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Thursday, January 19, 2012

CHK - soon, but not yet

The decline of natural gas is making CHK look very interesting. I wrote about the potential set up a few weeks ago.  US natural gas is now trading near a decade low, but there does not appear to be a capitulation in sight.

Fracking has done wonders to increase supply, and keep prices depressed. (Can't say the same about the local environments. But progress has been made on the environment front.)

Recently, the Department of Energy approved a plan to convert a Louisiana Nat Gas hub for export of liquified natural gas. Where there is one, there will be many.

Natural Gas is about to become one of America's greatest exports, and the natural gas plays will benefit.  There is a great arbitrage to take place, if not one of the greatest in history.  European and Asian natural gas trade over 3 times as much as the Henry Hub price.  Once America begins to export, the spread will shrink.  But those who can capture the arbitrage will make a fortune.

If there is one commodity company that can take advantage of financial engineering and price arbitrage, it should be CHK. (McClendon is not shy when it comes to playing markets. Its also one of the reasons I am cautious on CHK too.)

Retrofits of hubs do not take place overnight, and in the mean time an opportunity will arise to get CHK at a very attractive level.  Last time nat. gas was testing these levels, CHK tested high 17/low 19. This time around should be no different, considering the level of negativity in the commodity.

I plan to take on positions when CHK enters the high 17/low 19 area.

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