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Natural Gas, Jobs and the Stock Market

Sigma Investment Counselors

February 18, 2014

Energy is a key cost consideration for many businesses.
Natural gas is generally considered to be the least worst of the widely available fossil fuels.

Thanks to new technologies, the U. S. has an abundance of natural gas at very attractive prices.

Natural gas can be easily and economically transported by pipeline. However, ocean transport is more difficult and relatively expensive. Oil, on the other hand, can be efficiently transported by pipeline, rail and sea.

These key points suggest that there may be a significant advantage to bringing certain types of manufacturing to the energy supply. The historical approach has been to bring the energy to the manufacturing site.

Bringing the work to the energy is not necessarily unusual. An interesting example is the Aluar aluminum smelter in Puerto Madryn, Argentina (Puerto Madryn is a port located approximately half way between Buenos Aires and Tierra del Fuego). The facility began production in 1974, following the completion of a hydroelectric complex on the east slope of the Andes. Abundant cheap electricity is a critical component of aluminum smelting. Aluar imports bauxite, the world’s main source of aluminum, and exports approximately 70% of the Puerto Madryn plant’s production.

Of course, energy is not the only reason for locating in the Untied States. In addition to the advantages of relatively low prices for natural gas and abundant reserves, the U. S. offers potential investors several other material advantages. Some of the more important include: the rule of law, a good labor supply and a reserve currency.

Over time, new domestic investment, whether foreign or U. S. owned, tends to increase employment, boost tax revenues and improve consumer confidence, all key ingredients for an improving stock market and opportunities for astute investors.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA

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