Either the Chinese government reads DailyWealth… or it already understands the secret to making huge gains over the next few years.

I’m talking about “hoarding”… in this case, hoarding proven, undeveloped natural gas reserves, or “PUDs.” These are reserves of gas in the ground that haven’t yet been tapped with a well.

Those reserves could shoot up hundreds of percent in value as natural gas prices rise. The market hates natural gas right now. It’s so cheap, it hardly makes sense for the companies that own these reserves to tap them and bring them to market.

But as natural gas prices rise, those reserves will start to look a lot more attractive… And the companies that own them will see their value soar. (For an example of the leverage here: A 22% rise in natural gas prices from October pushed shares of giant natural gas producer Chesapeake up 43%.)

[ad#Google Adsense]That’s just a fraction of what I expect. When natural gas prices go from today’s $4 per thousand cubic feet (mcf) to $6 or $8, which I expect we’ll see sometime in the next three or four years, shares of Chesapeake and its peers will go up hundreds of percent.

That’s what the Chinese are banking on. They’re buying massive hoards of natural gas.

Back in October 2010, the Chinese National Offshore Oil Company (CNOOC) paid $2.16 billion for a 33% stake of Chesapeake’s 600,000 acres of the Eagle Ford Shale – a huge, gas-rich swath of Texas land.

Then last month, CNOOC put up another $1.3 billion for 33% of Chesapeake’s 800,000 acres of the Niobrara Shale. The Niobrara is similar to the Eagle Ford, but located up in Northeastern Colorado and Southeastern Wyoming.

Finally, this week, China’s big dog, PetroChina, paid $5.4 billion for a 50% stake of natural gas producer EnCana’s 1.27 million acres in Canada’s Montney Shale.

The Montney is underdeveloped, so we don’t know much about it yet. But it’s clear PetroChina thinks highly of it: The price amounts to about $5.40 per mcf.

The engineers at PetroChina know that there are trillions of cubic feet of natural gas under that ground. And it won’t be produced for three or four years. In other words, the folks at PetroChina are buying cheap, undeveloped, North American natural gas reserves… and betting the natural gas price is heading up over the long run. That’s smart… And we should be doing exactly the same thing.

Fortunately, we can get a better price than PetroChina paid. Take a look:

We first published this table in November last year. Natural gas is up 17% since then. And that little jump in the price of natural gas pushed these PUDs higher.

I expect natural gas to ease back over the next few months, which will likely bring these prices back down a bit and give you a good chance to pick up some cheap PUDs. It’s a great long-term bet.

You see, Chinese companies like PetroChina and CNOOC understand something fundamental: The world will be hungry for more and more energy over the coming years. That’s why they’re gobbling up coal, uranium… and natural gas.

One of the best ways to play this decades-long trend is to get in ahead of China. Buy cheap natural gas in the ground. And be patient.

Good investing,

— Matt Badiali

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Source:  Daily Wealth