2 Big Reasons Why Natural Gas Should Fuel our Future

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The U.S. Energy Information Agency estimates there are 2,203 trillion cubic feet of technically recoverable natural gas in the United States. To put that number into perspective, last year we used about 24 trillion cubic feet. That means we have enough natural gas to last about 92 years. However, it's more than likely there is even more gas out there waiting to be discovered or unlocked by technological advances. Bottom line, we have plenty of gas. Not only that, but there are two big reasons why we really should be using more of it.

Natural is cheap
The following slide is pretty remarkable. In the upper right hand corner it details two charts that clearly demonstrate how cheap natural gas is relative to rival fuels.

Source: Chart Industries Investor Presentation (link opens a PDF)

First, note how the barrel of oil equivalent of natural gas is about a quarter of the price of oil. Further, notice how cheap it is to fuel a power generation fleet with natural gas. The low capital costs of building a natural gas power plant really give it a competitive advantage over coal.

Coal producers are certainly taking notice. Many are shifting to exporting coal volumes overseas, while CONSOL Energy (NYSE: CNX  ) is jumping into the natural gas revolution with both feet. The company is basically abandoning its efforts to grow coal volumes. Once it completes its latest mine expansion next year the company expects to only invest to maintain its coal production with all of its growth capital being spent to increase its natural gas volumes. Clearly, CONSOL sees natural gas fueling its future.

Replacing coal isn't the only spot where natural gas has the potential to make a big impact. The economics of fueling our nation's garbage trucks or buses is very compelling. Clean Energy Fuels (NASDAQ: CLNE  ) , one of the leaders in building out our nation's natural gas refueling infrastructure, has a great chart that shows just how cheap natural gas is against diesel or gasoline:

Source: Clean Energy Fuel Investor Presentation (link opens a PDF)

Given those compelling numbers it is no wonder why 30% of all new transit vehicles and 60% of new refuse trucks are built to be fueled by natural gas.

Then there is the very compelling environmental benefit of switching.

Natural Gas is clean
Not only is natural gas cheap, but it is so much cleaner than other fuels. Back to the first chart, the second diagram on the right shows how much lower natural gas emissions are when compared against rival fuels. There is no question that it is the cleanest fossil fuel.

The reason for this is simple, because natural gas is simple. It is composed primarily of methane, which is the simplest hydrocarbon. At its core it contains more hydrogen and less carbon. When it burns it produces mostly carbon dioxide and water, which incidentally are the same substances humans emit when we exhale.

How to play our natural gas future
Investors aiming to profit from this potential can look to Clean Energy, which is building and operating the refueling stations. Another company that will really benefit from this future is Chart Industries (NASDAQ: GTLS  ) which manufactures all the equipment needed for a natural gas refueling station as well as well as the tanks required to move and store liquefied natural gas. It's a company I own, but one with a future compelling enough that I'd like to purchase a second helping in the near future. If only its shares were as cheap as natural gas these days.

The bottom line is that natural gas is abundant, cheap, and clean. We really need to use more of it in the U.S., with transportation and power generation being two key areas where it has the potential to be really transformative. That's the recipe for a compelling future and why natural gas-related stocks are so compelling for investors.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 24, 2013, at 2:07 PM, swiver wrote:

    You have been touting Clean Energy for a long time now. When is it going to move upwards?

  • Report this Comment On September 24, 2013, at 2:37 PM, livermore923 wrote:

    "Technically recoverable" NG and "future deliverable" NG are two completely different measures. In other words, "technical" isn't necessarily "practical". Your supply figures are based on hope, not reality.

    The industry (read: T. Boone Pickens) always cites technically recoverable NG in order to prop up an investment in clean fuels. (Note that Pickens is the largest shareholder in CLNE). Pickens would like us to use solar and wind to generate electricity rather than NG so there is enough cheap NG left over to power trucks and cars. This will not happen mostly due to the impracticality of public refueling infrastructure. At this point, electric vehicles show more promise.

