Why Is Natural Gas A Good Investment Now?

Natural gas commodity prices are cheap and low gas prices are driving growth for its demand. There are a number of demand catalysts that point to a natural gas bull run for low cost producers that possess existing quality, low risk, reserves and resources of natural gas in the United States that may be developed at low cost.

Drilling Activity and Rig Counts

  • Over the past 6 years the US rig fleet activity has been focussed almost exclusively on drilling for oil and liquids. The natural gas rig count has imploded to a less than a quarter of the 1,600 rigs drilling in 2008 to only 378 rigs in early October 2013. Without new wells being drilled to replace older declining wells we are seeing US production growth flatten and roll over. Natural gas well flow rates commonly decline 65% to 90% by the end of their first year of production, 30-35% in their second year of production and so forth... with only a quarter of the amount of gas rigs drilling now compared to five years ago the rate at which new production is hitting the market has been significantly curtailed. Rig fleets are active in oil and liquids rich plays. It will likely take $5 to $6 gas prices before drilling will be reactivated in the gas sector.

EMERGING AND GROWING MARKETS

Clean Energy Fuel of the Future

  • The U.S. government is beginning to embrace and promote the benefits of natural gas as a clean energy choice for the U.S. According to the EPA and the U.S. Energy Information Administration, natural gas produces significantly lower levels of carbon dioxide, sulfur dioxide, nitrogen dioxide and mercury when compared to oil or coal. Natural gas can provide the US with energy independence along with enormous economic benefits including industrial expansion and job growth.

Electrical Power Generation ("Power Gen")

  • Natural gas is the preferred fuel to generate electricity when compared with coal, nuclear or heating fuel. Aging coal plants due to be retired will not be replaced with new coal plants. Natural gas demand growth will come from electric utilities and other consumers shifting away from coal and nuclear power sources. Natural gas is cheaper and cleaner. In comparison to coal, natural gas emits up to 60% less CO2. Natural gas will be the fastest-growing major fuel through 2040, with demand rising by more than 60 percent. In an era of increasing pollution regulations, cleaner is synonymous with cheaper. Natural gas market share of electrical generation is projected to increase from 23% to 53% by 2038.

Industrial Demand

  • U.S. natural gas prices are driving a resurgence in U.S. industry. The global advantage of having cheap, reliable long term domestic natural gas supplies within a first world infrastructure and workforce is a catalyst for new industrial plant builds. Cheap gas benefits new steel mills, ammonia, plastics, fertilizer, munitions, etc. The resurgence of the U.S. chemical industry can be explained in two words: natural gas. The shale boom has made the U.S. the lowest-cost chemical producer outside the Middle East. Gas prices have fallen by three-fourths since 2005, a boon for chemical makers that use it as a raw material and to power factories. Employment in chemicals is rising, after falling 29 percent over the previous three decades, according to Kevin Swift, chief economist at the American Chemistry Council, a trade group. The U.S. logged a trade surplus of $800 million in chemicals in 2012, its first since 2001. Swift expects the surplus to swell to $46 billion by 2020. "If anyone asked me even four years ago, 'Would you ever see world-scale commodity chemical plants being built in the U.S.?' I would have said categorically 'no,' " says Paul Harnick, global chief operating officer for chemicals at KPMG.

Cars/Fleets/Buses/Locomotive Conversions

  • The transportation and services sectors, in particular fleet operators, are realizing that natural gas is significantly cheaper than diesel fuel. Converting to compressed natural gas as fuel of choice may reduce fuel costs by 20% to 30% yielding a competitive advantage and operational efficiencies.

Liquified Natural Gas (LNG) Exports

  • U.S. exports of domestically sourced LNG (excluding existing exports from the Kenai facility in Alaska, that fall to zero in 2013) begin in 2016 and rise to a level of 1.6 trillion cubic feet per year in 2027. One-half of the projected increase in U.S. exports of LNG originate in the Lower 48 states and the other half from Alaska. The Department of Energy (DOE) has over 25 applications to export LNG - some of them seeking to export at least 30 billion cubic feet a day, for which they will fetch much higher prices than at home. The US produces about 70 billion cubic feet a day of natural gas. So the competition will be stiff for these approvals. LNG exports will tighten domestic natural gas supplies and drive natural gas prices higher.