Mailbag: A Timeline for the Natural Gas Revolution

by | published February 22nd, 2012

The energy markets are really heating up right now.

With gasoline prices surging to historic highs and natural gas prices falling to historic lows, we’ve gotten many questions lately from subscribers wondering about the best ways to play the energy markets.

So, I want to take the time right now to answer a great question I got about natural gas last week, and, in the process, provide you with a timeline for you to profit on the coming “natural” revolution.

Remember, if you have a question or a comment of your own, be sure to register below and type your thoughts into the box. We’d love to hear from you.

Q: Can you give us a timeline as to when gas will be in such great demand? What is “long term” as you put it for our investments? Thank you for your expertise on the gas and oil investments. ~ Jere R.

If you watch CNBC or any of the other financial news channels, you’re probably hearing a lot about the opportunity to invest in natural gas. They’re chatting up natural gas vehicles, pipeline companies, and anyone else who is pulling this stuff out of the ground.

But what they don’t discuss are the fundamentals. And if you are too swept up in the hype to acknowledge them yourself, you could miss out on some of the best opportunities to invest.

That’s why I chatted with Kent about this question last week, to get his take.

What we want to evaluate is natural gas’ long-term prospects.

And the reality is, natural gas has a very bright future in the United States.

Kent argues that the crux to increasing gas demand will be realized from four events.

1) Power Plants Are Coming Off Line

By 2020, more than 90 gigawatts (GW) of electricity generation will come offline. Most of this power reduction will come from the retiring of coal-fired power plants.

Ninety GW is an immense amount of power. And it won’t be easy to replace – at least, not without a plan.

The United States will have to turn to alternative sources.

Now, no coal-fired or co-fueled (a combination of coal and natural gas) plants have been planned. The United States will likely see an increase in solar, wind, geothermal, and other “green” sources. However, these alternative sources are not enough to fully replace such an enormous amount of power.

As a result, the country will turn to natural gas to fill the void.

Kent currently estimates that new natural gas plants would account for 1.2 billion cubic feet (BCF) per day of additional natural gas usage. That’s more natural gas than would be needed to power the State of Delaware for an entire week. And that might be a low estimate given our regulatory environment.

As the EPA introduces tougher non-carbon emission standards for mercury, sulfurous, and nitrous oxide, regulations could easily push another 20 GW from coal to natural gas in the near future.

2) and 3) Natural Gas is Replacing Conventional Fuels

The second and third demand factors also come from companies using natural gas as a replacement for conventional fuels.

At the moment, greater usage is being made (and even more so in the future) of natural as feeder stock for the production of petrochemicals rather than crude oil. Yet as the price of crude oil rises, and regulations target carbon emissions, companies will look to natural gas a lower-cost alternative.

That’s one.

There is also a continuing shift toward compressed natural gas (CNG), liquid petroleum gas (LPG), and liquefied natural gas (LNG) as replacement for diesel as transport fuel with further movement into lighter engines (not just trucks) coming down the road.

We’ve discussed in the past how companies like Clean Energy Fuels (Nasdaq: CLNE) and Westport Innovations (Nasdaq:WPRT) are leading the transition toward natural gas fleets, fuel stations, and other transportation advances.

4) Global Demand for LNG is Soaring

Finally, international demand for natural gas will be a game changer for the U.S. markets.

Like the United States, foreign countries are transitioning their economies away from coal-fired and nuclear power plants. An energy-starved world is hungry for cleaner, safer, and cheaper sources of power.

U.S. companies are fully prepared to begin transporting LNG to foreign customers, especially as domestic prices hit rock bottom.

These companies are setting the stage and guaranteeing these customers long-term supplies. This has been highlighted by Cheniere Energy Partners (AMEX: CQP) signing a series of recent mega-contracts to supply LNG to customers in places like Europe and India.

This stage began to boom last year and will likely dominate the news cycle well into 2014.

The final stage is the period where the ongoing supply meets new end markets of consumers. This period will occur when companies like Cheniere actually begin exporting natural gas to foreign buyers.

