What do high-profile investors Jim Cramer, George Soros and T. Boone Pickens have in common? They are all bullish on natural gas playing a larger role in meeting energy needs over the coming years. Solar and wind power may eventually emerge as the face of renewable energy but natural gas can be the bridge until these alternative energy sources are fully viable.
Why natural gas now? The old chestnut is that it is cleaner than the other fossil fuels. It generates 30 per cent less carbon dioxide than oil and 40 per cent less than coal, says Mr. Cramer. And, of course, it can be brought on stream quickly compared to wind, solar, and even nuclear, power.
The new chestnut is that innovations in extraction technologies, notably hydraulic fracturing and horizontal drilling, have made many more deposits of natural gas accessible. Along with ongoing expansion in the transportation infrastructure for liquefied natural gas, this has resulted in a much more abundant and cheaper fuel source.
Indeed, estimates of U.S. gas reserves have skyrocketed because of the new drilling methods. Energy experts on the Potential Gas Committee declared in June, 2009, that recoverable U.S. gas reserves stood at 2,000 trillion cubic feet in 2008, a record jump of 34 per cent. “That’s enough natural gas to power [the U.S.] through the 21st century,” said Mr. Pickens – formerly an advocate of wind power.
A more recent report (in February) by J.P. Morgan Securities Inc. concludes North America has 8,000 trillion cubic feet, four times more than the committee’s calculation. If the committee’s estimate meant U.S. needs were met for a century, then J.P Morgan’s estimate implies U.S. needs are covered for several centuries.
With natural gas so plentiful and inexpensive, Mr. Cramer and Mr. Pickens also see it as the solution to the age-old problem of weaning the U.S. off its dependence on foreign oil. Moreover, say the two, if the U.S. were to ramp up drilling, building of pipelines and conversion of power plants and vehicles to natural gas, it would be a major generator of the jobs so desperately needed at this time.
Obama’s ‘game-changing’ speech
In early June, natural gas prices and stocks got a lift off their depressed levels when U.S. President Barack Obama made a Pittsburgh speech in which he declared: “the time has come … to fully embrace a clean energy future …. [it] means tapping into our natural gas reserves ….” The market took such comments as evidence of the President’s intention to work toward the passage of legislation favourable to natural gas.
One such bill now on Capital Hill is the Natural Gas Act, which contains a number of credits and subsidies to encourage the use of natural gas. Specifically, it seeks to promote the conversion of vehicles to natural gas, expansion in the number of refilling stations and development of natural gas technologies.
Mr. Soros has some bets on vehicles using more natural gas. The Soros Management Fund reported recently that it has a stake of nearly 5 per cent in Vancouver-based Westport WPT-T which has patented technology to convert diesel truck engines to natural gas (and is working on developing natural gas engines for trucks).
Mr. Obama’s “game-changing” speech (as Mr. Cramer called it) also conveyed a commitment to rounding up enough votes to enact the American Clean Energy and Security Act with its “cap-and-trade” provisions. It won’t be easy, but if the President succeeds, then “putting a price on carbon pollution” could generate a noteworthy incentive for energy users to shift to natural gas.
Investment opportunities
A May, 2010, report prepared by National Bank Financial analysts Angelo Katsoras and Pierre Fournier, “Investing in the Natural Gas Revolution,” outlines investment opportunities expected to arise from the shift toward greater consumption of natural gas. They include:
•large, deep-pocketed oil companies replenishing their reserves with natural gas, notably Shell RDS.A-N (66-per-cent gas) and Exxon Mobil XOM-N (49-per-cent gas)
