Why natural gas investments are a good buy amid the energy transition

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Few resources are more important to our survival than energy. Houses cannot be heated, planes cannot fly, and even lipstick cannot be formulated without energy from hydrocarbons. The energy sector literally powers our global economy.

As a functional resource with growing demand, natural gas, specifically, holds immense value that should be reflected within investors’ portfolios.

While we wait to take the next step in the energy transition, natural gas has proven to be the best possible option for energy security for all economies while simultaneously generating profit for those investing in the industry.

As investors continue to double down on efforts to resolve loss and restore balance after a difficult 2022 in financial markets, they’ll look to sectors displaying consistency and growth. Natural gas offers both.

In a cautious investment landscape, investors will work to avoid history from repeating itself by analyzing historical performance. And based on their findings, they’ll work to forecast future performance.

The past three years have been exceptional for the gas sector. Amid the S&P 500′s 20 per cent drop in 2022, natural gas didn’t just maintain its steady record; it rose by 59 per cent.

The commodity has displayed resilience time and again. The S&P 500′s energy sector outperformed all sectors in 2021 after the COVID-19 pandemic led to a market rout in 2020. Despite recent bear market predictions, when we actually look at the data, oil and gas stocks also fluctuate less than others. They produce significant capital gains and share price appreciation over reasonable timeframes.

Energy is among the more reliable industries to gain exposure to stability in value with overall sentiment on future oil demand remaining bullish.

Renewables versus natural gas investments

As we head toward a future without fossil fuels and powered by renewables, many may be wondering if natural gas is indeed a good investment.

Shifting tides place solar energy and wind top of mind, but it’s important to note, it may be misleading to advise clients to invest in renewables, should they want to see returns at a sooner date.

To put it simply, we’re decades away from a world in which renewables are the main source of energy. Despite desires to reach nation-driven climate goals quickly, the actual work this will take is being grossly minimized.

For example, the U.S. right now is facing a massive electrical grid issue. Designed for coal and gas, the country’s electrical grid is fragmented and spans across the country. It has no ability to support green energy production. Wind turbines are needed for that.

For now, the U.S. doesn’t have an abundance of wind turbines and the best spots to build this infrastructure reside outside of cities, away from the strategically positioned electrical grid that’s taken decades to build. If the U.S. pursues the build-out of wind turbines to meet President Biden’s 2035 climate goals, the country will need to double transmission capacity, which may be possible once we find out who will be willing to pay for this expansion.

No single entity is responsible for the development of this needed infrastructure, and so it begs the question, who is going to pay for it? It will take community, state and federal support, time, and an actual plan, to get things going. Only once all these weeds have been untangled, we’ll be on our way toward renewables. While the situation is not the same for every country, each is facing its own set of unique challenges.

Those looking to retire may not want to wait, nor should their portfolios, until the world gets its act together on this front. Meanwhile, natural gas has proven to be a driver of strong investment returns and is not facing these types of challenges. It’s abundant, has cultivated high demand in the face of war and a global energy crisis and it’s the cleanest, most-cost efficient fossil fuel.

Natural gas is green

The European Union recently labelled natural gas as a “green” investment for this reason. When natural gas burns, it produces mostly carbon dioxide and water vapour and has the lowest carbon footprint of all fossil fuels. These gasses are the same elements we breathe.

With natural gas being recognized as a cleaner alternative to other fossil fuels, it’s at the centre of the transition to renewable energy.

While carbon-heavy methods of energy generation like coal burning should be on their way to obsolescence, more palatable alternatives – particularly liquefied natural gas – continue to enjoy support for pro-development as an essential source of power.

James Hill is chief executive officer and director of Vancouver-based MCF Energy Ltd. in Camarillo, Calif.

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