October 14th, 2021
Natural Gas Small-Caps Could Keep You Warm This Winter
Dear Retail Investor,
Back in 2005, I left my native Ohio.
I’d had enough of the cold.
My destination? Northern California.
I’ll never forget that first winter there.
I froze my ass off.
See, I’d rented an old trailer out in rural Sonoma County.
It was a bargain… until around November.
That’s when a cold front revealed my home was insulated about as well as an 1800s log cabin.
In fact, it cost me about $300 a month to keep it a toasty 58 degrees that winter.
My heat source?
It turns out that natural gas prices were pretty high at the time.
Well guess what?
Natural gas prices are rising again – especially overseas
Natural gas prices in Europe and China have tripled this year, to $30 per million British thermal units (mmBtu).
The biggest reason for this surge?
A robust recovery from the pandemic-caused recession that’s heightened worldwide demand for all manner of goods.
To help meet that demand, European industries have worked hard to ramp up production, an effort that’s put pressure on natural gas prices.
And with winter coming, you can bet that Europe’s residential heating needs will add to that pressure.
Meanwhile in China, the government wants to slash industry’s reliance on coal.
The reason, of course, is to fight air pollution.
That’s why China’s implemented environmental rules that call for reducing carbon emissions by 65% by 2030.
The government is deadly serious about making that happen.
In fact, Beijing’s warned regional party officials that they’ll be held personally responsible for not reaching their carbon reduction goals.
Right now 20 out of China’s 31 provinces are failing in this effort, according to China’s National Development and Reform Commission.
So provincial officials have a lot of incentive to do whatever it takes to satisfy Beijing.
And that means switching from coal to cleaner burning natural gas whenever possible.
The key takeaway here is that Europe needs more natural gas to heat homes and power increased manufacturing…
While Beijing’s commitment to reduce pollution from coal means more natural gas demand in China.
All that makes the odds of higher gas prices in Europe and China a virtual certainty in the coming months.
Americans are also about to experience gas pains
Yes, America’s the world’s biggest producer of natural gas.
And up until now, that’s protected the country from crazy high gas prices.
But that protection’s eroding fast.
Already the average natural gas price in the U.S. is hovering at around $6 mmBtu.
Sure, that’s a far cry from what other countries are paying.
But it’s still way up from the $2.61 price from a year ago.
How’s this for a scary looking chart?
Pretty bullish looking, no?
And it’s likely to look even more bullish if we get the really cold winter meteorologists are calling for.
Especially in New England and California.
Why natural gas is likely to be a big problem in New England and California this winter
High winter natural gas prices are nothing new for these regions.
For one, both suffer from a limited number of natural gas pipelines, which become constrained on the coldest days.
But the coming months could make matters worse, as AccuWeather’s long-range forecasters are calling for a colder-than-normal winter in both regions.
Here’s something else.
Both California and New England have spent years aggressively moving away from fossil fuels.
To that end, they’ve passed stricter emission regulations…
Retired power plants…
And implemented carbon pricing that makes electricity generated from fossil fuels more expensive.
Adding even more pressure to natural gas prices – as is the case with China and Europe – is heightened industrial energy demand.
Natural gas companies have been rewarding retail investors for the past year
Big energy producers like Chevron (NYSE: CVXP) and BP (NYSE: BP) have certainly fared well since natural gas prices took off last year.
For example, these two companies are up 41% and 62% respectively since early October 2020.
Not bad, right?
But compare those gains to some small cap natural gas producers.
Like Baytex Energy Corp. (BTE.TO; OTC: BTEGF).
Last October you could’ve had the OTC version of the stock for about 37 cents.
As I write this, it’s now selling for $2.96.
That’s a monster move of about 700%!
Crescent Point Energy Corp. (NYSE: CPG) has also treated investors well.
Over the last year, it’s gone from $1.36 to $5.02, a more-than-respectable gain of 269%.
And the OTC version of NuVista has moved from 61 cents to $4.45, making it a 618% winner.
Now I’m not saying to rush out and buy these stocks.
I’m just highlighting them to show the profit power of small caps compared to their large-cap brethren.
Having said that, these three stocks are in prime position to move higher.
There are others.
Searching them out could pad the value of your portfolio.
That’s it for now.
Until next time – stay warm,
Contributing Editor, Dear Retail
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