But, as we’ve said before, no LNG will actually move out of its terminal at Sabine Pass until 2014.

Still, when these exports begin, we’re going to see the price of natural gas start to take off.

This is an important point, and something I highlighted two weeks ago. It is a period where the market demand curve will shift due to a huge boost in potential customers.

Once these companies prove they are capable of exporting without any hiccups, and the full supply chain is working in unison, then we will see natural gas demand reach far higher levels than we see today.

Given current market conditions and these four demand sources, late 2014/early 2015 appears to be the time when the LNG markets will be in full swing.

In fact, the natural gas sector offers fantastic investing opportunities through the end of the decade.

But it’s important to remember that if you’re bullish on natural gas, you don’t want to wait until then to invest. Now is the time to seek the best long-term investments. After that, you can sit back and watch as global demand pumps profits into your trading account.

And won’t that make $5 a gallon at the gas pump a little less painful?



Please Note: Kent cannot respond to your comments and questions directly. But he can address them in future alerts... so keep an eye on your inbox. If you have a question about your subscription, please email us directly at

  1. February 22nd, 2012 at 13:53 | #1

    What would your top 5 natural gas plays be? What are your thoughts on Inergy? Do you see them going lower in the short term. Thanks

  2. Rick Sweet
    February 22nd, 2012 at 14:09 | #2

    I invest in MLP’s and Royalty Trusts I would like you to address the best Natural Gas picks and Oil, Pipelines, LNG, NGL, give us more
    picks than just a few. Im an Energy Investor.

  3. February 22nd, 2012 at 14:29 | #3

    Question 1: I just heard that dominion still does not have all the approvals for its export terminal in Maryland. Is this true, and if so what is your thought on the possibility of approval not being granted? Question 2: There seems to be a great deal of blowback about the environmental concerns associated with fraking(water, methane, the fraking fluids used, etc. Is the issue one of there not being a technological solution for these problems or that the cost of fraking and gas cost would be increased to resolve the issues. In short could this whole fraking opportunity if the environmental burdens are too severe and unsolvable. I’m an investor.

  4. Dieter
    February 22nd, 2012 at 14:29 | #4

    The real natural gas revolution is right in front of our nose… but no one in the US talks about it. You can buy many cars being equipped with a bifuel (not biofuel) engine. It runs on regular gas and also on natural gas. You can switch from one to the other during driving.
    With a little phantasy each home owner association could pick a small lot and install a refueling pump for those natural gas cars. Instead of driving to the gas station and filling the oil company coffers, you could fuel right at home. There are selfservice pumps that work the same way like the pumps at the gas stations.
    The problem ? Most natural gas is sold by local public companies and they are too lazy to do anything.

  5. February 22nd, 2012 at 14:38 | #5

    But Kent, almost all the countries needing clean energy are ramping up
    their eploration for natural gas and countries like Poland,Indonesia, Japan and China and Indo-China are already reporting huge finds – as are Russia and Australia. That being the case all across the planet, to whom might we sell our surplus?

    Also, in terms of global warming, I understand that natutal gas, which is at least 70% methane is 22 times more deleterious to the
    ecosphere than carbon dioxide. Any handling accident will have disastrous consequnces, will it not? If companies like BP with their knowledge, technology and experience can have an “accident” like the one in the GOM, the potential for accidents will increase eponentially if the general public gets into the equation, right?

    Henry Markant

  6. billy T
    February 22nd, 2012 at 15:15 | #6

    To whom will US be exporting starting in 2014?

    Poland, as you probably know, will be selling NG to EU at half the price Gasprom now charges. China has nearly 50% more than the US does and is still finding more.

    South American has more than it can use, so flares NG. SW coast of Africa is expecting $50 billion dollars invested in NG production in the coming decade. (Statoil´s first well just hit NG yesterday, but they will contine to drill for about 3 months more. (To go thur the “pre-salt” layer for oil. Before there was an Atlantic ocean that layer was part of same deposit as Brazilian pre-salt oil.)

