Market Beat: Investing in natural gas
May 21, 2013
A few months back I wrote about how natural gas could play an even more important role in energy consumption going forward.
There are several reasons for this. One, in the United States, we have an abundant supply of natural gas. In the United States we have enough natural gas to last 110 years at 2009 consumption levels.
Another is that natural gas is very clean burning. 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.
A third reason is that the price of natural gas is currently very low. Analysts sometimes use an energy equivalent formula to compare the price of oil to the price of natural gas. Using those methods, over the last 25 years, oil has been about twice the price of natural gas — today oil trades at about five times the price of natural gas.
One obstacle to using even more natural gas is the cost and potential for ground water pollution from the extraction process known as "fracking," 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.
One of the most obvious uses for natural gas is in the transportation industry. Long haul trucks can run on natural gas as can locomotives and ferry fleets. In Norway, ferries have been running on natural gas for 10 years.
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Natural gas has another advantage over diesel. If it is spilled it will evaporate, where spilled diesel fuel will form a slick.
UPS announced last month that they are planning to add 700 natural gas vehicles to their fleet by the end of 2014 and are going to build four more refueling stations. Currently UPS has more than 1,000 natural gas trucks in service.
FedEx, Coca Cola and Waste Management have also adopted natural gas vehicles in their fleets. CN, the Canadian National Railway, is currently testing engines that run on a mixture of 90 percent natural gas and 10 percent diesel.
Investors can purchase an ETF that is based on the price of natural gas. They can also consider a variety of companies that are involved in the natural gas industry in one way or another, including utility stocks that deliver natural gas to consumers.
Natural gas could be a logical bridge from oil to even cleaner alternative energy forms in the future.
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.