Market Beat: Fracking natural gas
March 3, 2014
I've written about natural gas a couple times over the last year or so. Natural gas is the cleanest burning of all of the fossil fuels and the U.S. has an abundant supply that could last for 100 years or more.
Natural gas has the potential to become a major export product for the United States. Since 2005, we have increased natural gas production by 34 percent and became the world's No. 1 producer of natural gas. A recent study found that the increase in natural gas production has benefited our economy by more than $100 billion per year.
In President Obama's recent State of the Union address, he mentioned natural gas. He said, "America is closer to energy independence than we've been in decades….. The United States has reduced our total carbon pollution more than any other nation on Earth … One of the reasons why is natural gas — if extracted safely, it's the bridge fuel that can power our economy with less of the carbon pollution that causes climate change."
The reason our domestic oil and gas production has been increasing is due to technological advances in drilling techniques. With hydraulic fracturing, or "fracking," deposits can now be reached that were inaccessible in the past.
Just 10 years ago, Alan Greenspan, the chairman of the Federal Reserve, said we would have to begin importing natural gas in the near future. He had no idea of the changes in technology that were coming and was dead wrong. I think he's also probably glad he was inaccurate on that particular forecast.
There are some legitimate concerns about the fracking process. One is that it could pollute groundwater and another is manmade earthquakes.
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The chemicals used in the fracking process could be pollutants. One drilling company has developed a nontoxic fluid that is entirely composed of ingredients used in the food industry.
Reportedly, the governor of Colorado is on record stating that he has drunk the nontoxic drilling fluid and that it is safe. He may be right, but I don't think I'll be drinking any of it. As with any mining operation there have to be sensible, enforceable environmental regulations.
In the last 12 months, the natural gas ETF, UNG has gained more than 30 percent, and many of the leading companies in the industry have also performed very well.
Energy stocks should be a consideration for most long-term investors and the future of natural gas looks very bright.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information on his money management service can be found at his blog at http://www.sellacalloption.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.