In trading on Tuesday, railroads shares were relative laggards, down on the day by about 2.1%. Helping drag down the group were shares of Kansas City Southern (KSU), down about 8.2% and shares of Csx (CSX) off about 3.8% on the day.

Three More Industries Thriving From Record-Low Natural Gas Prices

by Mike Kapsch, Investment U Research
Tuesday, January 24, 2012

Since hitting a high of $15.37 in December 2005, the price of natural gas has plunged to its lowest level in over a decade to $2.30. That’s an 85% drop.

As Reuters recently reported, “The unrelenting surge in shale gas production and one of the warmest winters on record are driving the natural gas market toward uncharted territory. Soon companies may have to pay to get rid of their gas.”

So far, this has been tough news for natural gas drillers and electric utilities. Many drillers are ramping up their oil production, trying to make up for lost income.

Chesapeake Energy even cut its gas drilling production in half, which led to a bit of a rally over the past few days – leading some to believe we have seen the bottom.

Regardless of whether this is a bottom or not, low natural gas prices aren’t bad for everyone. A few other industries are seeing enormous boosts with cheap, readily available natural gas. Here are three to consider…

Industry #1: Plastics

Most people don’t know that natural gas is a key component used to manufacture certain plastics. That’s because natural gas naturally contains ethane.

Ethane is an odorless chemical compound that, through various cooling and heating procedures, is converted into ethylene, and eventually turned into plastic.

Companies like Dow Chemical (NYSE: DOW) and Du Pont (NYSE: DD) are big players in this sector. But smaller firms such as Ashland, Inc. (NYSE: ASH) and Eastman Chemical (NYSE: EMN) could also prove to be very lucrative in the near future as they take advantage of low natural gas prices.

In fact, companies are building new pipelines specifically to transport ethane. This is positive news for plastic manufacturers looking forward.

The Wall Street Journal reported just a few days ago that Enterprise Products Partners LP (NYSE: EPD) said it’s moving forward “with a planned 1,230-mile pipeline to transport ethane from the Marcellus and Utica shale regions to the U.S. Gulf Coast.”

Industry #2: Methane

Although ethane is found in natural gas, its principal ingredient is methane. It’s estimated that methane makes up 70% to 90% of natural gas.

For firms like Methanex Corp. (Nasdaq: MEOH), low gas prices signal a huge chance to profit.

Methanex specializes in turning methane into methanol. Methanol can be found in windshield wiper fluid, plastic bottles, paints, fertilizers, compact discs, fleece jackets… the list goes on and on.

America’s natural gas boom makes manufacturing methanol that much less expensive.

Methanex, the world’s largest methanol producer, is even relocating one of its plants from Chile to Louisiana to take advantage of these low prices. The new plant is estimated to churn out one million tons of methanol a year.

Bloomberg reports Methanex expects “the factory will generate $400 million in annual sales at current methanol levels [starting in 2014]… and there is potential later for another unit to be moved to the U.S.”

But chemical manufacturers aren’t the only companies that stand to gain…

Industry #3: Biofuels

The EPA has mandated that the volume of renewable fuel required in transportation fuel will be increased to 36 billion gallons by 2022. That’s roughly a 300% increase from today’s figures.

In other words, fuel standards are rapidly changing in America. And this is creating some interesting developments in the biofuel sector.

As MIT’s Technology Review reports, “A biofuels company based in Madison, Wisconsin, has developed a potentially inexpensive way to make gasoline and other valuable chemicals out of grass and wood chips. Its approach reduces costs… by using natural gas to increase the amount of fuel that can be made from a given amount of biomass.”

The company is Virent, Inc. Although it’s a private firm, Royal Dutch Shell (NYSE: RDS-A) and Honda Motor Company (NYSE: HMC), among others, have invested a good amount of capital into Virent.

And the future looks promising…

In fact, according to Technology Review, Virent’s founder says that thanks to the company’s latest developments, it’s now “in the ball park range to be competitive with crude oil.”

