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The New Wildcard in the U.S. Energy Poker Game

By John Licata – Feb 2, 2014 at 1:21PM

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Natural gas prices are at the highest levels in four years, yet many were not prepared for this.

Talking to countless energy executives in recent years, I can vividly recall conversations with various senior leaders of major energy companies who adamantly told me the price of natural gas would remain depressed for years to come. Ever a 'glass half full' debater, I often posed the very simple question: What if natural gas prices were to suddenly rise? The responses would typically vary from "well, they won't," to "we are swimming in gas so that's not likely," and my favorite, "we'll worry about that when the time comes." That last one is great management, right? 

In any event, thinking natural gas prices would remain at 40-year lows is foolish. The sheer fact we are using or planning to use more and more natural gas in residential heating, in cogeneration plants, and in transportation suggests demand is rising and supply can't and won't stay in a nirvana-like state. Why? Pipeline disruptions can and do happen from time to time, there is increased discussion about exporting natural gas, and natural gas will likely be used in conjunction with renewable energy sources to help offset older coal plants that are retiring. 

So who wins and loses if the new wildcard is dealt to the American people? Well, producers of natural gas such as Chesapeake Energy (CHKA.Q), Devon Energy (DVN 1.46%), and Anadarko Petroleum (APC) are surely beneficiaries of higher natural gas prices, but utilities like Duke Energy (DUK -0.68%), NRG Energy (NRG 1.16%), and others may be hard-pressed to raise consumer prices. They may suffer before blessing the passing of costs along. I'm all for electric vehicles, but unless storage solutions develop sooner than later, consumers may begin to think twice about charging their vehicles, especially if they just switched over to natural gas in their homes and escalating natural gas prices hit their wallets.

With natural gas prices now at the highest levels since August 2010, the wildcard of continued rising prices could disrupt a lot of "hopium" that this power source was the ultimate key to our energy independence. Without emphasizing more renewable energy sources here at home, the bridge fuel that is natural gas is a dangerous trip for consumers, especially if that bridge is not leading them to the diverse, low-carbon power sources that really should come next. 

John Licata has no position in any stocks mentioned. The Motley Fool owns shares of Devon Energy. 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.

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Stocks Mentioned

Chesapeake Energy Stock Quote
Chesapeake Energy
CHKA.Q
Devon Energy Stock Quote
Devon Energy
DVN
$67.50 (1.46%) $0.97
Anadarko Petroleum Stock Quote
Anadarko Petroleum
APC
Duke Energy Stock Quote
Duke Energy
DUK
$97.94 (-0.68%) $0.67
NRG Energy Stock Quote
NRG Energy
NRG
$41.91 (1.16%) $0.48

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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