Chesapeake Energy Corporation (CHK), Devon Energy Corp (DVN): What is Driving the Natural Gas Rally?

Others, however, are opting to wait till prices rise much higher before they divert their resources away from liquids-rich plays.

For instance, Chesapeake Energy Corporation (NYSE:CHK) recently announced that it has no plans to resume drilling in gassier plays and is instead opting to ramp up operations in the oil-rich Eagle Ford play. Similarly, Devon Energy Corp (NYSE:DVN) said it won’t be drilling for natural gas at all this year and will instead be devoting much of its capital budget to ramping up drilling in the liquids-rich Permian Basin.

Losers from the natural gas rally broadly include companies whose production costs are heavily dependent on natural gas prices. For instance, consider manufacturers of nitrogen-based fertilizer products, which tend to use copious amounts of natural gas as a primary input for their operations.

The surge in gas prices has been especially brutal for Rentech Nitrogen Partners LP (NYSE:RNF) . At the company’s East Dubuque facility, natural gas accounts for nearly two-thirds of ammonia production costs. Not surprisingly, since the surge in natural gas prices began in February, Rentech shares have plunged by about a third.

Keep watching the natural gas space in 2013 to see how high prices may go.

The article What’s Driving the Natural Gas Rally? originally appeared on Fool.com.

Fool contributor Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool recommends Ultra Petroleum, owns shares of Devon Energy and Ultra Petroleum, and has options on Chesapeake Energy and Ultra Petroleum.

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