Prepare Your Portfolio For A La Niña Winter

| September 28, 2021

It’s only September, and natural gas prices are already skyrocketing in Europe and the United Kingdom. A forecast La Niña weather pattern, plus lack of energy security, could leave Europeans and Brits either sitting in the cold and dark or force the companies into a bidding war for U.S. sourced natural gas.

My sources in the United Kingdom have kept me updated on the power crisis that faces the country. Here are the highlights:

  • Wind power from the North Sea has dropped from providing 25% of the country’s needs in 2020 to a current 7% of demand. The wind stopped blowing just when the country needed more power. Source: Fortune
  • In a political power move, Russia has limited natural gas shipments to Europe. “The world’s leading energy authority has issued a rare public rebuke to Russia over a crunch in gas supplies as fears grow that Moscow is stoking a winter energy crisis across Europe. Russia ‘could do more’ to increase gas supplies to the Continent and show it is a ‘reliable supplier,’” the International Energy Agency (IEA) said.
  • Natural gas provides more than just electrical power. High natural gas prices have forced most of the U.K.’s commercial carbon dioxide production to shut down. Food and drink producers need carbon dioxide to make their products. Britons face food shortages as well as the potential to be sitting in the dark.
  • LNG (liquified natural gas) shipments from the U.S. have mostly gone to Asia, where high demand has that part of the world paying a premium for liquefied natural gas.

And it’s still fall. With a La Niña weather system expected soon, wind changes push up cold water out of the depths of the Pacific Ocean. La Niña winters typically produce colder and snowier than normal conditions across most of the northern hemisphere.

There are predictions that unless the United Kingdom can acquire more natural gas, the country’s citizens could face a winter of sitting in the dark, without heat, trying to cope with food shortages. The same situation may occur in other European countries.

Of course, no government can survive leaving the population in the dark without enough food. My U.K. source is convinced the government will commit to some sort of bailout. But how would a bailout work? This pending disaster is not a problem that throwing wildly money about will fix. I believe the only solution will be to obtain more natural gas, which is a dilemma seeing as how if gas were available, they wouldn’t be in this pickle.

The U.S. is the world’s largest natural gas producer and has been growing its LNG export capacity. It seems possible that the U.K. and Europe must enter a bidding war against the Asian countries for our natural gas exports.

Here in the U.S., a year ago, natural gas was traded for less than $2.00/mmBTU. Over the last six months, the price has more than doubled and trades close to $5.00/mmBTU. I have read projections of $10 gas as we get into the heating months of winter.

Because of these factors, I think the entire natural gas sector, from upstream to midstream to export, could reap tremendous profits between now and Spring.

The First Trust Natural Gas ETF (FCG) is one way to play the expected gains for natural gas. In my Dividend Hunter service, I recommend several other high-yield investments that will also go along for the ride.

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This article originally appeared at Investors Alley.

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Category: Commodities

About the Author ()

Tim Plaehn is the lead investment research analyst for income and dividend investing at Investors Alley. He is the editor for The Dividend Hunter, an investment advisory delivering income investments with double digit growth in share price and dividend payments. Tim’s also editor of Weekly Income Accelerator, a covered call trading service, and Automatic Income Machine, a dividend growth service focused on growing your nest egg.

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