• Natural gas inventory is up.
• Rather mild weather has kept demand low.
• Liquefied Natural Gas (LNG) imports are at record highs.

But that doesn’t mean we won’t see a rise in price. In fact, many of us here at Penny Sleuth expect nothing less than a record year for natural gas.

With oil hitting new all time highs every day — it currently sits at $108 per barrel — natural gas will be called on, more and more. You see, oil and natural gas have a unique connection. Many large-scale customers (industrial consumers, electricity generators, etc.) can switch between oil and natural gas, depending on price and supply. We expect many of these customers to make that switch to gas this year.

A second argument for high natural gas prices is the demand for fuel. Whatever your opinions about ethanol are, there’s no question that it’s going to be a big factor over the next few years. The U.S. Congress dictates it. At the end of 2007, Congress mandated an increase in ethanol production of over 414% (from seven million gallons to 36 million gallons) by 2022. But what was forgot in the process was that it takes a boatload of natural gas to produce ethanol.

Here in the U.S., corn is the largest source of ethanol. To grow corn, it takes a lot of fertilizer. The price of fertilizer is 90% dependent on the price of natural gas. Therefore, it takes a lot of gas to make fertilizer. Don’t laugh… On top of that, what do you think these ethanol plants burn to turn corn into their precious ethanol? More natural gas!

But putting the fuel argument aside, most of us think of natural gas as a way to heat our homes. Well, whether you like it or not, the housing boom put many Americans in larger homes. It takes a lot of natural gas to heat those mansions.

The last point I’ll make about natural gas’ inevitable price climb is its environmental effects. Most people don’t know this, but natural gas is one of the cleanest burning sources of energy we have at our disposal. Take a look at this chart:

Okay so natural gas is going to go up. But, how do you profit? Well, in a previous article, Nick Jones offers Delta Petroleum Corp (DPTR: NASDAQ) as a solution.

That’s a bit expensive for our tastes, even if it is the solid company Nick suggests it is. It weighs in at a little over $2 billion market cap, selling at about $22 a share. So let’s look at a few that fit our parameters:

• Aurora Oil & Gas Corporation (AOG: AMEX) — This is a very small $60 million company with the majority of its stake in Michigan, Indiana and Kentucky. It’s an early stage production company. While it has been growing at a phenomenal rate, it’s still a risky investment.
  
• Edge Petroleum Corporation (EPEX: NASDAQ) — Edge comes in at $4 and change per share. About three quarters of the company’s production comes from natural gas along the Gulf coast. This is also a high growth opportunity. Year-end earnings come out on Thursday. We’ll be keeping our eye on this one.
  
• Grey Wolf, Inc. (GW: AMEX) — The Wolf is nothing more than a rig owner. The company owns rigs it leases to oil and gas companies. The majority of its customers are major natural gas drillers throughout the U.S. and Mexico. The company sells at slightly higher than $5 per share. We’ll continue to watch this one as its customer base grows.

While we aren’t recommending you buy shares of any of these companies, we do want to give you a clue as to what we look for in natural gas. We either want fast growing producers with large reserves, or specialist companies that can feed off of the rising prices without any of the risks associated with production.

In any case, we will continue to watch this market. I see a lot of good things coming from it down the road.

Sincerely,

Jim Nelson
March 11, 2008

P.S.: Chris Mayer has been following this story for quite a while. He was one of the first of us to come to conclusion that natural gas is going to skyrocket. He recently gave his readers a special opportunity that he calls the “The Biggest Resource Breakthrough Since the ‘Beaumont Miracle’ of 1901.”Editor’s Note: The gas companies listed above were recommendations from our readers. If you have anything to add or any other questions, you can always send them to us at jim@pennysleuth.com.

The Natural Gas Industry is About to Catch Fire was originally featured in the Penny Sleuth.

The bill is an attempt to reduce the country’s dependence on foreign oil and help fight climate change. Whether or not the legislation will be able to achieve these results is up for debate. However, now is not the time for serious investors to become too involved in the politics of the bill. It’s far more important to keep an eye on your wallet.

There is money to be made off the government mandates in this bill. It requires more production of ethanol and biofuels, and also continues tax breaks for oil companies. Most notably, the act mandates the first required miles-per-gallon increase in more than 30 years. More on this historic change in a little bit…

The energy act also includes provisions to help improve energy efficiency in household appliances, as well as huge required biofuel increases. Oil companies will be forced to use at least 36 billion gallons of biofuel by 2022. That’s five times current production. The White House and Congress estimate the bill’s mandates could reduce CO2 emissions by billions of tons. And of course, we know its provisions will also benefit a handful of companies that are making the right moves in the energy markets.

Politicians needed to give big tax breaks to oil companies in order for the president to sign the bill. As a result, many alternative energy companies will not be offered the incentives they’ll need to get ahead quickly.

Because of this — and the considerable run-up in solar stocks that’s been going on for some time — we do not think it’s a good time to buy into the pure-play solar firms.

However, this does not mean that alternative energy is dead in the water. The country is in a sticky spot right now. We are mandated to cut CO2 emissions, but the big bucks aren’t being offered to the companies with the potential to get it done. That’s why it’s so important to look for alternative energy firms that have proven they can nab contracts and make money with technology no one else possesses.

The time is right to pick a unique alternative energy company with the ability to become a cash-making machine. We think we’ve found just that. And amazingly enough, almost all of the energy bill speculators have left this one out to dry.

The New Source for Clean, Efficient Power

The first incarnation of the energy bill — the Energy Policy Act of 2005 — includes an investment tax credit of 30% or $1,000 per kilowatt of total project costs. Individual states are on board with their own legislation, as well. California, for example, offers $80 million every year for renewable and “ultra-clean distributed generation technologies.”

The company we just found makes clean fuel cell power plants. These power sources can generate electricity with up to twice the efficiency of a conventional coal-fired power facility, all without producing the toxic air pollution the new energy bill seeks to reduce.

The company makes what are called direct fuel cells (DFC). DFCs are 47% efficient when generating power, whereas coal-fired plants obtain power generation efficiency of only about 35%.

The company’s fuel cells burn natural gas and other biofuels, reforming the gases into the hydrogen needed for power. More importantly, the fuel cells can run off of the specific kind of methane produced in wastewater treatment facilities. And, all across the country, there will be plenty of free gas at wastewater plants for it to use…

This is certainly something to keep on eye out for…

Best,

Greg Guenthner
January 24, 2008

P.S.: I truly believe this company will get some big contracts soon. Once that happens, watch out… In fact, I am so confident in this company, I’m recommending it to my Penny Stock Fortunes readers, which is why I couldn’t divulge the name here.

Along with this pick, there is another alternative energy play that I’m telling them about, as well as a niche company in the semiconductor industry that stands to make a lot of money soon. And that is just the February issue.

One Tiny Company About to Score Big from Energy Legislation was originally featured in the Penny Sleuth.