Market Beat: The future of natural gas
TRUCKEE, Calif. andamp;#8212; One widely accepted tenet of investing is that by adding commodities to your portfolio you can expect to get better returns with less risk due to the increased diversification. Last week I wrote about the global long-term demand for copper. As we begin to develop alternative forms of energy and move away from fossil fuels, it makes sense that natural gas could play an important role.Vehicles powered by natural gas run much cleaner than conventional gasoline or diesel engines. According to the Department of Energy, if the transportation sector switched to natural gas, it would reduce carbon monoxide emissions by at least 90 percent. Weandamp;#8217;d also see significant reductions in carbon dioxide and nitrogen dioxide emissions. Right now itandamp;#8217;s not feasible because we donandamp;#8217;t have the service stations in place, and Honda is the only car manufacturer that produces an all natural gas car.Our supplies of natural gas are abundant. In the United States we have enough natural gas to last 110 years at 2009 consumption levels. Natural gas could be a logical bridge from oil to even cleaner alternative energy forms in the future.Ferry operators in the United States and Canada are considering switching to natural gas from diesel as a cost savings measure. In Norway ferries have been running on natural gas for 10 years. Natural gas has another advantage over diesel; if it is spilled it will evaporate where spilled diesel fuel will form a slick.A concern with natural gas usage is the method used to extract the gas from the rock where it resides. The process is known as andamp;#8220;frackingandamp;#8221; which is short for hydraulic fracturing. The fracking process involves using ultra high pressure water laced with chemicals to fracture the rock and release the gas deposits. Critics say that fracking can pollute the groundwater. Extracting natural gas is also very energy intensive, it requires quite a bit of energy to drill for the gas. The fracking process will have to be improved to be sure that groundwater contamination does not occur.What makes natural gas appealing to an investor is how low the current price is. According to the Wall Street journal, the price at Louisianaandamp;#8217;s Henry Hub distribution area in April was the lowest it has been since 1999. Other analysts use energy equivalent formulas to compare the price of oil to the price of natural gas andamp;#8212; using those methods over the last 25 years, oil has been about twice the price of natural gas. Today oil trades at six times the price of natural gas.Kenneth Roberts is a Truckee based Registered Investment Advisor. Information on his money management service can be found at http://www.fusiontargetretirement.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
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