    NG prices have historically been very volatile and I see no reason why that should not continue. Also, there are a number of environmental issues coming to the fore with regard to the Marcellus Shale, which is driving the pundits to espouse an endless supply of NG. Bottom Line: we have to be very careful before we stake our future on hyped NG supply figures.

  • Report this Comment On September 24, 2013, at 3:26 PM, Thinkerbus wrote:

    Livermore: If you really want to play it conservative, why don't you promote going back to the horse and buggy and oil lamps. We could even use the horse waste materials as fertilizer rather than petroleum based products. Only problem is we would get so far behind as a society that we likely would not survive. Technology is our savior, but it does need to be applied carefully. I'm "all in" for LNG Class 8

    OTR trucks and any responsible company that furthers that transition, which could have a $100 Billion impact on reducing dirty diesel. When are we going to wake up and be practical about fuels for transportation. Sounds like Pickens and his crowd (of which I am one of many) have it right when it comes to LNG for long haul trucking.

  • Report this Comment On September 27, 2013, at 4:08 PM, livermore923 wrote:

    Tinkerbus - This from a poster on the EXC board supports my point. Give it a read - very enlightening!!

    The numbers don't lie — but politicians and industry bigwigs do. While pundits still wax poetic about an era of American energy independence, Bill Powers, author of the book "Cold, Hungry and in the Dark: Exploding the Natural Gas Supply Myth," sees productivity plummeting in almost every major shale play. In this interview with The Energy Report, Powers tells us to forget about LNG exports and a manufacturing boom and get positioned for a bust. How? Invest in energy equities. Powers names his favorites for maximum returns when the bubble bursts.

    The Energy Report: Your last interview in May stimulated more discussion on how much natural gas supply we actually have in North America. Have there been any significant developments since then to support your views on the long-term supply picture?

    Bill Powers: More data points have come in supporting my views and making it very clear that the Fayetteville and Haynesville shales are now in decline and the Barnett had a very steep, 17% decline in H1/13 on a year-over-year (YOY) basis. It is now producing about 4.6 billion cubic feet a day (Bcf/day), which is substantially down from its peak of near 6 Bcf/day. The facts are starting to show that declines for the older shale plays such as the Barnett, Haynesville, Fayetteville and Woodford are very serious. More important, once production growth from the Marcellus slows down, it will no longer be able to offset declining production from shale plays as well as conventional, offshore, CBM and tight sands production, which are all in terminal decline.

    TER: Have companies been overproducing?

    BP: There are still about 40 rigs running in the Haynesville. That's dry gas with no associated liquids. Virtually every one of those wells will be uneconomic at under $6 per thousand cubic feet ($6/Mcf) and probably closer to $7/Mcf. About 80% of production will come within the first two years for most Haynesville wells, so current gas prices have an outsized influence on an individual well's economics. There are still a number of companies out there willfully drilling uneconomic wells, which boggles my mind. These companies are continuing to drill to keep their production from collapsing entirely.

    Last year, Chesapeake Corp. (CHK:NYSE) wrote down 4.6 trillion cubic feet (4.6 Tcf) of proven reserves from its Barnett and Haynesville shale wells. At the end of 2012, Southwestern Energy Co. (SWN:NYSE) wrote down the proven reserves of its Fayetteville Shale assets from 5 Tcf to 3 Tcf. Other companies, such as BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK) and BP Plc (BP:NYSE; BP:LSE), took huge write-downs. BG Group Plc (BRGYY:OTCQX; BG:LSE) also took a big write-down due to poor performance of its Haynesville wells. The list goes on and on. These reserves were supposed to have a 90% confidence level of being producible and generating a 10% rate of return using existing technology.

    The low price of gas alone isn't causing these write-downs. A lot of it has to do with the poor performance of these wells. There's been a lot of evidence put forward by myself, Art Berman, who wrote the forward to my book, and David Hughes, that the shale industry has overbooked its reserves by approximately 100%. The write-downs of the last few years have largely proven this out. More importantly, if shale operators are writing down reserves at the rate we've seen, this also speaks volumes about the total recoverability of all shale gas in the United State

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