Natural Gas Stocks Get Boost from Obama

by Susan J. Aluise | March 31, 2011 11:18 am

The natural gas industry got a big bounce on Wednesday as President Obama said its potential as a clean energy alternative to oil is “enormous” and federal incentives to expand the use of natural gas in vehicles are “an area of broad bipartisan agreement.” 

It didn’t hurt that Obama also vowed to slash U.S. oil imports one-third by 2025.

Natural gas shares jumped on the news: Range Resources (NYSE:RRC[1]) gained nearly 3%, as did Chesapeake Energy (NYSE:CHK[2]). Cabot Oil & Gas (NYSE:COG[3]) rose 5.5%, Southwestern Energy (NYSE:SWN[4]) added 1.7%, EQT (NYSE:EQT[5]) rose 1.7%, and Exxon Mobil (NYSE:XOM[6]) rose 1.4%.

As one of the few ready clean alternatives to oil, it’s not news that natural gas shares have been on a tear this year – averaging 40%-50% increases from their 52-week lows.  And some companies have done even better: Cabot Oil & Gas has doubled from its 52-week low last fall, Range Resources is up 78.48% and Chesapeake Energy is up 74.71%.

Much of that price appreciation came before the still-escalating crisis in Japan took the bloom off the nuclear power rose. Last year, an Energy Department report determined that the cost of producing a kilowatt-hour of power with natural gas is less expensive than nuclear, coal, wind and solar.

Obama emphasized that nuclear power is still very much a part of his strategy to wean the U.S. off foreign oil — “we can’t simply take it off the table,” he said.  Realistically, though, the ongoing crisis at the Fukushima I nuclear power plant has struck a heavy blow to confidence about the safety of existing reactors in the U.S.  And until those worries are laid to rest, the nuclear power industry will have a tough time getting up off the mat. 

Of course, the markets are wise enough to know that without an aggressive (and probably painful) plan in place, Obama’s resolve to cut U.S. dependence on foreign oil is composed of equal parts feel-good rhetoric and wishful thinking.  But in the realpolitik of Washington, “broad bipartisan agreement” is a code-phrase for getting a deal done. 

And the deal on the table today is the New Alternative Transportation to Give Americans Solutions Act (NAT GAS Act).  NAT-GAS aims to promote the use of natural gas in the transportation sector by offering tax credits to buyers of natural gas-powered vehicles.

Setting a goal that 10% of new vehicles would be natural-gas fueled in seven years, NAT-GAS would require every retail fueling station in the country to allocate at least one pump for natural gas by 2018. The legislation, which has been kicking around Capitol Hill since 2008, will be reintroduced on April 6.  

That was great news for companies like Westport Innovations (Nasdaq:WPRT[7]), Fuel Systems Solutions (Nasdaq:FSYS[8]) and Clean Energy Fuels (Nasdaq:CLNE[9]) that are betting heavily on natural gas to have a big play in the transportation sector.  The companies’ shares went through the roof on Wednesday, averaging gains of more than 10% on the day.



As of this writing, Susan J. Aluise did not hold a position in any of the stocks mentioned here.

  1. RRC:
  2. CHK:
  3. COG:
  4. SWN:
  5. EQT:
  6. XOM:
  7. WPRT:
  8. FSYS:
  9. CLNE:

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