Gas Surge Is Only Natural

By Robert Rapier and Igor Greenwald • May 16, 2014 • Issue Articles

In this issue:

Here’s where we are with natural gas: reserves in storage are far below normal for this time of year, and the recent increase in the price has done very little to stimulate additional drilling, with most of the new rigs and almost all the industry’s incremental cash chasing the still much more lucrative prospects in crude and natural gas liquids. Meanwhile first liquefied natural gas exports from the US are just 18 months away and pipeline exports to Mexico are already booming. This is a recipe for significantly higher natural gas prices and share prices of natural gas producers, as Robert Rapier explains in the condensed version of his recent presentation at the Investing Daily Wealth Society summit.

We also have a new feature on SemGroup (NYSE: SEMG), which has come back from a 2008 bankruptcy caused by massive crude trading losses to build a profitable, conservative and rapidly growing midstream business.

Finally, we have an update on two recent IPOs and Aggressive Portfolio picks that have just reported confidence-inspiring results.

Despite our model portfolios’ considerable recent outperformance over the rallying energy sector, we retain similar confidence in those recommendations as well, based not on the welcome recent trend but on the attractive long-term value proposition.

Portfolio Action Summary

SemGroup (NYSE: SEMG) added to the Growth Portfolio. Buy below $75
Rice Energy (NYSE: RICE) buy below target increased to $33 from $27

Commodity Update

Despite relatively high inventories, crude prices continue to show strength. The front month (May) contract of West Texas Intermediate (WTI) traded Tuesday at $101.85 per barrel (bbl), while Brent traded at $109.24. The Brent-WTI spread is presently $7.39/bbl, not terribly bullish for the refining sector overall, but Gulf Coast refiners continue to enjoy higher margins. The front month natural gas contract rolled over to June and traded Tuesday at $4.37 per million British thermal units (MMBtu), which is $0.50/MMBtu higher than the price a year ago. Per our expectations for months, natural gas companies are seeing their shares rally in response.

In Other News

Election-year politics focused on the Keystone XL pipeline derailed a Senate vote on a bipartisan energy savings bill.

US Energy Secretary Ernest Moniz signaled that the Obama Administration is considering relaxing the ban on crude oil exports. (One of my 2014 predictions is that this won’t happen this year; an administration that can’t make a decision on Keystone XL isn’t going to be in a hurry to lift this ban.)

Two separate scientific teams concluded that the collapse of the Western Antarctic ice sheet is under way and inevitable, and could ultimately lead to a global sea rise of more than 10 feet.

Activists filed a complaint against Dominion Resources (NYSE: D) with the US Securities and Exchange Commission regarding Dominion’s planned export of liquefied natural gas (LNG) from its Cove Point LNG Facility. The gist of the complaint was that Dominion had failed to adequately inform investors about the legal risks from activists filing complaints.

Another of my 2014 predictions was that advanced biofuel maker KiOR (Nasdaq: KIOR) (featured in the 60 Minutes story I appeared in) would go bankrupt. This week KiOR announced that without additional funding a bankruptcy filing may happen by Aug. 31.

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About The Author

Robert Rapier

Bio | Archive

It's hard to imagine anyone better suited to covering the energy-investment waterfront than Robert Rapier.

Robert is no armchair analyst—he has two decades of in-the-trenches experience in a wide range of fossil fuel and biofuel technologies, including refining, natural gas production, gas-to-liquids, ethanol production and butanol production.

During a six-year stretch at ConocoPhillips, Robert ran a team of engineers in Scotland working on oil and gas projects in the North Sea.

For two years, Robert was an efficiency expert in a Texas petrochemical plant. The process changes he implemented saved the facility $9 million a year. He later worked as the Engineering Director for a Dutch environmental-technology company and provided engineering support for a Chinese facility the company was constructing.

Robert was also a butanol engineer in Germany for the Celanese Corporation, where he designed a novel butanol unit that cut production costs by $5 million per year.

In all, Robert has spent more than a dozen years working on liquid fuels technologies. Along the way he's picked up five patents, including one for a breakthrough way to convert ethane into ethylene (U.S. Patent 7,074,977).

Now, in addition to guiding readers to timely investments in Utility Forecaster and Rapier's Income Accelerator, Robert travels the world evaluating startup energy companies for deep-pocketed investors. After grilling management and assessing the technology on-site, he makes a go/no-go investment decision. His wealthy private investors and hedge fund backers trust him to make the right choice for the same reason we do: his vast real-world experience in just about every facet of the energy industry. If Robert votes thumbs-up, millions of dollars flow into these cutting-edge outfits.

Robert earned his master of science in chemical engineering and a bachelor of science in chemistry and mathematics (double major) at Texas A&M University. He tells us he was "this close" to finishing his Ph.D. before he decided he was having a lot more fun making money in energy stocks.

A prolific writer, Robert's articles have appeared in Forbes, The Wall Street Journal, The Washington Post and the Christian Science Monitor -- and he has been a featured expert on 60 Minutes and The History Channel. His new book, Power Plays: Energy Options in the Age of Peak Oil (Apress, 2012), helps investors sort through doom and gloom, hype and misinformation to understand the true costs, benefits and trade-offs for each of our major energy options.

In what little spare time he has left, Robert consults for a number of energy projects, including biodiesel, ethanol, butanol and biomass gasification facilities.