Natural Gas: Regional Investment or Arbitrage?

Harnessing the energy in shale has created a boom in the markets with enough momentum to alter the global energy industry altogether.  The controversial drilling technique involves fracturing shale formations using water, sand, and other (undisclosed) chemicals to access natural gas.  Entrepreneurial potential coupled with technological innovations from both the public- and private-sectors attract investment to either resource rich regions or competitive hedging projects for returns.

Political stability and limited regulation are principal factors taken into consideration by energy investors when looking at a particular region; and Australia is their newest Shangri-La.  It has the land, and capital to construct dozens for processing facilities which can be the major supplier for Asia.  By 2020, forecasters estimate that it will surpass Qatar as the world’s largest liquefied-natural-gas (LNG) exporter.  Export earnings were $11.1 billion in the 2012 fiscal year and are expected to surpass $55 billion in six years.

But with a labor shortage and the steep price of an Australian dollar, interests could swing towards the US.  Perceived to be the first station before energy independence, natural gas resources could be the United States trump card for exporting.  Other big players in the gas game include South Africa, China, Germany, Canada, Argentina and India, all of whom are somehow affected by either subsidiary industries or consumer products.  It can be difficult discerning the perfect region: one can lead to path of prosperity or down the rabbit hole.

There exists a second scope to view the gas energy boom.  Because natural gas is seen as the step away from crude oil and towards green alternatives (wind, solar, hydro), equity strategists are capitalizing in gas on oil arbitrage. While making a profit simultaneously purchasing and selling registered securities in foreign economies, these arbitragers could exploit pricing inefficiencies resulting from not only exchange rate, but also valuation inaccuracies.

Whether a direct regional investment or variable price wagers, ventures into the energy industry are rising. But would a more competitive market value help us develop a cleaner resource more rapidly—our original objective)?  My personal thoughts are that natural gas policy and the shift towards a green energy economy have the ability to collaboratively.  Do you think the financial services, technology, and energy industries may have hedged their bets too soon?