David Sterman
years, but it's important to know the ins and outs before investing. In this is two-part series, StreetAuthority's David Sterman will discuss the current situation with natural gas, when he thinks it will be "time to buy," and three of his favorite ways to profit. The following article is Part 1 of our series.]
Place the number 725 in your mind. In a few moments, I'll explain why it's the figure that could finally spell the end of the  natural gas industry's troubles. The good news: 725 will soon approach, and that's when it will be time to buy into this sector.
By now, you've read countless articles about the rise and fall of the natural gas industry. A half decade ago, the industry was giddy with delight because a newly-refined drilling technique (hydraulic fracturing, known as "fracking") turned seemingly dormant energy fields into absolute gushers. As company after company announced promising drilling results -- and the ensuing robust spending plans -- few realized that the basic laws of supply and demand would soon be violated.

And those laws are unbreakable.

In the middle of the last decade, gas wells weren't all that productive, and the industry put an increasing number of wells in service just to find enough gas to meet our nation's needs. In fact, the natural-gas rig count, as tracked by energy firm Baker Hughes (NYSE: BHI), spiked from 966 at the end of 2003 to around 1,450 by the end of 2007.

By the middle of 2008, the price of natural gas spiked to $13 per MCF (thousand cubic feet) as supply only slowly started to catch up to demand. Yet by end of that year, gas would be back down to $5 MCF. Many thought that was due to the slow U.S. economy, but few realized that the industry was creating a nightmare scenario as newly-productive gas rigs threatened to create a glut of natural gas that simply couldn't be absorbed by demand.

David Sterman

David Sterman has worked as an investment analyst for nearly two decades. He is currently an analyst for StreetAuthority.com

Get the best of Townhall Finance Daily delivered straight to your inbox

Follow Townhall Finance!