The companies offering a solution to this political football

Thursday, 28 December 2017
Melbourne, Australia
By Terence Duffy

  • The gas supply crunch
  • Take note of this bullish signal
  • Two for the watchlist

Editor’s note: Kris Sayce, Bernd Struben and the staff at Port Phillip Publishing are taking a break for the holidays. We will be returning to our posts on 2 January, 2018. While we’re away, we’re bringing you some complimentary back-issues of Money Morning Trader.

Money Morning Trader is a daily paid service (Monday–Friday), brought to you by our expert chartist, Terence Duffy. Terence details how the day’s charts tell you everything you need to know about the economy and the stocks about to move. And they do it long before the mainstream financial media gets onto the story. Terence looks for stocks about to break higher, and to get on board for the run. As he says, the stock market itself tells you which stocks to buy! To understand what he means by that, you can find out more about Money Morning Trader here.

The following article was originally published on 6 September 2017.

The east coast gas story has continued to dominate headlines all year.

Australia has more than enough gas to supply its own needs. In fact, the country is swimming in gas. But much of it is locked away under state bans and moratoriums. And what is produced is exported from large liquefied natural gas (LNG) plants at Gladstone to fulfil overseas contracts.

This has led to domestic shortages.

There is an urgent need to deliver additional gas supply to east coast gas markets. Not only to meet immediate needs, but to alleviate the longer-term gas shortages being anticipated for Sydney, Melbourne and Adelaide over the next decade.

Bans and moratoriums on gas development in most states means there are few options left to develop new resources.

Developing the resources in Queensland’s gas basins perhaps represents the quickest solution to meeting the east coast shortfalls. The area is already producing gas; it just needs a pipeline to the south to connect this large gas resource to east coast markets.

Opportunities are opening up for smaller companies in this space to meet this demand.

The crisis has caused the price of domestic gas prices to triple over the last 10 years, and gas in the ground has become far more valuable.

That’s starting to rerate some gas juniors in this space, so you could start to put some of these companies on the radar.

Comet Ridge Ltd [ASX:COI] and Blue Energy Ltd [ASX:BUL] are two companies who operate in this space.

Both companies own significant gas projects in key regions of Queensland and New South Wales.

First to Blue Energy.

The company is working towards unlocking the potential of its large gas resources in Queensland’s Bowen Basin region.

On 20 June the company announced news to market that it has executed a memorandum of understanding with APA Group [ASX:APA] to deliver Blue Energy’s Bowen Basin gas reserves to southern market gas buyers in an effort to alleviate east coast gas shortages.

Under the agreement, APA will consider building, owning and operating the pipeline infrastructure, in addition to transporting Blue Energy’s gas.

The connection would, in theory, open up gas from the Bowen Basin to as far south as Hobart and all points in between.

Blue Energy is sitting on about 11,000 petajoules of gas in that basin, which hasn’t been developed. To put that in perspective, that’s about 20 years of east coast domestic demand. It just needs to be developed.

Let’s bring up the chart:

chart image

Source: Optuma
Click to enlarge

The share price gapped up on the news of a proposed pipeline. That gap never filled, which is usually a bullish signal. Take note of that signal for your own future trading.

Note how, following the news, the share price continued to find higher support — another bullish sign. Blue Energy is a company that you could do some study on.

Now to Comet Ridge.

Comet Ridge has significant gas projects in key regions of Queensland.

Like Blue Energy, Comet Ridge signed a similar agreement with pipeline provider APA Group last year to connect the company’s gas resources in the Galilee Basin to the east coast grid.

Should both those proposed pipelines go ahead, the two projects combined have the potential to supply the east coast gas market.

Let’s bring up the chart:

chart image

Source: Optuma
Click to enlarge

The share price ran up in March, but has continued to hold a line. You can tell from the chart that this stock does trade thinly. You don’t load up on these types of stocks because you can’t be sure you’ll get out at the price you want.

That aside, should the share price start trading above 16.5 cents, it might indicate further positive news to come for the company. It’s one more for the watchlist.

This has become a hot topic and somewhat of a political football. Rising energy prices and gas shortages was a theme for the recent profit reporting season, with several chief executives expressing concern about the energy crisis.

ASX gas juniors such as Blue Energy and Comet Ridge, in working with the APA group, might potentially offer some solutions to this crisis.

It’s a space to watch.

Good trading,

Terence Duffy,
Editor, Money Morning Trader

I (Bernd) thought you might like to see how this one played out. Below you can see what the chart did tell you, as updated on 6 December:

chart image

Source: Optuma
Click to enlarge

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