From Motley Fool:
At Brookfield Asset Management's annual investor day, Sam Pollock, CEO of Brookfield Infrastructure Partners (NYSE: BIP ) , was asked if his company would be pursing the enticing liquid natural gas export market. Pollock noted that while it's something that has been explored in the past, it's not an area of current focus.*The best ever description of whiling away the time and the dangers of idle hands:
Instead, he said that the current focus in energy would continue to be the opportunities unfolding in natural gas storage. He went on to elaborate by saying that "with the significant reduction in spreads this could be an interesting time to make further acquisitions there and benefit over the long run."
What is this spread?
Natural gas storage operators typically charge a fee based on the spread between gas bought in the summer and sold forward into the winter. For example, a dedicated storage operator like PAA Natural Gas Storage (NYSE: PNG ) will sign a multi-year, fee-based contract to store gas for a variety of clients. Typically the fee collected is made up of that spread between summer and winter gas prices.
Because these spreads have fallen dramatically over the past couple of years, it's creating opportunities for long-term bulls like Brookfield. How big is the opportunity? According to PAA Natural Gas Storage, that spread has gone from almost a $1.00 per MMBTU to a low of less than $0.40 per MMBTU. While the company expects these spreads to continue to be volatile, the currently compressed spread is reducing the value of natural gas storage assets. For investors that prefer to buy low, it's an opportunity.
Why is this an opportunity?
Challenged spreads and falling asset values are piquing the interest-value investors like Brookfield. The company is interested in scooping up natural gas storage assets at their lows so that it can be positioned to take advantage of the upside during a recovery. Just recently, the company scooped up an interest in natural gas storage assets in Canada, and it's on the hunt for more.
Not only are asset values intriguing, but the low spreads are creating a disincentive to invest in new storage assets. According to PNG, it costs $300 million-$500 million for the first billion cubic feet, or Bcf, of a new greenfield, salt cavern storage development. Not only is new storage capacity cost-prohibitive, but it takes between 24 and 36 months to bring the asset online....MORE
“…For, after all, I had been into cocoa a bit myself. That was back when The Great Winfield had discovered cocoa trading. Occasionally in those more leisured days I would sit with him lazily watching stocks move, like two sheriffs in a rowboat watching catfish in the Tennessee River….”
-Adam Smith, Supermoney
