Natural gas is crashing! Is there an opportunity?

Natty, the nickname for natural gas, is crashing. In the past year, its price was fluctuating around $4 or so, already very low from the historical perspective. But in the past 2 months, natty has droped to below $3, a over 30% decline. What a plunge! What happened? Well, the US was the major importer of natural gas in the past. However, in the past 10 years, due to new techniques being used which has totally changed the way of exploration and production, the US has become the No 1 producer of natty in the world. It is estimated that the current reserve will allow the US to use at least 100 years at the current consuming level. There is just too much natural gas in the US and there is no space at the moment to store natty. The much warmer weather this winter so far has also significantly depressed its demand. Two things will happend with the ever decreasing natty price:
- Less companies will be willing to produce natural gas. Many of them will simply stop. Production of natural gas requires huge investment with money and equipments. If too many companies stop producing it for too long, it will eventually lead to a supply shortage. And it will take long time to get back the production capacity.
- The use of natty will significantly increase. Right now, over 70% of the electricity in the US is produced by using coal. When the price of natural gas is so low, more and more power companies will switch to using natty to produce electricity, a more environment friendly way. In addition, more investment is being made to explore to produce natural gas powered cars and vehicles. Such activities will significantly increase its demand.

I think there is a huge opportunity for investing in companies involved in natural gas. But it is a long-term trend. Pay attention to Chesapeake Energy (CHK), which is the largest natural gas companies in the US. While its share price is plunging right now, it will be a great stock to own at some point to ride the super natural gas bull trend! I think similar to 11 years ago when no one wanted to own gold but it started its huge bull market non-stop, with which no any other assets can compete with, I don't think it will take too long for natty to start its own bull market. When it is started, it will be another gold.