It's happening. It's in the air. And we all know it.
With oil up huge, with the threat of an embargo or a war that would halt oil from the Strait of Hormuz, this country is switching fuels. We are adopting natural gas as a cheaper way to power our trucks and ultimately our cars.
I wish this switch could somehow be done with the help and not the opposition of Washington, hastening the substitution with a credit that could be paid back for truck buyers who junk their diesel clunkers for clean nat gas engines. That way, in a couple of years we would be forcing the world price of oil lower while curing our balance-of-payments issues, making the skies cleaner and making us less dependent on our enemies in the Middle East.
But a combination of an aversion to all fossil fuels by the Democrats (including the president) and a persistent lobbying effort of the chemical companies, which want nat gas low to get a cheap feedstock, has kept this change from coming about even faster.
Still, I think it's become obvious to all but Washington that change is gonna come, and we have to start thinking that natural gas may have bottomed at last -- yes, after a tremendous plunge in price. If that's the case, we have to examine who is most and who is least levered. If you want to know the pure plays, you have to buy Southwestern Energy (SWN) and Ultra Petroleum (UPL). They have always stayed true to the fuel. Then there are the switchers, outfits frantically trying to become much less dependent on nat gas and more on oil -- they can also be huge beneficiaries if the bottom call is right. I'm talking here about Chesapeake (CHK), Devon (DVN), EOG Resources (EOG) and Anadarko (APC). The action in all of these names tells me that I am not alone in this belief.
Finally, the levered speculative play is Heckmann (HEK), a scorned service company that missed its last quarter but to me remains a colossally fabulous spec on the turn.
As always, I have to remind you that the U.S. Natural Gas Fund (UNG) is NOT the way to play this turn, because it simply isn't a true tracker of the fuel due to issues long chronicled here in my columns as well as by Dan Dicker in other Real Money pieces.
I don't expect immediate tightness in the fuel. There's too much of it and that's not going to change anytime soon. But I think that a statement about how we have seen the lows makes a ton of sense -- and as my colleague Matt Horween has indicated here many times, this common-sense fuel is just too attractive to continue to plummet in price with oil trading out of control to the upside.
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