The important thing here is that developments like these show how biofuel companies are getting very creative about adapting to cheap natural gas to achieve their business goals.

Looking Ahead

Some experts, including our own David Fessler, warn U.S. exports of natural gas are about to increase. This supposedly will soon push natural gas prices higher, thus scaling profits back for these various industries. But federal officials report prices are only set to increase 54% by 2018.

By this measure, the price of natural gas would be $3.54 in six years. That’s still a 76% discount from its 2005 highs.

Good Investing,

Mike Kapsch

Article by Investment U

Natural Gas: Another Great Contrarian Investment in 2012

by David Fessler, Investment U Senior Analyst
Tuesday, January 24, 2012: Issue #1693

There’s an old saying that goes something like this: “In the valley of the blind, the ‘one-eyed man’ is king.”

If you seriously consider what I’m about to show you, this old saying could well ring true for your investment portfolio at the end of this year. Perhaps even before. Let me explain…

At roughly $2.41 per million Btu, U.S. natural gas prices are in the dumpster. The truth is, they’ve been declining for years. But the recent shale gas boom accelerated their fall. Now they’re the lowest they’ve been in over a decade.

If it gets any cheaper, the companies that supply it will be paying you to take it. You see, they have a huge problem.

They have to keep producing in order to generate revenue, even in the face of declining prices. The problem here in the United States is that supply exceeds demand by a wide margin. And it’s getting wider all the time.

Why? Stores of natural gas at record levels… A mild winter… New wells coming online every month…

No wonder it’s eviscerating shares of explorers and producers. Take a look at the six-month chart for Chesapeake Energy Corporation (NYSE: CHK), for instance.

It looks like the first big drop on a roller-coaster. Shares are off 38% since last July.

Another producer, Cimarex Energy Company (NYSE: XEC), has a similar chart.

Its shares have virtually fallen off a cliff, dropping over 37% in the same timeframe as Chesapeake’s.

The fact is, even companies with minimal exposure to natural gas are getting hammered.

Our intuition tells us that the outlook for these companies – as long as natural gas remains at such low prices – is dismal at best.

In order to survive, some will be acquired by competitors. Shares of many will touch 52-week lows. For their decline to reverse course, the price of natural gas has to increase.

With a record supply glut firmly in place, demand has to increase dramatically. What could possibly cause that to happen, especially in the relative short term? Let’s ask the one-eyed man.

Back to the One-Eyed Man

The one-eyed man sees things no one else can. Author Nassim Nicholas Taleb coined the term “black swan event.” It’s a metaphor used to describe an event that’s a total surprise.

Now, I’m not the one-eyed man, but right now, low U.S. natural gas prices are clearly setting up several black swan events. All will singly – or, depending on the timing, collectively – increase the demand for natural gas.

Here’s the one-eyed man part: It’ll happen much faster than anyone currently thinks it can. This will have far-reaching economic impacts for the United States and, indeed, the world. Once these events take place, they’ll be rationalized in hindsight, as if everyone always knew they were going to happen.

These events will surprise most investors. But they’ll also make a few very wealthy.

If you’re aware of them, understand them, and invest in companies that will benefit from them, and you’ll be just like the one-eyed man. What are they? I’ve identified three.

Power to the People

The first one is already quietly underway. It’s the use of natural gas to power new electrical generating stations, and to repower older coal-fired plants.

There are natural gas pipelines within reach of just about every major generating station in the country. With even more strict emission regulations for coal-burners on the horizon, the logical choice for a baseload replacement fuel is natural gas.

In 2010 (the latest figures available), the Energy Information Administration (EIA) said utilities used about 515 billion cubic feet (Bcf) of natural gas for power generation. That equates to 24% of all power generated in the United States.

That’s a 7% increase over 2009. Here’s a chart from the EIA depicting the breakdown of power generation types in the United States.

Take note of the amount of generation that’s currently supplied by coal. Most of the 594 coal-fired power plants are baseload plants, meaning they run 24 hours a day, 365 days a year.

