INVESTING: Natural gas provides a powerful potential for profit

Keywords Government
  • Comments
  • Print

I have gas. Not the kind you get from eating too much of the wrong thing. I have natural gas, and I am going to need more of it. So, apparently, will the rest of the world.

Natural gas is a gas that sits on top of oil when it is in the ground. If you drill a hole and find oil, you also have found natural gas.

In our ultimate wisdom, we have found a way to siphon this gas away from the oil wells and ship it through pipelines-to power generation plants for electricity and our homes for heat.

For years, natural gas made sense as an energy source because it was cheaper than oil and much cleaner. The modern world embraced the product. But now we are learning there is a downside to our dependence. And as the risks from depending on natural gas rise, we do the unintelligent thing and increase our need.

Americans get a lot of our natural gas from the Gulf of Mexico, and we were punished after Hurricane Katrina reduced capacity for a few months. Prices shot from $8 per 1,000 cubic feet to more than $15.

I got my first major heating bill for the winter last month, and it was enough to choke a horse. I’ve mentioned from time to time that in 2004 I bought a Toyota Prius, a hybrid car that gets 50 miles per gallon.

I bought it because I felt gas prices were going to keep rising, and now I barely spend any money to drive. But I can’t switch to an alternative as easily to heat my house. And as I look around Fishers, I see hundreds of new homes nearing completion, all of them heated with natural gas.

The number of new gas-fired power plants that will come on line in the next few years is staggering. We are going to need a lot more of the stuff and we are going to need it soon.

The supply problems with natural gas are similar to those of oil. It is difficult and expensive to get it to the right markets, and most of the world’s supply is controlled by countries that are less than democratic.

Russia has the largest supply, followed by Iran. These two governments are basket cases. Recently, Russia, which supplies 20 percent of the natural gas needs of Western Europe, dropped its deliveries because of a political disagreement with Ukraine. Germany instantly went bananas, and the supply was quickly turned back on.

A shipment of liquefied natural gas (an investment play I will discuss in another column) was on its way to America when it received a higher bid from England and the ship changed course midstream.

Venezuelan President Hugo Chavez has been buying friends all over Latin America by promising cheap natural gas deliveries. And his strategy is working, because people want the stuff.

The upshot of all this: There’s money to be made in natural gas for years.

ConocoPhillips just made a huge takeover offer for Burlington Resources because of Burlington’s natural gas reserves, which are among the highest in America.

Eventually, the world will get sick of high prices and crazy behavior from suppliers, and our next play will be the companies that build and maintain nuclear reactors. But until then, natural gas is going to frustrate consumers, and keep making money for the producers.

Hauke is the CEO of Samex Capital Advisors, a locally based money manager. Views expressed here are the writer’s. Hauke can be reached at 566-2162 or at

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our updated comment policy that will govern how comments are moderated.