Jumpin' Jack Flash, it's a gas, gas, gas. I have no idea what Mick Jagger was trying to say with those lyrics to the classic Rolling Stones song, but I do know that natural gas prices have been jumpin' all around the world.
I am in Brazil now, a country that has set records, by a massive amount, in LNG import values in 2021 and also just opened a new LNG-fired thermal power plant in Rio de Janeiro state. This is just one example of the utility of natgas, which in its pure form is CH4...methane.
As the weather improves - a gorgeous day here today - the issue is that 88% of the world's population lives in the other half of the sphere. The Northern Hemisphere.
Elevated natgas prices reflect - as all markets do - predictive dynamics on future supply and demand. So, natgas prices are telling you that it is going to be a cold winter, and we may not have enough. In fact, this week, Portfolio Guru favorite CF Industries (CF) announced the temporary closure of two fertilizer factories in the north of England owing to extraordinarily high prices in the UK for its key feedstock, natural gas.
So, it's so bad we can't even make fertilizer! Feel free to insert your own joke here, but this type of inflation is no laughing matter.
Whose fault is it? This is where I am supposed to be diplomatic and spread the blame over many players, but that's not what (RM) readers have come to expect from me.
Spiking natural gas prices are an inevitable and inexorable result of government policies that demonize fossil fuels. Full Stop!
The so-called "green" movement is responsible for this. The mindless, feckless government apparatchiks who push these ridiculous carbon-free power-generation "solutions" on the populace are to blame. The UK is finding out, as Texas did last winter, that wind power, for lack of a better verb, blows. Wind turbines suffer from pronounced intermittency and are prone to fallow periods that a modern, functional electricity grid simply cannot endure.
Is there a way to change this? Well, my Canadian following has been growing by leaps and bounds since I started following smart, green tech companies like Exro Technologies (EXROF) and Nano One Materials (NNOMF) . I am certainly no Luddite. Pointing out that wind power is horrible is a statistical judgment, not a value judgment. But, last time I checked, Canada has an election Monday. I am looking at you, Justin Trudeau !
Canada has abundant natural gas supplies but Trudeau and his green warriors have conspired to keep much of it in the ground. Thanks, Boy Wonder!
But this is an investing column, not a political one. Prices for this liquid gold, natural gas, are 4x higher in Europe (based on the TTF pricing benchmark) and in Asia (based on the JKM pricing benchmark) than even the U.S.'s 7-year high mark of above $5/mmBTU.
It's arbitrage. A simple financial concept that applies to natural gas. So buy stock in companies that drill it (Range Resources (RRC) , Cabot Oil (COG) , Southwestern Energy (SWN) , etc.), pipe it (Antero Midstream (AM) has been the light of my life this year) and then liquefy it (Tellurian (TELL) , Cheniere (LNG) ), and put it on boats (Flex LNG (FLNG) is my favorite among the LNG shippers) to Europe and Asia.
It's an easy trade, and has even given a jolt to fertilizer names like CF and Mosaic (MOS) , both of which I own. Closing plants is never good, but if nobody can make fertilizer anywhere, and we are not at that point yet, the prices of chemicals like DAP and urea will skyrocket. That is exactly what we are seeing now.
Just open your eyes. It's easy to see...and also easy to see how blind some of our leaders are.
