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Investing in Natural Gas Infrastructure

Special Report
Around 1400 B.C., a goat herder saw a burning flame coming out of a spring. He also noticed his animals acted strangely after wandering near a particular chasm on Mount Parnassus. After investigating, he found himself "agitated like one frantic." The ancient Greeks named the place Delphi. As you know, the Oracle of Delphi was one of the most powerful beings in the ancient world. Because of her prophetic ramblings, the 300 Spartans fought at Thermopylae, Alexander the Great conquered the known world, and the inventor of gold coinage, Croesus, lost a kingdom. Recent studies by a team of scientists from Wesleyan University discovered that the source of these brain-altering vapors was a mixture of ethylene and methane. Ethylene is a natural gas that can be used as a anesthetic. It produces euphoria, excites the nervous system, and has a sweet smell. This matches the descriptions of the historian Plutarch. Obviously, these effects were attributed to divinity. A temple was built and a young female virgin was placed in charge. The Oracles grew fabulously rich on their predictions. At one point, the temple was the largest storehouse of gold in the world, and was not surpassed until the rise of the Byzantine Empire a thousand years later. Thus the earliest known source of natural gas changed the course of empires and created tremendous wealth... Natural Gas Right now, the United States is the leader in a world-changing technology called fracturing. This technology has allowed the production of natural gas in the U.S. to reach historic levels. The Key to Unlocking a Vast Fortune Up until a few years ago the problem was that massive percentages of natural gas were locked up in shale deposits spread throughout the Ring. Recovery of the resource was impossible. But that all changed when the hydraulic fracturing was invented. Put quite simply, hydraulic fracturing is a game changer. It’s the "best thing since sliced bread" of the energy sector. Now I'm not going to bore you with a long scientific explanation of what the process is. But I do think it's important to at least have a basic understanding of it. Historically gas and oil deposits simply laid in pockets underneath the surface of the earth. They were easy find and relatively easy to get to. You simply found them using seismic or magnetic surveys and then drilled where the pockets showed up. Then the oil or gas came out under its own pressure.... simple enough. Now don't get me wrong, there's a whole lot more to it than that but you get the idea. And in many parts of the world, including the United States, this traditional method of drilling for gas and oil is still prevalent. Fracturing Isn't New But in the 1940's Halliburton invented a process called hydraulic fracturing, or as it's known now, fracturing. At its simplest, fracturing is the process of blasting a mix of water, sand, and chemicals into a well that releases the gas or oil trapped inside shale. The reason fracturing didn't come into vogue until the past few years was at the very heart of what's setting off this revolution..... technology. Knowing Where to Fracture Is Key Until a few years ago the technology didn't exist that could accurately measure just how much oil or gas was trapped in the shale formations. And up until that time, the technology of fracturing itself was under-developed. But throw in skyrocketing oil gas prices, dwindling supplies, and an ever increasing world appetite for energy and you have the perfect storm for profits. When energy prices increased, the rush was on to find more domestic reserves. And with that push came a slew of new discoveries in America. The Headlines Tell the Tale This headlines were pulled over a two week period from February. Take a look:

Take a look: Total invests billions in shale gas Total is banned from developing “unconventional” hydrocarbons in France, its home market, but is plowing billions of dollars into the US as it seeks to tap booming demand for oil and gas extracted from shale rock. — Financial Times, Jan. 6 Exxon Gets 13,200 Acres Exxon Mobil has acquired about 13,200 acres in leases in Monroe County as the oil and natural gas giant continues expanding its Utica Shale footprint. — The Intelligencer, Jan. 8 China's Sinopec buys stake in five shale projects in the U.S. Devon Energy Corp announced Tuesday the sale to China’s Sinopec of a one-third stake in five shale projects in the United States. The terms of the deal call for China’s No. 2 oil company to pay 900 million dollars in cash to the US firm and contribute 1.6 billion toward the cost of drilling. — Bloomberg, Jan. 4 Shale Bubble Inflates on Near-Record Prices Chinese, French and Japanese energy explorers committed more than $8 billion in the past two weeks to shale-rock formations from Pennsylvania to Texas after 2011 set records for international average crude prices and U.S. gas demand. As competition among buyers intensifies, overseas investors are paying top dollar for fields… — Bloomberg, Jan. 9 The natural gas race in the United States is moving so fast, it makes your head spin. Going Global And it’s starting to spread globally, just like the flu... In Asia, natural gas costs around $17 per M, a near 600% premium to the cost of natural gas in the States. So it makes sense that Asian energy explorers would take stakes in shale gas formations in the U.S. Not only will they enjoy the production benefits, but they’ll learn the technology of hydraulic fracturing so that they can exploit their own shale fields. Think about this for a second: The U.S. holds an estimated 2,543 trillion cubic feet of gas— enough to supply America’s demand for more than a century, according to the U.S. Department of Energy. Shale gas like that found in the Marcellus accounts for 862 trillion of that total. In China, it’s estimated the country's shale gas formations contain 1,275 trillion cubic feet of gas. So it’s in China’s best interest to learn everything it can from American hydraulic fracturing. Regardless, the U.S. has a major head start in shale gas production. And just as they have in the Bakken, early investors will make fortunes riding this gas wave. Bottom line: America is going to be swimming in an ocean of natural gas and natural gas profits. And that will help the American consumer. This glut has driven the price of this clean energy source from $12 to $2.50 Mmbtu. Underground storage is at record highs, and companies like Chesapeake (CHK) have shut down production. That's because you can't make money from production; no one wants any more natural gas. There is nowhere left to put it. As you can see by the following chart, the number of drilling rigs in use is dropping to crisis-era lows. And this is happening at a time when unleaded gasoline is selling at $3.50 a gallon and moving higher.

But this is the best news in the world if you are an American. Picks and Shovel Plays The spot price in Japan for Liquefied Natural Gas (LNG) is $18. In Europe, it's $13.60.

For those of you who don't know, LNG is NG that is condensed for easy transport on ships. Obviously, this sets up the mother of all arbitrage plays... There is a mad dash to build new LNG terminals, pipelines, and vehicles. The rental price for LNG shipping has tripled in the past year. Shipping companies are in a mad dash to upgrade ships from the 1970s and build new ones. Heated competition is leading to fights between industry and NIMBYs in places like Oregon and Maryland to build new export terminals. Companies like Dow and DuPont are resisting exports because they want to ensure low costs in the U.S. Government leaders have even called for a ban on exports — that's how you know it's real! But it won't stop cheap energy... Of the nation’s 11 LNG receiving facilities, nine have asked for permission to be converted to export terminals. Regulators have conditionally approved at least two requests. More will come. This is real. There will be a number of ways to make money off of this major trend. To keep up with opportunities in this new and exciting investment region read Wealth Daily from your own inbox. You can view the HTML version here: Investing in Natural Gas Infrastructure

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