Dramatic Investment Opportunity in Natural
Justin Rohrlich November
29, 2010 12:15PM|
manager Shawn Hackett lays out a case for a parabolic
move in the sector and the stocks poised to benefit..
in Shawn Hackett’s words, has been “in a pretty hellacious
bear market for a couple of years now.”
founder and president of Hackett Financial Advisors,
a money-management firm with a focus on commodities,
is bullish on natural gas due to what he believes is
a “huge tectonic shift in the natural gas pricing mechanism
that is creating a dramatic investment opportunity.”
anyone’s talking about right now is the glut of natural
gas in the United States,” Hackett says. “However, no
one’s talking about the US becoming a natural gas exporter
as China and India are becoming net importers.”
last decade, Hackett explains, whenever China and India
have “crossed over the Rubicon in becoming a net importer
of any particular commodity, it has preceded a major
structural change in the supply-demand balance and a
dramatic increase in prices moving forward.”
to corn as an example.
China and India started buying corn really aggressively,
when it was sitting at $3.30-$3.50 a bushel,” he says.
“They had finally reached the point where they could
no longer satisfy demand, after which we saw the big
rise to $5-$6 corn, which is where we are today.”
This has now happened with natural gas.
is focused on domestic issues -- the fracking debate,
and so forth,” Hackett says. “All the while, China and
India have quietly become net importers.”
very substantial,” he says. “If China and India are
already no longer self-sufficient at seven and five
cubic feet per person per day, what’s going to happen
when they move up to 10, 20 over the next few years?
The demand will be astronomical. It already happened
in Japan and South Korea, where they’re now at 70 and
30, respectively, within a 10 year time frame. We’ll
look back at this key structural change and say, ‘What
an opportunity that was! My god -- if I had only known!’
In hindsight, it’ll be such an easy thing to see.”
to Hackett, a company like Chesapeake Energy (CHK) with
large natural gas reserves is a pure play that “is gonna
be right in the sweet spot. Chesapeake, in my opinion,
will be the ExxonMobil (XOM) of natural gas,” he says.
quirk in the natural gas story is also an interesting
play in the sector.
we thought we were going to have to import natural gas,”
Hackett says. “When you ship natural gas, you have to
liquefy it before you move it, then gasify it again
at the other end. We built terminals to gasify incoming
LNG that are now useless because we have so much. Now
they’re literally sitting there idle, doing nothing.
So these companies are now in the process of reconfiguring
their terminals for export.”
favorite play in this arena is Cheniere Energy (LNG).
is exciting to me because they will be the middleman
between companies like Chesapeake and the rest of the
world,” he says. “America has the ability to become
the world’s largest exporter of natural gas over the
next few years, and once the export terminals come online
-- which I believe will happen within the next 12 months
-- you’ll see natural gas priced globally instead of
domestically. All the excess supply that has been depressing
prices will have a place to go and we will see a very
vibrant market with double-digit prices.”
gas production uses large amounts of water, Hackett
has identified an “off the beaten path” stock that is
flying beneath most investors’ radars:
“If the industry
can’t find a way to treat and reuse the water used in
processing gas in an environmentally sustainable way,
it’s all over,” Hackett explains. “The best way to play
this -- and probably my number-one idea -- is Heckmann.
Richard Heckmann is an extremely smart guy who’s going
after this whole area. And given his track record, it’s
highly likely Heckman will soon be the top name in the
of Heckmann from Inc. magazine provides a top-line overview
of that track record:
1990s, [Heckmann] was a large shareholder and CEO of
US Filter: He took a struggling company with $7 million
in sales, made an astonishing 260 acquisitions, and
sold it for $8 billion in 1999. He used another 26 acquisitions
to expand sporting-goods maker K2, which he sold for
$1.2 billion in 2007. Then he quickly raised $430 million
for a so-called blank-check company, Heckmann Corporation,
essentially a vehicle for investors to bet on Dick Heckmann
making more smart acquisitions.
The bets include a “50-mile water disposal pipeline
in the Haynesville Shale which can treat and dispose
up to 100,000 barrels of water per day.” Then there’s
a joint venture with Energy Transfer (ETP) to provide
“turnkey water infrastructure, gathering and treatment
solutions for complicated water flows in the Marcellus
and Haynesville oil and natural gas fields,” as well
as a “recent investment in water infrastructure solutions
and pipeline supplier Underground Solutions, Inc. (UGSI).
we’re seeing record short positions in natural gas,”
Hackett says. “Prices are so cheap, so out of whack
with reality, the huge move to the upside could occur
at any time. It’s not worth trying to time it, because
over the next five years, that 5% or 10% won’t even
matter. It’ll start slow, but it’ll ramp up fast.”
if one has confidence in the concept and outlook, get
in and put it away -- and know when to get out.
gas goes from four to eight all of a sudden, you will
have missed a huge opportunity to make money,” he maintains.
“Once the speculators rush in and you start reading
about natural gas getting all hot and heavy to the long
side, that’s when you’ll hear me hit the sell button.”