Natural Gas Opportunities
Marin Katusa, who heads the Casey Research energy team, answers the question by, correctly, cataloging the opportunities according to geography.
In North America
- Geothermal — the most interesting of the alternative energy sources, by a wide margin.
- Unconventional gas has, by far, the most upside.
- Unconventional oil.
- Small hydro (such as run of river).
First and foremost, you want to avoid infrastructure plays (pipelines, refineries, etc). Then you want to look for areas with huge oil potential, which have been held off the market by concerns over political risk. I like what Lukas Lundin is doing in Ethiopia, Somalia, and Kenya, hunting for “elephants” with the idea of eventually selling the discoveries off to the Chinese.
- Liquid Natural Gas (LNG)
- 2. Coal Bed Methane (CBM)
Lessons to Learn
There are a couple of useful lessons to be derived by investors looking to tap into the virtually unlimited opportunities in energy.
First, just because something is “cheap” doesn’t mean it can’t stay cheap, regardless of historical ratios — if there has been a fundamental shift in the supply/demand equation. Which is very much the case with North American natural gas.
Secondly, geological and transport considerations make much of the energy complex a “local” market.
For example, while North America enjoys an abundance of natural gas, Europe is forced to rely on the heavy-handed Russians for the bulk of supplies. As you read this, there are companies looking to break the Russian grip by applying the same unconventional gas technologies that have so successfully built gas supplies in the U.S. — technologies that are only just now being applied in Europe. Early investors could reap huge profits.
In short, the real opportunities are not found by simply “investing in energy” but rather by taking the time to understand the structural differences within the energy complex and cherry picking the special situations that invariably exist in a sector this large.
David Galland is the managing director of Casey Research, LLC., a private research firm providing independent analysis and investment recommendations to individual and institutional investors in North America and over 100 other countries around the globe. To learn more about the monthly Casey Energy Opportunities advisory, including a special three-month, fully guaranteed trial subscription, click here.