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Doubling Down on Natural Gas

| Wednesday November 10th, 2010 | 0 Comments

There was a common theme clearly woven throughout the discussions that took place in Washington DC at the recent Green Intelligence Forum…the future will most definitely include natural gas. Although solar, wind and biomass were all touched upon, natural gas seemed to steal the show. The low price of natural gas makes investments in cleaner, yet more expensive forms of energy like solar, wind and nuclear even more precarious.

The future of natural gas is more than just rhetoric, big oil companies are laying their bets on natural gas and they are playing to win. According to an article by Chris Mayer in the Daily Reckoning, Royal Dutch Shell said that by 2012 it expects more than half of its output will be natural gas, not oil. Royal Dutch Shell is not the only company making this kind of prediction.

Exxon Mobil has completed eight projects last year, seven of them for natural gas. ConocoPhillips is buying their way into the natural gas market with a $5 billion dollar bid for Origen, an Australian gas company.

There are aspects of natural gas that make it a strong alternative to oil and even coal. First off, liquified natural gas (LNG) is easier to transport and it is also easier to find with plentiful deposits. Natural gas is also cleaner burning. It is only a matter of time before the government passes legislation that will punish dirtier fuels through some kind of carbon tax and this will only further benefit the natural gas market.

With all these benefits, it seems like a sure bet, right? Recent research has raised concerns about hydraulic fracturing (fracking), a technique used to release natural gas from shale. Fracking involves pumping millions of gallons of water and chemicals deep underground to break up the rocks, releasing the gas. The concern by scientists is the potential for the release of metals, like uranium, into the groundwater. The potential polluting of underground aquifers and surface streams is a major concern and will continue to be investigated as the popularity of natural gas grows.

Long term investors can safely place their bets on a promising future demand for natural gas. The world will likely burn more natural gas in cars and buses. According to the organization Natural Gas Vehicles for America, industry data shows that vehicular natural gas nearly doubled between 2003 and 2009, displacing more than 300 million diesel gallon equivalents.

The world will also use natural gas to heat and cool more homes than it does today. An increased reliance on natural gas to provide for electricity needs and fuel for transportation looks to have good odds. Investors should take note of the actions of big oil and get their heads in the game.


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