The stock market has crashed. This makes it an excellent time to find the best stocks for the next twelve months.
A crashing market creates a great opportunity to buy some truly disruptive energy companies…and we’re not talking about wind, wave or solar power either.
We’re talking about investments in natural gas. And more specifically shale gas.
But why are we so sure now is the time to buy? Because we’ve seen it and been in the thick of it before…
Remember the bull market from March 2003 to November 2007, when oil stocks jumped 233%?
Or the one from March to November 2009, when the small-cap stocks we tipped over those eight months returned on average 85%? Or again from July 2010 to November 2010, when commodity stocks like Lynas Corp [ASX:LYC] and Alkane Resource [ASX: ALK] returned an average 160%?
Each one was a bull rally in a bear market.
The point is: stock market cycles don’t mean the world stops doing business. They don’t mean new opportunities aren’t out there. They just mean you have to work harder to find them.
And you have to be incredibly careful about your timing.
In fact, we believe that’s the key to making good punts in this market – knowing when the next rally is going to come.
Of course, nothing is guaranteed.
Just remember that even though the latest stage of the financial crisis is hogging the headlines, the world economy hasn’t stopped.
There are still small companies innovating and producing goods and services that are useful and valuable.
One area where innovation is happening on a scale never before seen is the energy sector.
Shale Gas Boosts World Supply
According to the United States Energy Information Agency (EIA):
‘World proven reserves of natural gas as of January 1, 2010 are about 6,609 trillion cubic feet, and world technically recoverable gas resources are roughly 16,000 trillion cubic feet, largely excluding shale gas. Thus, adding the identified shale gas resources to other gas resources increases total world technically recoverable gas resources by over 40 percent to 22,600 trillion cubic feet.’
Thanks to new technology, the last few years have seen the potential natural gas supply increase by 40%.
And it won’t surprise you to learn that Australia has struck lucky again.
According to the EIA, Australia, along with 32 other nations, has a significant potential shale gas resource. And the best thing is…it’s untapped.
Not only that, but of the 33 nations, Australia is estimated to have the sixth largest resource…one that could boost Australia’s natural gas reserves by 200%!
Before we go on, perhaps you’re wondering…
What is Shale Gas?
In simple terms, shale is a layer of fine rock deposited over millions of years. Over time the rock compacts, and as with other rock formations, this traps organic material. Eventually, this forms oil and natural gas.
Conventional oil and gas deposits appear in porous rocks. The rock is drilled, and with the release of pressure (or by adding pressure) the oil and gas is drawn through gaps in the rocks.
However, shale is different. It’s so tightly packed that there are no gaps for the gas to pass through. That makes it pointless to use conventional drilling techniques.
To get around this problem shale gas producers use a method called ‘fracking’. That’s a slang term for hydraulic fracturing, where shale rocks are broken using high-pressure water and sand.
Fracturing (or fracking) the shale creates gaps in the rock, which releases the gas. The gas is then drawn up through the well. You can see the relative formations of conventional, coal bed and shale gases on the diagram below:
Now, there is some controversy surrounding shale gas. While 99.5% of the fracking process is just plain old water and sand, the remaining 0.5% contains a number of chemicals. Some claim these have the potential to pollute domestic water supplies.
However, to date there’s no concrete evidence to support these claims.
And according to a research report from the world-renowned and respected Massachusetts Institute of Technology (MIT), titled ‘Study on the Future of Natural Gas’:
‘The environmental impacts of shale development are challenging but manageable. Shale development requires large-scale fracturing of the shale formation to induce economic production rates. There has been concern that these fractures can also penetrate shallow freshwater zones and contaminate them with fracturing fluid, but there is no evidence that this is occurring.’
Look, we’re not saying drilling for shale gas is a clean process. But at the moment it’s our only realistic and viable alternative energy source. And the great news is it’s cheap…
Disruptive Mining Technologies
At one point or another over the past two years commodity prices have soared. Except one…it has been left behind.
Look at some of the gains made by the following commodities:
- Copper – gained 64% from June 2010 to February 2011
- Coal – gained 91% from December 2009 to January 2011
- Silver – gained 227% from January 2010 to April 2011
- Gold – gained 81% from February 2010 to August 2011
- Oil – gained 64% from January 2010 to May 2011
- Wheat – gained 102% from June 2010 to February 2011
- Corn – gained 146% from June 2010 to June 2011
And natural gas? Well, it has gained…nothing. In fact, U.S. natural gas prices have slumped, almost halving in the past 12 months.
Anyone hoping to make a huge speculative gain on natural gas has been sorely disappointed (unless they had short-sold natural gas). So why hasn’t the natural gas price gone up?
One reason is explorers are finding new natural gas resources all the time. And new technology has made it easier to recover gas from previously inaccessible areas.
There’s conventional gas, coal-seam gas and now the latest revolution in the industry – perhaps the biggest revolution – shale gas. All add to the global gas resource and supply…keeping down the natural gas price.
So, if the resource isn’t scarce and new technology is making it easier to find and recover, why on earth would we consider natural gas stocks?
For the simple reason that according to professor Michael Economides at the University of Houston, gas will be the fastest growing of the three fossil fuels (coal and oil are the other two) between now and 2030.
And despite all the talk about cutting the world’s dependence on fossil fuels, by 2030 coal, oil and gas will still supply over 80% of the world’s energy needs – about two-fifths of which will come from gas.
So, by backing natural gas, I’m playing the odds.
And with energy stakes taking a beating in recent weeks, now is a great time to buy into the shale gas story while they’re cheap.
Kris Sayce
Editor, Australian Small-Cap Investigator
From the Archives…
How the Ukraine Could Be Europe’s Biggest Shale Gas Play
2012-05-18 – Kris Sayce
Why Greece Can’t Afford to Stay in the Euro
2012-05-17 – Dan Denning
Get in Early on Shale Gas
2012-05-16 – Dr. Alex Cowie
APPEA – Day One at the Oil & Gas Show: Sand Dunes, Scuba Diving and Camels
2012-05-15 – Dr. Alex Cowie
The Case for Higher Gold Prices
2012-04-14 – Diane Alter
Why a Stock Market Crash is Great News For Shale Gas Investors
