The Graph Every Energy Investor Needs to See

A fascinating graphic proves how advances in technology have made natural gas the energy of the future.

Jan 9, 2014 at 9:10AM

There's one graph that does more to show why natural gas producers such as Devon Energy (NYSE:DVN) and Chesapeake Energy (NYSE:CHK) have a bright future than all the other blogs around. It's Vaclav Smil's graph of the year, which was predominantly featured at The Washington Post's famous Wonkblog on Dec. 29.

The graph charts prices for crude oil and natural gas, and it shows why natural gas will be the energy source of choice for the foreseeable future. As you can see from the graph, natural gas prices have been steadily falling for the last four years, while crude oil costs have risen.

Crude And Natural Gas

Source: The Washington Post

The story the graph tells is a simple one: In 2008 crude oil costs hit a high of around $140 a barrel. The spot price for natural gas also hit a high in that year of around $13 per thousand cubic feet. The prices for both energy sources then took a dramatic nosedive during the great financial meltdown.

Natural gas prices going down, down, down
Yet as the graph shows, something interesting has been happening since then. The natural gas spot price has been going down steadily with the exception of a small peak in early 2010. Oil prices have been creeping up and are now back around $110 a barrel. The natural gas spot price at the end of 2013 was around $2 per mcf.

The lesson for investors is that natural gas is not only cheaper than crude oil, it is probably going to get cheaper in the near future. We all know what happens when something gets cheaper: We use more of it, and the volume of sales increases.

History has proven again and again that the best way to make a lot of money is to sell something at a discount. The discount drives the volume of sales, which leads to increasing revenue. Wal-Mart and are two companies that have followed this age-old formula.

Is natural gas discount energy?
Natural gas has just become the discount energy source, which means demand will increase. If these trends continue, natural gas will become competitive as a fuel source for vehicles. Chrysler and Ford are already planning to bring out natural-gas powered trucks next year. It could also become highly competitive for such uses as fuel cells for the micro generation of electricity.

Obviously, this is highly speculative because the infrastructure for natural-gas powered vehicles and micro generation of electricity doesn't exist yet. It'll cost a lot of money to develop a network of natural gas filling stations and to install natural gas-powered fuel cells or generators in homes and businesses. It'll also require people to change their thinking, which can be harder than the work of installing the physical infrastructure.

Yet the low price of natural gas could make such moves very economical in the near future. We also know that consumers are willing to radically change their habits if something is a lot cheaper. Just take a look at all of the consumers who buy groceries at Wal-Mart.

Bottom line
If this trend continues, companies like Devon, Chesapeake, EOG Resources (NYSE:EOG), Apache, and Chevron, which are sitting on huge reserves of natural gas, could see a massive increase in revenues. This revenue increase has already begun for some companies: Chesapeake's revenue increased by nearly $6 billion between September 2011 and September 2013.

Competitor EOG Resources saw its revenue grow by more than $4 billion in the same period. The revenue for oil-centered producers such as Marathon Oil and Apache stayed flat in the same period.

The chart of the year shows that the natural gas boom is real and likely to continue. Energy investors need to take a hard look at it before making their stock picks for 2014. 

America's energy boom is far from over
Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don't miss out on this timely opportunity; click here to access your report -- it's absolutely free. 


Daniel Jennings has a position in Chesapeake Energy. The Motley Fool owns shares of Devon Energy and EOG Resources. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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