There’s just not enough of the clean-burning stuff to go around… and the big players who dominate the market, like Gazprom, are far too strong for the West’s liking. That reality can translate into strong profits for investors who know where to drill.

Warm Regards,

Justice Litle, Editorial Director, Taipan Publishing Group

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North America and Europe are becoming increasingly desperate in their search for new natural gas deposits. But their pain can be your gain…

Spring is traditionally the time of year when baseball gets into full swing, you start cussing at the lawn mower, and natural gas prices drop as heating demand eases and air conditioner demand is a month away.

But not this year. After two years of mild winters and low heating demand, natural gas has spiked during the traditional soft period. In fact, it’s more than doubled to an intraday high of $11.79.

Demand for Clean Energy

It’s ironic that the religion of global warming has taken root along side an emerging energy crisis. One feeds the other in a hippy spasm of Exxon greed and brown clouds over Mumbai.

The demand for clean energy means that most new power plants are fueled by natural gas instead of coal. And as Andrew Mickey so gracefully pointed out in this space a few days ago, natural gas is slowly becoming a fungible global market. That means that more gas is going to Europe and Japan, due to higher prices over there.

The end result is that North American inventories have been depleted, and prices are going up.

Market forces dictate that higher prices result in more supply, which is also happening. Formerly uneconomical supply sources, such as coal-bed methane and shale gas, are now becoming economically feasible.

U.S. natural gas supplies will likely go up by 3.6 billion cubic feet a day in 2008. This compares to a growth rate of 2.2 Bcf/d in 2007 and 1.2 Bcf/d in 2006. So far, the demand is sucking all this up and then some.

The good news is there’s a lag between the spot price chart and the stock price of natural gas producers. One small ($2.42) natural gas producer I recommended in Crisis Trader sells its product on the spot market. Which means it benefits greatly when the price goes up. It just reported a 160% gain in net income for the first quarter.

This validates the idea that the 2005 supply glut and subsequent market crash is now history. Times are good and getting better for natural gas producers, if not for customers.

Gazprom Turns the Screw

On Monday, the Russian giant, Gazprom, shut down a quarter of its gas supply to the Ukraine to force the country to pay off a $600 million debt. This was settled today, but underscores Europe’s worries over the reliability of natural gas coming from Russia.

The last time Gazprom played this game was two years ago, when the Ukraine went for three days without gas and pipelines in Europe saw a drop in pressure.

Europe gets 20% of its gas from Ukrainian pipelines. The Ukraine, in turn, gets its gas from Russia. It’s a system that leaves Europe beholden to Russia, much like the U.S. is beholden to OPEC.

As Lord Palmerston once said, “Nations have no permanent friends and permanent allies, only permanent interests.” This means that Europe is looking for other suppliers. North Africa fits the bill, and a pipeline is being built to Spain.

To my way of thinking, this smells like opportunity. And in fact, I’ve discovered one small player — soon to be big — that is sitting on vast, virgin natural gas deposits. I’m finishing up my report as we speak. I’ll have it to you in the next few days… Talk about perfect timing.

Christian DeHaemer, Editor, Crisis Trader