By The Peak Energy Strategist Research Team
Like most groups, commodities investors don’t agree on everything. One might be certain that the orange juice market is going to fall through the floor come September, while another sees it gaining significantly that same month.
This set of traders is probably betting on oil rising nearly $10 by the end of August, yet that set over there is certain that – based on the worrisome news coming out of China these days – oil is going to stay stagnant probably through to the beginning of the Holiday season.
And the same goes for gold, silver, soy beans, corn, coal, pork bellies and every other tradable commodity under the sun and on the markets.
Just as with any other faction of the investing world, there are bulls and there are bears. And there always will be. It’s what makes trading worthwhile in the first place.
But if there’s a single topic that the majority of them have been able to agree on over the last few years – and going forward an untold number of months – it’s this one: Natural gas prices aren’t going anywhere anytime soon.
About four years ago, there was plenty of excited chatter about the forthcoming rise of natural gas prices. Various market gurus and commodities specialists were absolutely certain that the resource couldn’t stay down for long.
They weren’t blind, of course. So they acknowledged that, thanks to new fracking technology, there was an utter abundance of the resource all of a sudden. But that was exactly why the struggling global economy needed it so badly: Because it was cheap and easy. With oil still so much more expensive than the alternatives, natural gas seemed like a no-brainer.
Problem was that no-brainer still required significant physical work in order to implement. When so many machines relied – and continue to rely – on oil or some oil byproduct, it was naturally easier to simply stick with oil than to put in the time, energy and finances required to run off of natural gas… even if it would save money going forward.
When it comes to the way cars and trucks run, at least, that hasn’t changed at all over the years, despite the new extraction techniques. And so for that reason, among others, natural has remained relatively stagnant.
In fact, over the last ten years, natural gas only hit a high of around $15.4 MMBtu (million British thermal unit), and that was way back in late 2005. (In fact, that was its high since 1990. During that same span of time, the commodity hit a low of $1.1 MMBtu in January 1992.) It formed a shorter-term price peak in 2008, though that time it didn’t even brush $14 MMBtu. And it soon dropped, regardless, along with everything else in the wake of the global financial crisis.
Since 2009, it hasn’t managed to climb above $6 MMBtu and, right now, it’s much closer to $3 MMBtu. Despite that attractive price though, oil still runs the world. Nor does natural gas’ many other benefits seem to matter.
Orange & Rockland Pike County Light & Power Co. lists a number of these advantages on its website, including its superior:
All good reasons, and yet, progress is difficult and so nothings much has changed. That means that betting on natural gas is about as contrarian a play as possible right now. And while The Oxford Club and its affiliates are all about playing the contrarian from time to time – not to mention coming out ahead on those plays – natural gas seems to be one area where it just doesn’t pay to bet against the markets.
At least, that’s largely proven true when it comes to the commodity itself. But that isn’t to say there isn’t a way to make money off of natural gas more indirectly…
During the second quarter of last year, that’s exactly what The Oxford Club’s David Fessler, who edits the Peak Energy Strategist – a VIP Trading Service that strictly follows energy opportunities with the intent of making money on them – decided to do. His target: Westport Innovations Inc. (Nasdaq: WPRT).
This is the email he sent out on Friday, August 26, 2011 to his subscribers on the subject:
Battening Down the Hatches Here on the East Coast… Marcellus Natural Gas Reserves Get Revised… We Continue to Rebuild the Peak Energy Portfolio With Another New Play
Dear Peak Energy Strategist Subscribers,
Welcome to this week’s Peak Energy Weekly. We’re battening down the hatches at Peak Energy Strategist headquarters here in Pennsylvania. Irene is heading our way. At least if we can believe the weatherman, and that’s usually a big if.
This time though, it looks as if he’s not kidding around. Of course, I’ll wager advertising during a hurricane is like advertising during the Super Bowl: expensive. So why not over-dramatize things a little?
We wonder why they never seem to be right during good weather.
We’re not the only ones doing the battening. All East Coast oil refinery operations are being shut down until the storm passes through. That’ll certainly keep upwards pressure on prices, especially if any of them sustain major damage.
Mid-Atlantic nuclear power plants, some which tripped offline after this past week’s earthquake, will stay offline, keeping about 2.5 GW of power production unavailable. Others are being shut down as a precaution.
