Finding Long-Term Value in Natural Gas

“If you're not bullish on natural gas,” he said, “you must be blind... You should be seeing this transition coming from a mile away.”

My colleague Christian DeHaemer hit a bull's-eye earlier this morning.

While most investors are looking for a quick buck, few of them realize how valuable these opportunities can be over the long run.

And natural gas is no exception.

Today I'll give you two reasons why he's right.

The Bullish Case for Gas

The first reason will be more obvious to readers who have been following the natural gas story since 2006.

Believe me, the upcoming U.S. LNG exports destined to leave Gulf ports don't have us nearly as excited as what we plan to do with the fuel on our own turf does...

We've mentioned before how natural gas is single-handedly taking on coal to meet our electricity demand. According to the EIA, it has become even more pronounced.

Natural gas usage in U.S. power plants increased by 40% last March compared to the previous year. Meanwhile, coal's contribution to the mix dropped by 20%.

The EIA has stated it expects electrical generation from coal to fall as much as 15% during 2012, while natural gas's share will rise 22%.

Natural gas supplanting coal as our leading source for electricity is just one reason to stay bullish.

The second has much more lucrative rewards for investors...

The Holy Grail in Energy

Slowly but surely, we're seeing the signs: First, it's a headline buried in a local paper. Then a few bigger stories pop up — a new vehicle fleet being converted to natural gas, or plans to build LNG plants and filling stations...

Shell recently announced plans to invest $250 million to build a string of LNG fuel stations across Western Canada. The move will drastically cut fuel bills to run their truck fleets.

So why do alternative transport fuels hold so much potential?

Taking a bite out of oil's monopoly over the U.S. transportation sector is the first step to weaning ourselves off of foreign imports.

Thus, replacing gasoline and diesel has become the holy grail of energy investing.

But the U.S. trucking industry is no small egg to crack. There are roughly 15.5 million trucks logging more than 430 billion miles every year, accounting for 70% of all freight transported within the United States and pulling in over $250 billion in annual revenue.

It all adds up to nearly 60 billion gallons of fuel being used every year.

Nowhere else will you find such a disparity energy usage...

Allow the EIA to crunch the numbers. You'll see that oil dominates 93% of the sector:

Cracking into the sector won't be easy — and it certainly won't happen overnight.

Fortunately, some investors already have a plan in place.

Beat Even Exxon's Profits

I wasn't kidding when I said Chris was right on the mark concerning natural gas over the long run.

“We don't have to bother with the producers, their dry holes, or even the problem of where to drill," he explained.

"Think about it — we're going to have to spend $20 billion on new pipelines and facilities just to keep up. Imagine what it'll take to bite into our oil demand..."

This, my friends, is the road to profit, when natural gas prices are in the gutter today.

“That's the best part about these investments, it's doesn't matter how low those prices fall,” he continued. In the case of natural gas, lower prices are actually helping the transition.

It's one of the last cheap energy options available to us, and all that's missing is the right infrastructure.

Until next time,

Keith Kohl

@KeithKohl1 on Twitter

A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.

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