Natural Gas: It’s Time has Arrived
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I am a long term fan of Natural Gas and have posted pro-nat gas articles on this website in the past. It is weak now due to its “junk energy” status during an economic downturn. It is highly leveraged to the economy and does very well in a strong economy and very poorly in a weak economy. This is due to its primary use as an industrial energy supply and its seasonal use for building heating.
If (when) nat gas becomes a primary transportation fuel source alongside gasoline and diesel, its utility and value will soar. I think that time is coming soon. The easiest way to achieve a significant global reduction in green-house gas is by a conversion of transportation systems from gasoline to nat gas and electric power from coal to nat gas. This hasn’t happened in the past for two reasons: (1) lack of distribution infrastructure (i.e. nat gas fuel stations on every corner); and (2) perception of uneven supply across the geography (nat gas is expensive to transport other than through a pipeline due to its low density as a gas). A third issue is the cost of the conversion of vehicles from gasoline to nat gas powered, but this is a manageable economic issue that can be addressed with tax policy, and is not a technology issue.
I see the Obama administration addressing the greenhouse gas problem through policies that favor nat gas. He will announce the framework of those policies today (Tuesday). Nat Gas is a good solution to provide energy independence and a cleaner environment. It provides a technology bridge to developing renewable energy sources like solar and hydrogen fuel cells. It will happen and should be the cornerstone of every portfolio.
The nat gas ETF, UNG, is flawed, but is the only pure play on nat gas pricing. The premium in the ETF due to a moratorium on adding futures to the ETF is down from 20% to 5%. That premium is manageable and makes UNG once again a decent way to play nat gas. North America energy producers are the other way to play nat gas: CHK, XTO, LINN, PWE, PVX, MRO, PGH are some of the stocks one can use to gain exposure to nat gas.
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