Name me an energy source that is super-cheap, entirely domestic to the United States and so plentiful that we are now the established world leader in potential reserves.
Now tell me if you thought of saying coal before natural gas.
This parallel is so important to make because it is critical to the way we should be investing in energy in 2013 and beyond (and it also happens to be a big part of the thesis of my new book).
Coal has proven this year that just being cheap and domestic and plentiful is not enough to inspire a great money-making opportunity, either for the producers or the users, and certainly not for us as investors. 2012 has instead been the year of the coal bust, as those stocks have been among the worst performers of the year, not just among energy issues but in the entire S&P 500.
And what of natural gas? While Dow Chemical has forecast $80 billion of manufacturing investment around the country, on the basis of nat gas' low price, the amount of real money spent and jobs created by the shale gas "revolution" have been meager. All of the "majors" -- Exxon Mobil (XOM), Chevron (CVX), Royal Dutch Shell (RDS.A), etc. -- continue to invest in shale assets, but they do it merely as a hedge, relying upon their tried-and-true crude and refined products businesses to make all their money. Medium- and larger-cap independent natural gas companies such as Chesapeake Energy (CHK) flail around as they try to convert their assets as best they can into oil producers, and they are running away from natural gas as fast as they can.
The point, and it may be counterintuitive, is that "excitement," innovation and progress in a new energy source must be accompanied by a rising and volatile price. Otherwise, you won't develop a market that will reward companies that are taking the risks of exploration and production or investors who are taking the risks to reap the potential profits from those companies.
Jim Cramer wrote a smart column on Thursday about the supposed industrial resurgence we were supposed to see from this low price of natural gas, asking, "Where are the big petrochemical plants? Where are the fertilizer additions?"
He's right -- there's been no industrial boom of note from the drop in price of nat gas. We are instead in the midst of a natural gas energy bust.
A lot of my upcoming book discusses how this happened and why and what the signs will be that this bust will begin to turn itself around.
But you should know that investments that you make now in natural gas are necessarily long term, because while the stocks are incredibly cheap, they are also in the midst of an energy bust -- one that no amount of shale-gas-mania talk in the media can remedy.
And what of 2013? Will we see the bust turned around?
I'll let you know what I see.