Stock Up on Natural Gas

Natural gas is the natural investment opportunity right now, as the shopping spree for natural gas companies continued last week with the recent buyout offer of a subsidiary of Royal Dutch Shell(RDS.A) and PetroChina(PTR) for Arrow Energy's(AOE) Australian operations.

Positioning yourself correctly on this no-brainer fuel of the future holds the key to a profitable energy portion of your portfolio going forward, and I'm going to show you how to do it.

Natural gas has everything fundamentally going for it right now. It is cheap, it is domestic and it is plentiful. It has so far been less affected by what I've called the "endless bid" in energy, where capital from institutional and individual investors is propping up prices, as with crude oil.

Dicker's Speculative Natural Gas Buys

So while crude hovers above $80 a barrel, natural gas still trades at under $4.50 per mmbtu. That's an incredible 18-to-1 ratio, well over the more historically traditional six-to-10 times differential. So we know that natty is cheap. With recently discovered Marcellus and Texas shale deposits and new injection technologies to get at them, the U.S. has become the "Saudi Arabia of natural gas," with well over 100 years of new supply now waiting to be tapped. So we know it is plentiful and domestic.

So, even if Washington has been slow to recognize natural gas as the cornerstone of a new national energy plan, corporate America has been far less slow to recognize the obvious. Exxon Mobil(XOM) was first, paying $41 billion, an incredible premium, for XTO Energy(XTO). Then Total, the French energy giant, ponied up $2.25 billion for a quarter stake of Chesapeake's(CHK) Texas shale fields. Last week, BP(BP) paid a smaller amount to acquire a one-half stake of Lewis Energy's Texas shale holdings. And that has been followed by this most recent Arrow Energy deal offer from Shell and PetroChina.

Is the pattern obvious enough yet? It is to me: Large multinational energy companies with free capital are paying up big to get more exposure to natural gas -- often paying enormous buyout premiums.

How do you play this going forward? You could look for natural gas companies to speculate on as buyout targets. As a lifetime trader, I have found that to be a very difficult game to get right and best left to others.