Over a third of them are too old to meet the new stringent emission requirements due to take effect in a few years. Natural gas-fired plants will replace most of them. That represents a massive, additional source of constant demand for natural gas.

Cool it, Ship it, Re-Gasify it, Sell It

The second event has to do with selling natural gas to customers elsewhere in the world. Natural gas in the United States sells for a third of what it costs in Europe, and one-sixth of what it goes for in Japan.

The only way to get it to customers on other continents is to liquefy it and ship it. Once liquefied, it can be loaded into specially built, liquid natural gas (LNG) tankers to transport it to re-gasification terminals anywhere in the world.

The problem is that the United States, other than a small facility in Alaska, has no liquefaction facilities that can compress and cool natural gas into a liquid for loading onto tankers.

While there are a number of companies planning such liquefaction plants, Cheniere Energy, Inc. (AMEX: LNG) is further along than all the rest. The company has inked three 20-year long-term LNG supply contracts with GAIL India, Ltd., Gas Natural Fenosa of Spain and BG Group in Great Britain.

If it can keep its construction plans on track, Cheniere will be the only game in town when it comes to exporting LNG. Other companies proposing to build liquefaction plants are years behind Cheniere.

The Biggest Black Swan of Them All

We’ve saved the best for last. Right now, the United States uses about 18.6 million barrels of oil per day. We import about 11 million barrels, or about 60%. According to the Institute for Energy Research, a full 71% of it is used in the transportation sector.

Imagine replacing all, or even just part, of that oil with natural gas. While natural gas-powered jets might be a few years off, cars, trucks, ships and even locomotives all run just fine on it.

And given its current price, natural gas is the equivalent of buying gasoline or diesel for a little over $1.00 a gallon. Remember those days? So what on earth are we waiting for? Why isn’t someone designing engines that run on natural gas?

Someone is: Westport Innovations, Inc. (Nasdaq: WPRT). Headquartered in Vancouver, British Columbia, Westport manufactures engines, fuel delivery and fuel storage systems using gaseous fuels.

Westport has over 400 patents on 130 distinct inventions regarding gaseous-fueled vehicles. It’s partnered with the likes of Cummins, GM, Caterpillar, Kenworth, Freightliner, Peterbilt, Mack and Hyundai in the development of natural gas engines for their vehicles.

Most recently, it teamed up with Electro-Motive Corporation, an OEM maker of diesel-electric locomotives, to develop a natural gas-powered locomotive for the Canadian National Railway.

It’s a bit of an understatement to say that business is booming. Revenue for its second quarter ending September 30, 2011 was $81 million, up 80% for the same quarter a year ago.

But what lies ahead for the company could make a few astute investors incredibly wealthy. CEO David Demers sums it up the best:

“With strong growth in all areas of our business, we now expect consolidated revenue for 2011 to reach between $240 and $250 million, representing growth of approximately 70% over calendar 2010.

“A few years from now, we expect that, looking back, 2011 will be seen as the tipping point for the use of natural gas as a transportation fuel.

“We are working with three of the top four heavy-duty engine manufacturers around the world, and more than 60 OEMs. Our Light Duty business works with seven of the top 10 automotive OEMs.

“This quarter, we announced a co-marketing agreement with Shell, the largest and most sophisticated liquefied natural gas (LNG) production company in the world, that would improve the economic case for acquiring LNG vehicles along with the infrastructure, providing a complete, cost-effective solution for fleet owners who want to unlock the savings, price stability, and environmental performance advantages of LNG.”

The bottom line: Three events are going to upset the natural gas apple cart, and I’ve listed three great ways to play them all. As my good friend Rick Rule likes to say, “Will you be a contrarian, or a victim?”

