The next big play in Canada is likely to be natural gas trapped in shale formations. Now, everyone already knows that Canada is big in gas -- but most of its production now comes from gas found in sandstone formations. Shale gas is big in the U.S. -- where the Barnett shale formation in East Texas and the Pinedale shale formation in Wyoming have made billion-dollar companies out of Ultra and Chesapeake -- but not in Canada.
According to fund manager David Anderson, whose Palo Alto Investors has been an early institutional owner of these outfits, Canadian shale and coal beds will become a rich target for gas exploration and development over the next year. Top players are megacap
Encana(ECA Quote - Cramer on ECA - Stock Picks), mid-cap
Quicksilver Resources(KWK Quote - Cramer on KWK - Stock Picks) and Canadian-traded small-cap
Ember Resources.
Service companies that should have a shot at success with the shale surprise are Canadian outfits
Trican Well Services and
Calfrac Well Services, and the American drilling fluids provider
Flotek Industries(FTK Quote - Cramer on FTK - Stock Picks). Key areas of interest are the Mannville coals and the Horseshoe Canyon coals in the province of Alberta.
Diesel Days
Over the past few years, energy-minded investors have come to recognize that oil is for transportation while natural gas is for industry. In the coming year, that line will become increasingly blurred, as higher prices bring "gas to liquids," or GTL, programs into the mainstream. This is the process by which hugely capital-intensive specialist companies convert natural gas into a form of "clean" diesel that can be poured into a vehicle's tank.
There's a lot more natural gas in the world than oil, so the concept -- if successful on mass scale -- will take the load off of petroleum-producing countries. In contrast to conventional liquefied natural gas, GTL is nonexplosive, easily transportable and does not require special port terminals.
The world's biggest reserves are in Qatar, Russia and Iran. The top company involved is big-cap
Sasol(SSL Quote - Cramer on SSL - Stock Picks), which is based in South Africa but well traded on the
New York Stock Exchange. Another play on clean diesel is
Frontier Oil(FTO Quote - Cramer on FTO - Stock Picks), a Houston-based mid-cap refiner that specializes in turning the sourest, or highest sulfur, crude oil into usable fuel.
Life, Erupted
Now we're in the lightning round for surprises. Quickly, the rest of them go like this: The first half to three quarters of 2006 will be rough on equities, with the potential for a slide of as much as 15%. The first quarter of earnings growth should be fine, but a sharp slowdown in the second and third quarters, as higher interest rates finally bite, will really shock people. Just as the Dow declines under 9900, the dollar falls over, and fears emerge for the resumption of a 2000-2002 style bear market.
But stocks will stabilize and recover by late summer. The catalyst for the final spike down will be a massive volcanic eruption somewhere in the Pacific Ocean area -- perhaps Mexico or the U.S., but more likely in the Indonesia-Philippines-China-Japan zone. At first, the cloud of dust will spark doomsday scenarios of choked-off agriculture and imperiled photosynthesis. But intensified hurricane activity on the other side of the globe will mix up the air enough to avert disaster, and worldwide equities will recover.
American voters' dissatisfaction with the Bush administration's response to the crisis will lead to a stunning victory by Democrats and independents in the midterm elections, sparking optimism for political and economic stability in the 2007-2008 period. Stocks will trace out a bear market loss of 20% as forecast in the pioneering work of the reclusive independent institutional analyst Robert LaMorte; virtually all sectors and market-cap groups are hit hard except for Big Pharma and biotechs.
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Jon Markman
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