{"id":29404,"date":"2012-05-01T22:06:46","date_gmt":"2012-05-02T02:06:46","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/2012\/05\/dont-write-off-natural-gas\/"},"modified":"2012-05-01T22:06:46","modified_gmt":"2012-05-02T02:06:46","slug":"dont-write-off-natural-gas","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/05\/01\/dont-write-off-natural-gas\/","title":{"rendered":"Don\u2019t Write Off Natural Gas"},"content":{"rendered":"

By MoneyMorning.com.au<\/a><\/strong><\/p>\n

Natural gas<\/strong> has been described as the ‘fuel of the future’. But it\u2019s not behaving like it.<\/p>\n

Prices in the key US market have plunged by 75% in the last four years. And they\u2019re still falling. In 2012 alone, natural gas futures have dropped by 35%.<\/p>\n

That\u2019s been welcome news for American consumers. But from an investment point of view, does it mean that natural gas has now become a busted flush?<\/p>\n

Far from it. In fact, now is the right time to position your portfolio for a recovery.<\/p>\n

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Don\u2019t Expect Natural Gas Prices to Recover Soon<\/h3>\n

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No mass energy source is perfect: coal<\/a> is too messy; nuclear energy<\/a> is seen as too risky; solar and wind are too expensive.<\/p>\n

Natural gas<\/a> looks like a great long-term alternative to all of these. It\u2019s the cleanest-burning fossil fuel, and it\u2019s non-toxic. All we need to do now is convert our cars and power stations to natural gas, and the planet\u2019s energy problems will be solved.<\/p>\n

Not only that, but anyone invested in natural gas would profit handsomely as natural gas demand <\/a>soared along with natural gas prices<\/a>.<\/p>\n

Of course, it\u2019s not that simple.<\/p>\n

It takes lots of time and money to convert large numbers of vehicles and power plants. And meanwhile, existing natural gas consumers are using less of the fuel.<\/p>\n

Last winter was the warmest in the US since 2000, says the National Climatic Data Center. That\u2019s one reason why the US price of natural gas has just hit its lowest point in a decade at around $2 per million British thermal units (MBtus).<\/p>\n

But it\u2019s not just down to depressed demand. American natural gas companies <\/a>have been ramping up their output, which has resulted in excess supply. Indeed, US stockpiles are at record levels for the time of year.<\/p>\n

\u2018The weather exacerbated the problem,\u2019 says J Marshall Adkins at Raymond James & Associates. \u2018But when gas supply is up 8-10% year-on-year, you\u2019re going to have a problem.\u2019<\/p>\n

This natural gas glut won\u2019t evaporate in a hurry. Marketed gas production will increase by 4.5% this year, says the US Energy Department. So barring a freak cold spell, there\u2019s limited chance of the US natural gas price picking up much in the near future.<\/p>\n

Understandably, the shares of many natural gas producers have been clobbered along with the gas price. So should we just forget about investing in natural gas for the moment?<\/p>\n

Natural Gas is An Obvious Choice For \u2018Fuel of the Future\u2019<\/h3>\n

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\nThe short answer is no, we shouldn\u2019t. I won\u2019t try to predict exactly when the price of natural gas will bottom out, but I do believe in the long-term case for the fuel – and that the price will eventually recover sharply.<\/p>\n

The potential supply is huge, and that makes natural gas a clear frontrunner<\/a> in the race to be \u2018fuel of the future\u2019.<\/p>\n

The discovery of vast reserves of shale gas<\/a> under North America is a game changer for the US. This January, President Obama claimed that the US now has 100 years of natural gas supply<\/a>. A few people have since queried his maths, but whatever the precise truth, there\u2019s still plenty to be going on with.<\/p>\n

The UK may soon join the party. Two weeks ago the British Geological Survey said that UK offshore reserves of shale gas \u2013 ie natural gas extracted from shale rock formations – could exceed one thousand trillion cubic feet (tcf).<\/p>\n

That compares with Britain\u2019s current gas consumption rate of 3.5 tcf a year. Even if only 10-20% of total reserves are currently recoverable, the UK should still become energy self-sufficient. With our oil running out, that\u2019s got to be good news. And with our North Sea oil production expertise, Britain is well placed for offshore shale gas<\/a> extraction.<\/p>\n

Sure, there\u2019s been some controversy about the technique used to extract natural gas. Hydraulic fracturing, or \u2018fracking\u2019, involves pumping pressurised water, sand and chemicals underground to open fissures and to improve the flow of oil and gas to the surface. This has led to concerns about chemicals escaping into water sources.<\/p>\n

But a recent University of Texas study says that there\u2019s no direct link between groundwater contamination and the fracking process. And this month, a UK government report once again backed onshore shale gas drilling after a temporary fracking ban.<\/p>\n

Natural Gas Prices to Recover?<\/h3>\n

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If the potential future supply of natural gas is this large, then why will prices recover? Because the future potential demand is even larger. The US Energy Information Administration forecasts that by 2035, 80% of all America\u2019s new electricity generation capacity will come from natural gas-fired power plants.<\/p>\n

That alone looks a good reason for being bullish on natural gas. But the real story lies outside the US. Natural gas prices around the rest of the world are much higher \u2013 $11.5\/MBtu in Spain, $13.65\/Mbtu in India and $16.65\/Mbtu in Japan.<\/p>\n

So as soon as it can build enough facilities, America will export much more of its natural gas glut to meet global demand.<\/p>\n

Further, the smart money is now moving into the sector. Australian oil and gas firm Aurora is run by some clever operators, and it\u2019s looking to snap up shale deals while natural gas prices are in the doldrums.<\/p>\n

\u2018We expect gas prices to remain subdued through this year and next year,\u2019 says Aurora’s boss, Jon Stewart. \u2018But it\u2019s unsustainable for gas prices to remain as low as they presently are, because there\u2019s little if any incentive for companies to drill gas wells.\u2019<\/p>\n

David Stevenson <\/strong><\/p>\n

Associate Editor, MoneyWeek (UK)<\/strong><\/p>\n

Publisher\u2019s Note: <\/em>This article originally appeared in MoneyWeek (UK)<\/a><\/p>\n

From the Archives\u2026<\/em><\/strong><\/p>\n

Why Graphite is the High Tech Commodity of the Future<\/a><\/p>\n

2012-04-27 \u2013 Dr. Alex Cowie<\/p>\n

Why Gold is Hands-Down the Best \u201cMoney\u201d You Can Buy<\/a><\/p>\n

2012-04-26 \u2013 Kris Sayce<\/p>\n

12% Compulsory Super \u2013 Get Ready for the Government\u2019s Next Tax Grab<\/a><\/p>\n

2012-04-25 \u2013 Kris Sayce<\/p>\n

Westfield \u2013 The Aussie Retail Stock That Could Make You Money<\/a><\/p>\n

2012-04-24 \u2013 Shae Smith<\/p>\n

Why Natural Gas Is Still My Favourite Resource Opportunity<\/a><\/p>\n

2012-04-23 \u2013 Kris Sayce<\/p>\n

<\/strong><\/p>\n

For editorial enquiries and feedback, email letters@moneymorning.com.au<\/a><\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nDon\u2019t Write Off Natural Gas <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au Natural gas has been described as the ‘fuel of the future’. But it\u2019s not behaving like it. Prices in the key US market have plunged by 75% in the last four years. And they\u2019re still falling. In 2012 alone, natural gas futures have dropped by 35%. That\u2019s been welcome news for American consumers. … <\/p>\n

Continue reading “Don\u2019t Write Off Natural Gas”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-29404","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/29404","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=29404"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/29404\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=29404"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=29404"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=29404"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}