Natural Gas prices in North America have plummeted for the last two years because of the glut in supply in the system. In 2007 through 2008 when the gas prices were high, there was a shale gas craze in mid-western Canada. As prices dropped, these significant capital investments didn't look so good anymore and on top of that the credit crisis happened. Companies who borrowed to invest a lot of money to develop these projects saw their stock price drop tremendously, much more so than the drops we saw on Blue Chip stocks which in themselves were quite severe.

The problem is there continues to be a glut (or a perceived glut) of natural gas because a lot of companies sold forward (hedged using futures contracts) their production. So under normal circumstances a lot of supply would dry up at gas less than $4, thus bringing the price back up again, but companies are still chugging out the gas at these prices because they signed forward contracts at, say, $6, a profitable price for them. Whoever was on the losing side of this financial transaction loses money, and the gas is then sold on the market at current prices.

The difficulty is determining when this excess supply dries up. There are few gas investments being made in North America right now.

Gas isn't like other commodities because it takes a lot of capital to increase supply and is very hard to ship so you could get a situation like in North America where gas seems to have limitless supply while in South America its more of a suppliers market. For instance, Colombia is in a very interesting state right now. It has a ton of gas under its own ground yet does not have the infrastructure to extract it. It is importing gas from neighbouring countries where the economies are less robust and therefore have less demand for gas despite dealing with similar infrastructure problems.

The result of it all is that Colombia is very biased in favour of companies willing to invest capital in the country in order to dig some of the stuff out. Because it is a couple steps ahead of its neighbours economically, it has the opportunity to develop that infrastructure to extract all the gas then be a net exporter as opposed to an importer. While most of the gas would be extracted by private industry, Colombia would receive income in the form of royalties which will likely be around 15-20% of all revenues a company makes by extracting and selling Colombian natural gas.

An opportunity exists because of the disconnect in the capital markets. While the economic activity takes place in Colombia, most capital investment and stock listings are in North America. Because of low gas prices here, people do not understand or pay attention to the fact that the Colombian natural gas market is very robust from a producer's perspective and that an investment from companies who extract natural gas in Colombia are very advantaged. This means that the stock prices of these companies could be undervalued.

Petrolifera Petroleum and Gran Tierra Energy both have significant projects in Colombia. Petrolifera trades with the symbol PDP on the Toronto Stock Exchange and Gran Tierra trades in the US and Canada under the symbol GTE.

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