But no worries: As a result of the hurricane, tens of millions of people will likely lose power, so they probably won’t be needed anyway.
Even Wall Street could be affected early next week if power is lost. Record storm surges could flood much of lower Manhattan.
Here at Peak headquarters, we have flashlights, lots of food, plenty of reading material, and just about any tool you can possibly imagine. Later this fall, we’ll have solar power with battery backup. As an old electrical engineer, I still need something to tinker with…
Marcellus Gas Reserves Get a Big Haircut
The devil is in the details, but according to the United States Geological Survey (USGS), the Marcellus reserves are pegged at 84 trillion cubic feet. Earlier estimates from the Energy Information Administration (EIA) put them at 410 trillion. That’s an 80% reduction.
So who’s right? According to an article in Bloomberg, the EIA is caving, and deferring to the USGS number. “They’re geologists, and we’re not,” said an unnamed EIA analyst to Bloomberg.
That begs the question as to how the EIA ever came up with its initial estimate in the first place… a dartboard, perhaps?
And what about the accuracy of the USGS number? It’s over 40 times higher than the two trillion cubic feet it calculated for Marcellus reserves back in 2002… hmmm.
Here’s our guess: They’re both wrong. We employ a lot of common sense here at Peak headquarters, something that’s sorely lacking in Washington…
In our unconsidered opinion, enough of the play hasn’t been fully explored, delineated and produced to get an accurate assessment of the ultimate recoverable reserves that exist in the Marcellus.
In fact, we think the same thing holds for most of the other shale plays, for that matter. It’s just way too early in the shale gas game. Technology marches on, and we expect further upward revisions from the USGS on many of the shale plays, including the Marcellus.
We’re guessing the EIA will be keeping a low profile when it comes to estimating anything from this point forward. Perhaps they should replace the dart throwers with geologists if they plan to estimate and publish numbers about energy. Just a thought…
Gentlemen, Start Your (Natural Gas) Engines
Speaking of natural gas, we’re adding yet another play to the Peak Energy Portfolio. This one’s not a driller, pipeline, service company, or exporter.
It’s Westport Innovations Inc. (Nasdaq: WPRT). Westport manufactures engines, fuel delivery and fuel storage systems using gaseous fuels. Headquartered in Vancouver, British Columbia, Westport has sold over 30,000 natural gas- and propane-powered engines to customers in more than 19 countries.
But what lies ahead of it is what triggered our “Buy” signals. It recently reported revenue of $44.9 million for the quarter ended June 30, 2011. This was an increase of 76% from the $25.5 million reported in the same quarter a year ago.
David Demers, Westport CEO, commented on the company’s progress:
“Strong demand from the North American refuse truck market and Westport’s global Light-Duty (LD) automotive business helped grow revenue for the quarter.
“As more mature Westport lines of business demonstrate strong growth and bottom line financial performance, we are making strategic investments to maintain Westport’s technology leadership and expand our coverage across the full range of worldwide markets for engines.
“The market for natural gas heavy-duty trucks saw transformative investments announced recently by Encana, Chesapeake Energy and Clean Energy Fuels that will see rapid development of fueling corridors as well as their own adoption of natural gas as a vital energy source in their operations and supply chain.”
The company recently signed an agreement with General Motors to research advanced natural gas engine technology for “unspecified” GM light duty vehicles (otherwise known as cars).
It also revised its revenue estimates higher for the calendar year. Westport expects revenue growth of 40% year over year from 2010, and it’s just getting started.
It’s a great time to jump onboard a company that’s taking one of the many important steps in transforming our abundance of natural gas into a transportation fuel that can replace oil.
Action to take: Buy Westport Innovations Inc. (Nasdaq: WPRT) at market. And use a 35% trailing stop to protect your position and your profits.
Westport Makes a Pretty Penny for Dave’s Peak Energy Subscribers
On April 3, just seven months after Dave Fessler first detailed the pick and recommended it for his subscribers, he sent out another email to the group.
This time, it was to sell the stock, which had hit its trailing stop. A few days later, details followed from Oxford Club Commodity Specialist and Peak Energy guest contributor Matthew Carr, who formally presented the good news to any members who hadn’t already figured it out…
Westport Innovations had made a 77.7% gain in significantly less than a year, a stellar selection and result for the Peak Energy portfolio.