Tsunami Aftermath Heating Up Natural Gas Market

The earthquake and tsunami that devastated Japan and its nuclear facility may be a boon to another energy source–natural gas. While the BP oil spill in the Gulf of Mexico has halted oil exploration there and coal plants are still heavily criticized for their contributions to global warming, natural gas is the one safe choice left standing, according to a March 22 article in the New York Times (http://www.nytimes.com/2011/03/22/business/global/22gas.html?_r=1&ref=business). 

This fact has not escaped investors. The Times notes that “since the disaster in Japan…natural gas prices in Europe and the U.S. have risen by 10 percent.” Utilities are also looking at natural gas “as a source of stable power,” something they have hesitated to do because of volatile price fluctuations and their steady reliance on nuclear power and coal.

A report to be released March 22 by the Bipartisan Policy Center and the American Clean Skies Foundation predicts that natural gas consumption will increase because supplies are now more abundant, according to The Times. The first place it will increase will likely be Japan which now needs desperately to raise its fuel imports.

While environmentalists have never been fond of the hydraulic fracturing needed to unlock gas from hard shale rocks–they say it pollutes underground rivers and acquifers–those problems now pale in comparison to the issues surrounding coal and nuclear power.

The big oil companies are way ahead of everyone else on this. Royal Dutch Shell and Exxon Mobile (which bought XTO Energy in 2010) are pushing ahead with new natural gas production and exploration. So how about the small caps?

Oklahoma City-based Gulfport Energy Corp. (Nasdaq:GPOR, http://www.gulfportenergy.com/) is focused on exploration along the Louisiana Gulf Coast and in West Texas and is a little large ($1.4 billion marketcap) for our purposes. But it is trading at around $32, nearly at the top of its 52-week range of $10.37-$34.26 and is on a huge roll. Gulfport It traded for less than $25 on March 10. It was named a “hot stock to watch” by the Wall Street Journal March 21 because it is raising to, among other things, acquire shale assets in Ohio, according to the report. Sound familiar?

Midland, TX-based Natural Gas Services Group Inc. (NYSE:NGS, http://www.ngsgi.com/) makes natural gas compression equipment for the natural gas industry in the U.S. Its stock is up nearly $2 in the past five days and was trading at about $17.67 on March 22. We don’t have much insight into this company (market cap is $215 million) but they seem to be positioned well if natural gas does indeed take off.

Dover, DE-based Chesapeake Utilities Corporation (NYSE:CPK, http://www.chpk.com/) is a diversified utility company that provides natural gas distribution services and sells natural gas in Delaware, Maryland and Florida. It has a nearly $398 million market cap and is trading at nearly $42, at the top of its 52-week range of $28.01-$42.27. It traded for $38.88 as recently as March 15.

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