Natural Gas: Searching for Right Fit

NEW YORK (TheStreet) -- In my top stock recommendations for 2010, I made natural gas my No. 1 sector play in energy. If you only had one stock to add to your portfolio, I believed then it had to be in natural gas.

I believe I'm right about that recommendation still. Nothing makes more sense to me than the story on natural gas. It is domestic, cheap and plentiful. It's got undeniable advantages to crude, coal and certainly any alternative you can name. But I've struggled with the proper stock or group of stocks to get the exposure I've wanted. And I'm still searching.

Natural gas news has continued to flood the financial airwaves. Just in the last week, four more deals hit the tape. Royal Dutch Shell(RDSA) agreed to a major tight gas deal in China with the government parent of PetroChina,(PTR) right after making a very big deal for Australian natural gas company Arrow Energy(AOE). Linn Energy(LINE) just inked a deal to buy the natural gas assets of Highmount exploration, which has exposure into the Antrim shale deposits of the Michigan basin.

Enbridge Energy(EEQ) has begun inquiring if the commodity providers are ready to support a big new investment in a pipeline to bring gas exclusively from the Marcellus shale area in Pennsylvania to Chicago.

And Consol Energy(CNX), a coal company, has continued to buy shares of its own natural gas company, CNX gas, which it spun off in 2006 and have since been trying feverishly to buy it back. This last slug of shares it bought come one short week after spending $3.5 billion for Dominion Resources'(D) Appalachian natural gas resources, more than a third of which are also located in the hot Marcellus.

The proof is everywhere. Natural gas is where you've gotta be.

But some other fundamentals have taken the space down for the last several weeks. First, obviously, there's been a price decline in natural gas futures, inspite of draining stockpiles from a very tough winter. Natural gas futures have gone from close to $6 an mMbtu on the NYMEX to trade very close to $4 recently.