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How to Invest in Natural Gas Stocks as Prices Swing Back – Money Morning

There are staggering numbers coming out of the energy world – numbers that explain how to invest in natural gas now…

According to the Energy Information Administration (EIA), in the United States alone is parked over roughly 862 trillion cubic feet of natural gas reserves. That’s over a century’s worth of domestic supply.

Better yet, there’s plenty of domestic demand for that supply -and it’s growing.

Plus, energy-hungry countries around the world are lining up to buy America’s bounty of natural gas.

That means the long-term outlook for investing in natural gas stocks has never been better – especially with this trend in prices…

Natural Gas Prices Ready to Swing Back

Natural gas supplies hit an all-time high of 3.9 trillion cubic feet last year, as shale gas production overwhelmed demand.

No wonder natural gas prices declined from a high of $15.78 per million btus (mmbtu) in Dec. 2005 to a 10-year low of $1.82 in April 2012 — a breathtaking nosedive of 88%.

And today, the price of natural gas at the Henry Hub — the benchmark supply point in Louisiana — is still way off the 2005 highs.

But supply and demand are beginning to balance out, setting the stage for rising natgas prices. Those ultra-low natural gas prices made shale gas uneconomical and forced companies to cut production.

But they overshot the mark…

Producers have shut down more than half their drilling rigs since late 2011, reducing the number to a mere 400.

In fact, gas drilling has overcorrected to the downside, “well below the 650-675 gas rigs necessary to maintain long-term market balance,” Canaccord’s Genuity’s John Gerdes told Forbes.

U.S. production grew just 1.8% in the first half of 2013 compared to 5.6% growth in 2012 and 7.3% in 2011, according to the EIA.

The trend has reduced current storage levels to 2.786 trillion cubic feet – down 12.5% from last year.

Storage levels have plunged to 63% of capacity, while cold winter weather across most parts of the country boosted demand by 10.4% from January through June, according to the Federal Energy Regulatory Commission (FERC).

But the real exciting news for natural gas stocks isn’t domestic demand – there’s a bigger, global story that’s shaping how to invest in this commodity…

The Global Natural Gas Story

You see, the real demand for U.S. natural gas will come from exports.

For example, Mexican demand for U.S. gas exports has surged 92% over the past five years. Mexico’s total imports hit 767 billion cubic feet in 2012.

And there’s much more to come.

The fact is, the price of natural gas in the U.S. is about one-fourth the average global price.

People in Spain pay more than $10 per mmbtu for natural gas. In India they’re paying over $14. And in Korea and Japan they’re paying a whopping $15.75.

Now the industry is racing to satisfy foreign demand by building liquefied natural gas (LNG) export terminals.

Three companies have already received export licenses, and applications for 20 more are pending.

When the spigots open in 2015, companies exporting LNG are going to see profits come rolling in.

When the export boom hits, both prices and profits will shoot to the moon – which is why now is the time to be thinking about how to invest in natural gas stocks.

How to Invest in Natural Gas Stocks

Shale production will be at the center of it all.

Investors wanting to cash in should take a look at the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP) which provides exposure to oil companies and a host of natgas players.

Top 10 holdings include big producers like Range Resources Corp. (NYSE: RRC), Noble Energy Inc. (NYSE: NBL) and Cabot Oil & Gas Corp. (NYSE: COG).

XOP has outperformed the market nicely in the last 12 months, with 27% gains vs. 22% for the S&P 500 Index.

XOP has a low expense ratio of 0.35% with a current yield of just over 1%.

Investors also need to watch the companies that get approved to export LNG – these will deliver for investors.

So far, the three U.S. LNG export licenses approved have been from Cheniere Energy (NYSE: LNG), privately-owned Freeport LNG Expansion LP, and the recent addition of the joint venture of the U.K.’s BG Group PLC and the Southern Union division of Energy Transfer Partners LP (NYSE: ETP).

Cheniere – recommended by Money Morning Global Energy Strategist Dr. Kent Moors two months before its export approval came through – soared 300% in the two years after it was approved.

Another region to consider when evaluating how to invest in natural gas is Canada.

Here’s why: How to Invest in the Global Race to Export LNG

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Syndicated repost courtesy of : Money Morning

    

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