Friday, May 22, 2009

Natural Gas Updates

I had briefly owned some UNG a couple of weeks ago. Missed most of that move, but am not feeling too bad now as its come back below where I originally bought. The supply numbers came in higher than expected, and UNG has sold off pretty hard. I like UNG going forward, but its going to take some time. There is no legit uptick in demand, and no sign of supply easing yet. The rise in price the past couple of weeks appeared to be purely speculation on the part of traders. What are the long-term catalysts for natural gas?

-It's cleaner burning than other fossil fuels. In some circles it gets touted as a "clean fuel", although drilling isn't necessarily good for the environment.

-It's domestic. Although worldwide production is been growing, the U.S. has access to a lot of natural gas, which can help us to lower our dependence on foreign sources of oil. This could literally pump billions of dollars back into the U.S. economy, which no politician will say is a bad thing.

-It can be used for a variety of things. Currently we use it mostly for power generation. But if we decide to use new sources like wind, solar, and geothermal much more for power generation, then natural gas can be used on powering vehicles, which to me is the big wild card in the whole equation.

Boone Pickens has been a big advocate of this. This theme is catching on a bit. Here's a couple of news links of local municipalities using CNG for their vehicles. Here, and Here.

I recently read the latest quarterly report of Clean Energy Fuels Corp. (CLNE), which is involved in the design and building of the infrastructure to make all this go. That is the largest barrier: fueling stations. You can buy a home filling station and buy natural gas direct, but you need to have the infrastructure out there, and without some kind of commitment from the government, you're not going to see a ton of investors bite off the cost for a CNG station. Anyway, in the report it sounded like they were getting some nice contracts (disposal trucks are a big one). If you're interested in a CNG car, Honda is the only manufacturer right now I believe.

It appears the climate/energy bill is rapidly working through Congress, so we should know more soon. The two big things I'm looking for are: 1) Natural Gas; and 2) Geothermal. What is the direction we are taking? I've done a fair amount of research on these two and have identified a few potential investments, and they could get a huge boost if Washington commits to some them in some capacity.

Disclosure: None.

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