A Stock Investment That Has It All: Constrained Supply, High Demand And A Looming Shortage Of Unknown Proportions

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The Wall Street Journal (“Heard on the Street”) describes the situation and prospects perfectly in “Natural-Gas Market Conditions Look Unnatural“:

  • Supply is struggling to catch up to high global demand
  • Inventories needed to meet winter demand surge are abnormally low
  • Uncertainties surrounding winter effects are heightened by climate change unknowns

In this situation, “uncertainties” is the investor’s friend. It means the normal rise in winter demand could be abnormally high. Therefore, curing the winter mismatch will be left up to price, as is now being discussed:

Natural gas falls between the social, environmental and political cracks

The desirability rankings are mostly clear:

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  • Solar and wind – yes, absolutely
  • Hydroelectric and nuclear – yes, but…
  • Oil – no, but…
  • Coal – no, absolutely

“Clean-burning” natural gas? Yes? After all, it’s where utilities have gone after coal. And then there are all those home furnaces, stoves and water heaters. And what about the “this vehicle is natural gas fueled” environmental movement? Plus, natural gas is a necessary byproduct from oil production; and there are natural underground storage areas; and large investments have been made in LNG facilities; and LNG shipping is a big and expanding business. Most importantly, all of these benefit the U.S. economy.

Therefore, natural gas probably gets an “okay for now” ranking. So, don’t worry about the discussion of Biden stomping on natural gas anytime soon:

Forbes (9/9): “Natural Gas Producers On Roll, Biden Could Be A Roadblock

The bottom line: The potential stock price gain from a natural gas price rise could be large

Commodity price rises can multiply producer earnings and free cash flows significantly. Even a seasonal boost can ratchet up a company’s financial and operational well-being. Most importantly, the increased funds can allow ramping up future growth prospects.

For stock investors, the benefits can be equally large, even before the results are in. It’s the anticipation of events, especially where there is the possibility of a large windfall, that can boost investor excitement and the stock price in advance of actual results.

In other words, now looks to be a good time to invest in natural gas producers.

Disclosure: Author bought First Trust Natural Gas ETF on September 13