 21% increase from 2011. How much do you think it will increase this year?

And that’s not the only draw on supply. We are shipping more and more nat-gas to Mexico. Pipeline exports of gas to Mexico increased 24% in 2012 to 1.7 Bcf/d.

Well, we can always pump more, right? Maybe, except  …

Chart #3: Rig Counts are Way Down

The natural-gas rotary rig count, as reported by oilfield-services company Baker Hughes (BHI), decreased by 4 units to 350 as of Friday, May 10. That’s down a whopping 41.47% from last year.

Compare that to the oil rig count, which rose by nine units to 1,412. There is a LOT more exploration going on for oil than natural gas.

So, if push comes to shove, there may not be as much production as people thought was available. And it looks like a much tighter supply-demand picture is already being priced in …

Chart #4: Natural-Gas Prices

(Updated chart)

Looking at the chart, you can see that nat-gas is zig-zagging higher. What used to be overhead resistance at $4 has now become support.

Let me tell you, that is catching a lot of people by surprise, even industry insiders. Consulting firm KPMG recently surveyed global energy executives, and three-quarters of them said that natural-gas prices would remain between $3 and $4. OOPS!

And what does the future bode? Let’s look at my fifth and final chart  …

Chart #5: Proposed LNG Export Terminals

Recently, the Department of Energy approved a second export terminal for liquefied natural gas. This one is the Freeport LNG terminal, operated by ConocoPhillips (COP).

The first LNG terminal to get approval was Cheniere Energy’s (LNG) Sabine Pass Terminal. (Cheniere was a recommendation in a Global Resource Hunter special report, by the way.)

And now that the barn door is open, there’s a herd of horses ready to ride through. The DOE now has 24.94 bcf/d of potential export capacity waiting to be approved.

And the world is lining up to buy American gas.

Before you panic, realize that LNG exports are still a couple years away. Also, as prices go higher, new supply will come online. But it takes time to turn on the taps. I think we could see natural gas spike as high as $6.50 before this rally is done.

That would still leave U.S. gas way, way cheap by international standards. But it would be a real shot in the arm for select producers, pipeline companies, fracking services and suppliers, distributors, you name it.

In Junior Resource Millionaire, we recently took a second round of double-digit percentage gains on a natural-gas pipeline company. I’m starting to think we sold too soon. But that’s OK — we have plenty more positions that are leveraged to natural gas, and I can always recommend more.

If you’re doing this on your own, be careful. Natural gas is HOT! But you can also get burned by the wrong investment.

Have a great Memorial Day, and I’ll talk to you soon.

All the best,


P.S. To get all my latest picks in oil, natural gas and other commodities and companies in powerful uptrends, my top recommendation for you right now is to give my Global Resource Hunter service a try. Get instant access to my newest issue and freshest investment recommendations when you join today!

Your thoughts on “5 Charts for a Big Natural Gas Bull Market”

  1. Was hoping you would have an updated rig count chart given the recent movement in /CL_F. Is it all due to Middle Eastern supply concerns or is rig count (flow) having an impact?

  2. Erik, you can contact me through Weiss Customer service or leave a comment on the Amazon.com page of the book itself. Thanks, Sean.

  3. Hi Sean,

    I’d liek to contact you regarding your Survivalist Guide book. Please let me know the best way to reach you.
    Thank you,

Comments are closed.

Sean travels far and wide to seek out small-cap values in the natural resource sector. His journey started in New England. As a youth he worked on Mt. Washington, on the cog railroad that runs to the summit.