  7. billy T
    February 22nd, 2012 at 15:24 | #7

    Biggest loser is Russia. China is backing out of deal to import NG from them via newly completed pipeline

    Not shown on above map is Tanzania / Mozambique region,a new huge NG deposit ( and very likely more “´pre-salt” oil)

  8. Mike Cottings
    February 22nd, 2012 at 15:27 | #8

    A recent article showed Global shale gas basins around the world. Their conclusion was the USA would never be a major gas exporter considering large reserves located in places like Mexico, Argentina, Brazil, Australia, China, South Africa, Libya, Poland, Algeria to name a few.

  9. Tom Pendergast
    February 22nd, 2012 at 16:23 | #9

    You guys are great! I’ve learned so much from you!
    FYI: AEP recently opened a small natural gas generating station in Dresden, Ohio.
    My question is what is your take on the impact that fuels produced from natural gas feedstock using the Fischer-Tropsch process will have on Westport &/or Clean Energy Fuels? My understanding is that Fischer-Tropsch diesel can be dispensed from current pumps without any modification for use in existing vehicles, again with no modification.

  10. Robert Smart
    February 22nd, 2012 at 16:48 | #10

    @Henry Markant

    Please note:CO2 is a beneficial gas and harmless too. Watch out for the Al Gore propaganda…

  11. Mark
    February 22nd, 2012 at 16:49 | #11

    Do you have any copanies to look at at that terminal?

    February 22nd, 2012 at 16:50 | #12

    Thank you for answering my question about Natural gas and when long term and short term profits will be here.

    February 22nd, 2012 at 16:52 | #13

    Dr Moors Thank you for breaking down the investments in Energy Advantage. It is helpful for the core investments as well as other investments and why they should be in those catagories.

  14. S.L.
    February 22nd, 2012 at 20:29 | #14

    Will the percentage of your investment with this stock be different for each location of the world (intelnationaly) or the same? Because of control of oil?

  15. margie
    February 23rd, 2012 at 00:15 | #15

    Would like to know whether you feel that the Haynesville Shale Play in Shelby County, Texas, will begin to operate again. At this point, most people have had their leases lapse and no sign as of this writing that any companies plan on releasing again any time in the near future (late 2012/2013). Do you see any hope in this happening?

  16. margie
    February 23rd, 2012 at 00:17 | #16

    Mike Cottings :A recent article showed Global shale gas basins around the world. Their conclusion was the USA would never be a major gas exporter considering large reserves located in places like Mexico, Argentina, Brazil, Australia, China, South Africa, Libya, Poland, Algeria to name a few.

  17. margie
    February 23rd, 2012 at 00:20 | #17

    So, you are pretty much saying that all the “hype” in 2007 about the Haynesville Shale Play being one of the best plays in the world is no longer true and that companies will more than likely NOT go back into that area and lease again.

  18. Nasser Ali
    February 23rd, 2012 at 00:36 | #18

    Natural gas carrier companies in the middle east as for example Qatar Gas is not doing well with respect to profit and share price though they have built huge carriers and ship yard over the last 5 years , do you expect this performance to continue to turn better ?

    Appreciate your feed back

  19. James
    February 23rd, 2012 at 13:38 | #19

    Natural gas is free competition. It is found in all parts of the world.

    U.S. does not have a monopoly on natural gas.

    What U.S. had was proprietarty information extracting natural gas from the ground. It had a choice. U.S. companies chose (or was forced by economic reasons – no government subsidies – to sell themselves to foreign competitors to stay in business)to share this proprietary information with the rest of the world. Several countries are now getting into the natural gas business utilizing this proprietary information (fracking, etc). It means natural gas prices will remain low for a long time to come because natural gas is abundant and will become widely available.

    What is good about the natural gas revolution is natural gas in the long run will lead to cheap energy.