Good Investing,

David Fessler

Article by Investment U

Jan. 24 (Bloomberg) — Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., talks about the outlook for global stock markets and his investment strategy. Oliver also speaks with Rishaad Salamat and Susan Li on Bloomberg Television’s “Asia Edge.” (Source: Bloomberg)

The Central Bank of the Republic of Turkey kept its benchmark 1-week repo rate unchanged at 5.75%.  The Bank said: “The Committee has indicated that tight monetary policy stance should be maintained for a while in order to  keep inflation outlook consistent with the medium term targets. However, given the prevailing uncertainties regarding  the  global economy, it would be appropriate to preserve the flexibility of the monetary policy. Therefore, the impact of the measures undertaken on credit, domestic demand, and inflation expectations will be monitored closely and the amount of Turkish lira funding via one-week repo auctions will be adjusted in either direction, as needed.”

The Turkish central bank last cut the benchmark rate by 50 basis points when it held an emergency meeting in early August, the bank also cut its benchmark interest rate by 25 basis points to 6.25% in January this year.  The Turkish central bank also adjusted required reserves in late July.  Turkey reported annual consumer price inflation of 10.45% in December, up from 7.7% in October, 6.7% in August, 6.3% in July, 6.2% in June, 7.2% in May, 4.26% in April, and 3.99% in March, and above the Bank’s full year inflation target of 5.5%.  

The Magyar Nemzeti Bank held its central bank base rate unchanged at 7.00%.  The Bank said: “In the Council’s judgement, the Hungarian economy is likely be stagnant next year, with growth expected to resume only in 2013. The level of output will remain below its potential over the entire forecast period. As the effects of the indirect tax increases and the exchange rate depreciation wane, the disinflationary impact of weak domestic demand is likely to become the dominant factor shaping inflation.”

The Magyar Nemzeti Bank previously hiked the rate 50 basis points at its November and December meetings, after last raising it 25 basis points in January this year.  Hungary reported annual inflation of 3.9% in October, up from 3.6% in September and August, 3.1% in July, 3.5% in June, 3.9% in May, and 4.7% in April.  Hungary’s Central Bank has a medium term inflation target of 3%, while the Bank said annual inflation for 2011 was 3.9 percent.

Jan. 24 (Bloomberg) — Shubhada Rao, the Mumbai-based chief economist at Yes Bank Ltd., talks about India’s economy and central bank monetary policy. The Reserve Bank of India will keep its repurchase rate at 8.5 percent today for a second month, all 21 economists in a Bloomberg News survey said. It is due to release its monetary-policy announcement later today. Rao speaks with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

Source: ForexYard

Ongoing concerns regarding the prospect of Greece defaulting on its debt, as well as fresh worries regarding Portugal’s debt caused the euro to tumble vs. the US dollar in today’s trading. Investors once again reverted back to the safe-haven dollar as it became clear that the euro-zone crisis is far from over. Despite better than expected euro-zone manufacturing indicators, the EUR/USD once again dropped below the 1.3000 level. Although the pair is still well above its recent 17-month low, analysts are quick to warn that further negative European news could bring it down further.

Turning to tomorrow, euro traders will want to pay attention to the German Ifo Business Climate figure at 9:00 GMT. The indicator is forecasted to come in above last month’s, which if true, may help the common currency against some of its main rivals, like the JPY and CHF. At the same time, it will likely take significantly better euro-zone news before the EUR/USD is able to break the 1.3100 resistance level. Additionally, traders will want to note the results of the UK Prelim GDP figure. The results should gauge risk appetite in the markets, with a better than expected number likely to boost the euro.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Jan. 24 (Bloomberg) — Gavin Stacey, chief interest-rate strategist at Barclays Capital in Sydney, talks about Europe’s sovereign debt crisis and its implications for the region’s common currency. He speaks with Rishaad Salamat on Bloomberg Television’s “On the Move Asia.” (Source: Bloomberg)

London Gold Market Report
from Ben Traynor
BullionVault
Tuesday 24 January 2012, 08:30 EST

WHOLESALE MARKET gold prices retreated to roughly where they started the week during Tuesday’s morning session in London, making a 1% drop from yesterday’s 6-week high to $1665 an ounce.

