The U.S. economy has been shackled for decades by its reliance on foreign oil. Just a few years ago, this country relied on other nations for 60% of the oil we needed to fuel our daily lives. Now, thanks to hydraulic fracturing and horizontal drilling, we've begun to unlock vast oil resources. By next year, U.S. net oil imports will have declined to just 29%, with much of what's imported coming from our friendly neighbor to the north. It's stunning how quickly things have changed.
However, that tells only half of the story. The natural gas side is even more compelling. We're sitting on more than a 100-year supply, with additional gas being found all the time. Projections have natural gas production growing by 44% through 2040 to 33.1 trillion cubic feet. It's starting to displace coal-fueled power plants, diesel in buses, and oil as a feedstock for petrochemicals. Natural gas is becoming the fuel of our future, even as it begins to become one of the world's most sought-after fuels.
The following slide demonstrates two very compelling trends. First, note the chart on the right that details the rise of natural gas in terms of commercial energy use. By 2030, it could be consumed at a rate as high as oil and coal.
Source: Chart Industries Investor Presentation (link opens a PDF).
The other important chart is on the bottom left, showing the rise of nations outside the Organization for Economic Cooperation and Development in terms of gross domestic product. These would generally be considered emerging-market economies. The key here is that these economies need fuel to grow, which will only increase the world's demand for natural gas.
With ample and growing production and supplies, the U.S. is in a prime position to meet the world's increasing demand for natural gas. The Department of Energy has already approved four natural gas export facilities, including Cheniere Energy's (LNG -0.93%) Sabine Pass and Dominion's (D 1.10%) Cove Point. That brings approved U.S. export capacity up to 6.27 billion cubic feet per day, which is less than 10% of current production of 81.4 billion cubic feet per day. It's also well below projected future production, which again is expected to grow significantly over the coming decades.
For investors, there are two clear plays here. First, investing in the natural gas export trade should pay big future dividends. Meanwhile, it will be hard to go wrong with a natural gas producer. Let's take a closer look at both options.
On the export side, Cheniere is the first mover and is really a pure play. That's one of the most direct ways to play natural gas exports, as in addition to Sabine Pass, Cheniere already has a second facility under consideration. Meanwhile, Dominion is a diversified utility that owns resources including power plants and natural gas pipelines. Its diversity makes it a much safer play. One name I really like is Chart Industries (GTLS -0.37%). It's more of a global play on natural gas exports, manufacturing the high-end equipment the industry needs to make exports a reality. It boasts of diversity, too; just 54% of its sales are to the energy industry, while only 44% of its sales are in the United States. Still, it's a great way to play the global natural gas export trade.
Looking at the production side, there are two names I really like. First, Range Resources (RRC 3.25%) simply has a remarkable resource base of low-cost gas. The company estimates that its total resource potential could be 83 trillion cubic feet of gas. Further, it has line-of-sight production growth of 20%-25% for as far as it can see. Finally, with a bulk of its resources in the Marcellus, Range has the potential to benefit from its proximity to Dominion's Cove Point export facility in Maryland.
The other company that should do well as natural gas fuels our future is Cabot Oil & Gas (CTRA 1.17%), another low-cost Marcellus player. It has a 25-year inventory of future drilling locations in one of the best spots of the Marcellus. The company's economics are already so good that its rates of return rival or exceed all of the top U.S. oil and natural gas liquids plays at current commodity prices. If exports push natural gas prices higher in the future, its returns will only get better. That makes Cabot another great way to play the coming natural gas boom.
These stocks are really just a sampling of how to play this boom. Overall, this is a great time to be invested in our energy future. Not only does it have the potential to fuel the U.S. economy in the future, but it will also do wonders for any retirement portfolio.
