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America and Europe Join Forces on Natural Gas… Here Are The Companies Set To Profit

by Tony Daltorio, Investment U Research

Is the natural gas market ever going to emerge from the doldrums?

With the global recession still marking its territory across the world, demand has dropped, sending natural gas prices plummeting from last year’s record high of $13.69 per million BTU to below $3 now. That’s a seven-year low.

What’s more, it could get even worse. Consider this…

U.S. storage facilities are almost filled to their maximum capacity. In fact, U.S. supply estimates have grown from a 30-year reserve to amounts capable of sustaining the country for the next 100 years.
The credit squeeze has left natural gas companies with little choice but to raise new capital for operating expenses, drilling costs and paying back debt – a tricky situation since many don’t want to tap the equity markets for fear of further diluting their already existing shares.

The severe drop in commodity prices has slashed the value of their assets to the point that banks are reluctant to lend to them.

There are a couple of positives.

First, new technologies and expertise have made it economical to make extractions from shale rock. Second, of all the fossil fuels, it emits the least amount of carbon – an element that both the Obama administration and Congress have highlighted repeatedly this past year.

However, the short-term look for the natural gas industry appears increasingly bleak. While smaller independent gas drillers have survived on their 2008 profits, they can’t continue forever. Natural gas prices will eventually have to rise in order for these companies to survive, much less thrive.

But there’s one source ready and willing to lend a helping hand – and capital – to struggling U.S. natural gas producers…

The United States’ Trash is Europe’s Treasure

Unlike their U.S. competitors, an increasing number of European energy companies recognize the potential of the U.S. natural gas industry, especially its expertise in extracting the commodity from shale rock. And they want a piece of the business.

Although acquisitions are a way to bolster long-term profits, these international investors know that partnerships also give them access to resources and expertise at reasonable costs… especially during these turbulent times.

Conducting joint ventures not only gives European companies access to already discovered acreage, but also provides them with hands-on instruction in hydraulic drilling and horizontal fracturing, two techniques that led to the boom in shale gas.

They don’t want to just capitalize on the inevitable run-up in prices, they want to learn the ins and outs in order to apply that knowledge towards developing shale gas deposits in other countries around the globe.

Question is… how can investors benefit from it, too?

This U.S. Leader is Set to Cash in From the Anglo-Euro Gas Partnerships

Energy consultancy firm, PFC Energy, believes that if properly assisted, the struggling independent natural gas companies could advance developments far enough to quadruple global natural gas supplies.

With that estimate, it’s no wonder that European energy companies are lining up to form joint ventures with their American counterparts. This includes BP (NYSE: BP) and BG Group (OTC: BRGYY) in the U.K., to Norway’s StatoilHydro (NYSE: STO) and Italy’s Eni (NYSE: E).

Many of these projects involve the foreign companies taking a 25-50% stake, which should result in healthy profits for them. But in the end, it’s U.S. natural gas companies that will benefit the most.

And when you talk about natural gas in the U.S., you have to mention one of the leading firms – Chesapeake Energy (NYSE: CHK). The company has already done deals with BP and StatoilHydro, worth a combined $5 billion. That money will enable Chesapeake to boost its balance sheet and cover drilling costs during the economic downturn in exchange for giving the Europeans access to its operations and assets.

Together, they plan to access promising international acreage that could hold producible shale gas reserves. In fact, they’ve already identified 14 different global areas where they intend to do just that.

With industry analysts predicting a huge natural gas production surge abroad, those independent businesses could very well find themselves playing a central role in tapping global natural gas reserves, as long as they can properly transfer their experience and technology.

If they can, the natural gas market could boom once again.

Good investing,

Tony Daltorio

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