Silver prices slipped to $31.91 an ounce – a 1% drop on Friday’s close – as stocks and commodities also fell following news that Greek debt agreement remains elusive after yesterday’s Brussels finance ministers meeting.

“Key support [for gold prices] sits at the 200-day moving average, currently at $1643,” says the latest report from Scotia Mocatta technical analyst Russell Browne.

“Gold succumbed to profit-taking yesterday,” adds Marc Ground, commodities strategist at Standard Bank.

“The trend has continued into this morning, with the absence of Far East physical demand (due to Lunar New Year holidays) opening up the metal to further downside.”

European finance ministers have backed Greece in calling for private sector holders of Greek debt to take bigger losses.

Private sector Greek bondholders agreed last October to accept 50% losses as part of a bailout deal aimed at reducing Greece’s debt burden from 160% of annual gross domestic product to 120% by 2020. However, leaders now openly acknowledge that Greece’s efforts to reduce its deficit look destined to fail.

“It is obvious that the Greek program is off track,” said Jean-Claude Juncker, chairman of the Eurogroup of single currency finance ministers, following their meeting yesterday.

Greek finance minister Evangelos Venizelos has said he expects talks with private investors over Greek debt restructuring will be finished by February 1. His counterparts in other Eurozone governments meantime confirmed plans for a second Greek bailout of €130 billion should a deal be reached – without which Greece will be unable to repay €14.5 billion of bonds that mature on March 20.

“It seems as if we are far from an agreement,” reckons Yves Maillot, head of investments at French asset management firm Robeco Gestions , which oversees $6.8 billion.

“The problem of solvency of countries remains, along with the question of Greece. The market situation is fragile.”

Euro finance ministers also discussed stricter budget rules for European Union governments as well as the introduction of the European Stability mechanism – the permanent bailout fund now due to replace the temporary European Financial Stability Facility in July, a year earlier than originally scheduled.

Italy’s prime minister Mario Monti, along with International Monetary Fund chief Christine Lagarde, have called for the ESM to have an effective lending ceiling of €1 trillion. Germany, however, insisted it be capped at €500 billion – a proposal with which the Eurogroup agreed yesterday.

“I believe this is an important achievement,” German finance minister Wolfgang Schaeuble said of the meeting’s agreement.

“It demonstrates that the Euro group and the European Union as a whole is capable of taking the necessary steps.”

Germany’s manufacturing sector meantime has expanded this month for the first time since October, according to provisional purchasing managers index data released Tuesday.

Here in the UK, public sector net debt breached £1 trillion for the first time last month – equivalent to 64.2% of GDP – according to the Office for National Statistics.

The US on Monday imposed sanctions on Iran’s third-largest bank, Bank Tejarat. Any firm that deals with it will be locked out of the US financial system. Also on Monday, the European Union banned Iranian oil imports and joined the US in imposing sanctions on Iran’s central bank.

Monday’s actions “will deepen Iran’s financial isolation, make its access to hard currency even more tenuous, and further impair Iran’s ability to finance its illicit nuclear program,” said US Treasury Undersecretary David Cohen.

Earlier this month there were reports that sanctions imposed at the end of last year had led to Iranians buying gold as a currency hedge, and leading to concern among Iranian officials.

Japan meantime is expected to announce its first trade deficit since 1980 on Wednesday, the Wall Street Journal reports. The Yen has risen over 5% against the Dollar since the start of 2011 – and is up around 40% over the last decade.

Yen gold prices have risen by over 200% since January 2002 – compared to a rise in Dollar gold prices of over 450%.

“Gold is negatively correlated with the US Dollar,” says the gold investment statistics commentary from the World Gold Council.

“In periods in which the US Dollar depreciates, gold prices tend to rise.”

The report (which can be downloaded here (free registration required here)) notes however that the relationship is not symmetric, with the negative correlation often weakening when the Dollar is buoyant.

The report also comments that equity volatility rose faster than that of gold during periods of 2011 that saw extreme financial market stress.

Ben Traynor
BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.