Natural Gas: The Coming Boom

Natural Gas: The Coming Boom

It looks as though President Obama and the Democrat controlled Congress will definitely attempt to pass some type of environmental legislation in 2009 or 2010. This legislation would be aimed directly at carbon and other greenhouse gas emissions and their role in global warming.

In the coming months and years, either a "Cap and Trade" system or a straight up carbon tax will be likely be passed by U.S. legistators. The moderates in Congress and most of the heavy industrial world, faced with the reality of some type of legislation, are rallying behind a carbon tax for its simplicity and for the fact that the cost can be passed along to the consumer much more efficiently and without the distortion and potential fraud of a cap and trade system.

The U.S. House of Representatives approved legislation on June 26 that would place caps on U.S. greenhouse gas emissions and sets nationals standard for the production of renewable electricity by 2020. The American Clean Energy and Security Act (H.R. 2454) would cut U.S. greenhouse gas emissions by 17% by 2020, from 2005 levels, and by 83% by 2050.

While much of the focus on reducing greenhouse gas emissions will be on the development of next generation renewable energy resources, natural gas can and will play a significant role in this evolving story. Natural gas per BTU of energy is much cleaner than oil or coal, the two primary fossil fuel alternatives, and thanks to new drilling technologies that are unlocking substantial amounts of natural gas from shale rocks, the nation’s estimated natural gas reserves have surged by 35 percent according to new studies.

So, if a carbon tax  or a Cap and Trade system is ultimately put into place by U.S. legislators, natural gas will likely be a huge beneficiary.  Natural gas could emerge as a critical transition fuel that could help to battle global warming. For a given amount of heat energy, burning gas produces about half as much carbon dioxide, the main cause of global warming, as burning coal.

Industrial demand accounts for about 30 percent of natural gas consumption annually in the U.S. Thus, economic health of US industry directly influences natural gas prices in a significant way. During the past year, as world economies have struggled through the worst recession in the last 80 years, natural gas prices have been hovering near six year lows in the range of $3.50 per MMBtu. Domestic production has remained strong and recent gas producer’s quarterly earnings indicate that economic activity is beginning to recover as industrial demand starts to pick back up. This should strengthen natural gas prices in the short term, and in the longer term the move toward cleaner energy solutions should put natural gas squarely in the middle between dirty fossil fuels and clean renewable energy solutions.

Natural gas promises to be used as a transitional fuel to alternative to renewable energies like solar, wind and geothermal. Even influential oil-tycoon T Boone Pickens has proposed, and spent a considerable portion of his wealth, promoting the idea of natural gas powered vehicles.

Once fuel cell powered vehicles become practical, within 10 years with government encouragement /subsidy, natural gas is likely to be among the first fuels used by such vehicles. This reality will be encouraged if Pickens is successful in getting existing fuel stations in North America to add natural gas to their product offerings at the pump. Time will tell if that infrastructure will get built into our national transportation fuel system and if you will be able to buy and utilize natural gas powered vehicles. Natural Gas is already in use in many public transportation systems and municipal fleets.

While pure hydrogen vehicles may be a better environmental option (since the byproduct of the chemical reaction is pure water), the manufacture, storage and distribution of highly combustible hydrogen has many science, engineering and production problems that have yet to be solved. So keep a close eye on natural gas prices for possibly higher prices in the near-term as well as the longer-term. As the economy rebounds we think that natural gas prices will rise as industrial consumption picks back up and in the longer term we think that natural gas will be a key ingredient in the mix to reduce greenhouse gas emissions.

We have compiled a list of stocks to add to your radar that are highly levered to the price of natural gas that might be worthy of your investment consideration as follows:

EXCO Resources, Inc. (XCO)--an independent oil and natural gas company, engages in the acquisition, development, and exploitation of onshore oil and natural gas properties. Its operations are focused on the North American oil and natural gas areas, including the east Texas/North Louisiana.

Detailed Quote: http://www.otcpicks.com/quotes/XCO.php

Gasco Energy, Inc. (GSX)--operates as a natural gas and petroleum exploitation, development, and production company. The company engages in locating and developing hydrocarbon resources primarily in the Rocky Mountain region. It acquires leasehold interests in petroleum and natural gas rights, and exploits and develops properties subject to those leases. Gasco Energy focuses on drilling efforts in the Riverbend project located in the Uinta Basin of northeastern Utah.                             

Detailed Quote:http://www.otcpicks.com/quotes/GSX.php

Anadarko (APC)--engages in the exploration and production of oil and gas properties primarily in the United States, the deepwater of the Gulf of Mexico, and Algeria. The company markets natural gas, crude oil, condensate, and oil and natural gas liquids (NGLs), as well as owns and operates natural gas gathering, treating, and processing systems.

Detailed Quote: http://www.otcpicks.com/quotes/APC.php

Chesapeake (CHK)--an oil and natural gas exploration and production company, engages in the acquisition, exploration, and development of properties for the production of crude oil and natural gas from underground reservoirs. It also provides marketing and midstream services for natural gas and oil for other working interest owners in properties it operate.

Detailed Quote: http://www.otcpicks.com/quotes/CHK.php

XTO Energy, Inc. (XTO)--together with its subsidiaries, engages in the acquisition, development, exploitation, and exploration of producing oil and gas properties in the United States. It also engages in the production, processing, marketing, and transportation of oil and natural gas.

Detailed Quote: http://www.otcpicks.com/quotes/XTO.php

Southwest Energy (SWN)--engages in the exploration, development, and production of natural gas and crude oil in the United States. The company operates in two segments, Exploration and Production, and Midstream Services. The Exploration and Production segment involves in the development of the unconventional gas reservoir located on the Arkansas side of the Arkoma Basin, as well as exploration and production activities in Oklahoma, Texas, and Pennsylvania.

Detailed Quote: http://www.otcpicks.com/quotes/SWN.php

Penn West Energy Trust (PWE)-- an open-ended, unincorporated investment trust, engages in acquiring, developing, exploiting, and holding interests in petroleum and natural gas properties and assets. Its properties are located in the provinces of Alberta, British Columbia, Saskatchewan and Manitoba, and in the Northwest Territories in Canada, as well as in Montana, Wyoming, and North Dakota in the United States.

Detailed Quote: http://www.otcpicks.com/quotes/PWE.php

Pengrowth Energy Trust (PGH)—through its subsidiary, Pengrowth Corporation, engages in the acquisition, ownership, and operation of working interests and royalty interests in oil and natural gas properties in Canada.

Detailed Quote: http://www.otcpicks.com/quotes/PGH.php

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