Natural gas has been on the tip of every energy investor's tongue for the past year. With prices heading higher, here are three trends you need to watch in 2014.
1. Natural gas for electricity
After bottoming out in 2012, natural-gas prices have been heading higher over the last two years. In the past year alone, Henry Hub natural gas spot prices have increased 28%.
Utilities without major natural-gas stakes are egging on the expense. Exelon (NYSE: EXC) stock is down 8% for 2013 as the nuclear-centric utility struggled to keep its fleet competitive with new natural-gas plants. In Exelon's Q3 results conference call, Exelon Generation CEO Kenneth Cornew specifically mentioned a slew of demand-side pushes for gas-price hikes in the next few years:
This will work in tandem with all other factors that will impact the market such as expanding LNG exports, exports to Mexico, industrial expansion and gas demand for power generation. The combination of these factors will stabilize Mid-Atlantic basis and support our fundamental view that natural gas will trade between $4 and $6 in MMBtu between 2017 to 2020.
If Cornew is correct, Exelon's nuclear could be back in competitive business. And while natural gas power plants won't be the golden ticket they once were, they should continue to play an important role in power production.
2. Natural gas for transportation
Natural gas is increasingly replacing traditional transportation fuels. There are now 644 compressed-natural-gas stations across the nation, allowing companies like United Parcel Service (NYSE: UPS) to replace major portions of their gas-guzzling fleet with natural-gas vehicles. And why wouldn't UPS, considering it costs a comparable $2.09 per gallon to fill up? United Parcel Service already has four LNG stations up and running, with plans for nine more by the end of 2014.
Clean Energy Fuels Corps (NASDAQ: CLNE), the largest provider of natural-gas fuel for transportation in the U.S., announced last month a new multiyear bulk-fueling agreement to supply LNG to two United Parcel Service stations, and has opened up other commercial stations to UPS's use.
And it's not just UPS. In Q3 2013, Clean Energy Fuels Corp customers ordered 70% more natural-gas vehicles than in Q3 2012. In the last 16 years, the company has designed, built, owned, and operated almost 450 natural-gas fueling stations -- more than all of its competitors combined. With Clean Energy Fuels Corp stock prices down around 50% from a 2012 spike, now might be a good time to get in on this long-term trend.
3. Natural gas for LNG Exports
Finally, our nation's natural gas isn't just for Americans. The Department of Energy is increasingly giving the thumbs up to natural-gas exports to non-Free Trade Agreement countries.
In 2011, Cheniere Energy (NYSEMKT: LNG) was the first to gain approval, for its $6 billion Louisiana facility. And while Cheniere Energy remains the only corporation with export facilities under construction, other companies are working hard to catch up.
Dominion Resources (NYSE: D) received the go-ahead to expand its $3.6 billion Maryland Cove Point plant in September and will ship U.S. gas as far away as Japan and India. Dominion Resources' northeast location makes it unique from other export areas, but it could offset some of the cheaper gas prices coming from Marcellus shale production.
With 30 more applications currently under review, LNG natural gas exports seem set to grow in 2014.
The future of natural gas
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