  20. Jesus
    February 23rd, 2012 at 14:22 | #20

    Dear James,
    I would like to know your opinion about the discovery of the unconventional gas has transformed the conversation around natural gas in the U.S. from one of depleting reserves, high prices and a future reliance on LNG imports to one of abundance, affordability and domestic energy security, and this is affecting to the prices as you said in your article?. Thanks.

  21. February 23rd, 2012 at 18:18 | #21

    UNG looks and acts like a scam to get money from investors and go bust – their business model based on one months futures due to so-called “contango” is an absolute disaster and these morons do nothing to change their structure and UNG is going down like Titanic. UNG management should be investigated by SEC as soon as possible.

  22. Bernard Durey
    February 23rd, 2012 at 20:55 | #22

    I apologize for being off of the beaten path here so to speak. I was checking some information off of another site and the person was stating they were finding gasoline prices at $5.99 in places in Florida and also I think $5.79 or sso around Diseneyland. They alsomentioned that some people in Alaska were paying $6.34 a gallon for regular. Back a few years ago,here in this area,they got into some pump spiking. A former tenant whom lived across the street said someone had started it in another state to our south and then someone tried it here. The attorney general at the time plowed into it on the issue of price spiking and regulations at the pump for the consumer could only flucuate 10 cents or so from a certain price average. I do not know if that holds true in all states or if in some locals they can get by with price spiking? I believe you may be overseas now or headed that direction,however,it may be worth checking into on the price spiking issue(s) per state. Once again thank you and have a nice day.

  23. Dave Truitt
    February 25th, 2012 at 08:50 | #23

    Bernard,$5.99 gas is the last gas station before airport praying on the car rental return customers.I turned rental around and a mile back found a race track at competitive prices.The station they refer too had no business even though it was state of art.Plan ahead a gallon of water some locations cost $2.00.Pop corn and Coke cost more than the movie.Actually gas stations make less with higher cost.I believe gas taxes,credit card fees should have a reduced formula of pay during unusual times.These prices a result of Brent prices,shut downs 2008 $30.barrel.Liquid gas fields are being shut down now,expense greater than income,potential war Iran,the oil producing countries. We still import 75% of our fuel.Our gov. has let us down.The opportunities are to permit drilling but we have poor leadership both parties.

  24. enthusceptic
    February 25th, 2012 at 11:12 | #24

    The world is much bigger than the countries mentioned, and China – with its enormous population – will certainly use most of its NG itself. Maybe some countries need to build terminals for receiving LNG, enabling exports from North America for many years. We should be happy that the world is being flooded with cheap energy, fuelling development. For years many have done “proxy investing”, investing in companies in the developed world that did trade with China. Of course there are many companies in the developed world who sell stuff to developing companies that these don’t produce themselves. “Proxy investing” can – and I believe will – be many times bigger than the China trade ever was.

  25. enthusceptic
    February 25th, 2012 at 11:21 | #25

    …in the third last line it’s supposed to be countries instead of companies, sorry!

  26. Robert Berke
    March 6th, 2012 at 00:08 | #26

    There are two issues raised here, one is that natural gas is being found all over the place. That’s good for the world in terms of cheap energy as a catalyst for another leg of the industrial revolution and less reliance on OPEC. But it is not necessarily good for natural gas investors. The core question is whether all the hype about natural gas amounts to another bubble forming.

  27. Tony
    March 8th, 2012 at 19:47 | #27

    @Henry Markant

    LNG is not explosive like the gas piped to your home. I suggest you visit and get some questions about LNG answered. They say it is very safe to handle, and they should know better than any one of us, after all, they are building a business around it.

  28. Alex White
    March 13th, 2012 at 21:52 | #28

    We3 can double the output of natural gas by using oxy-fuel technologies. What was missing is lower cost oxygen supplies. A guy in Austin, TX – Andrew West, figured out how to produce oxygen for $25/ton, making oxy-fuel economically viable. It can replace coal and reduce CO2 emissions by 80% – everyone should be happy.

    See his Intro video here:

    I like his approach – solve the problem.

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