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Investors Finding the Ground Floor of Natural Gas

A $200 Billion Transition Away from Oil

Written by Keith Kohl
Posted April 27, 2012 at 6:15PM

Back in February, we sorted through the rise of the U.S. oil industry.

At the turn of the century, we were flush with oil... but the money didn't really start pouring in until the industry took over the transportation sector.

And that began when the world's first gas station opened for business in 1905.

Built in St. Louis, Missouri, pumps were filling Model-Ts for nearly thirty cents per gallon.

Just two years later, Standard Oil of California (we know it today as Chevron) opened our country's second gas station.

Here we are more than a hundred years later, and the number of stations has swelled to more than 200,000.

If we turn the clock back to the turn of the century, I think it's safe to say we'd put our money in Big Oil companies like ExxonMobil and Chevron...

But what if you had the same chance to get in on the ground floor of the transition away from oil?

The same opportunity is unfolding as we speak...

The only difference is that tomorrow's energy game has an entirely different set of players.

Transition Obstacles

So what are we talking about here?

It's no secret that oil is synonymous with transportation...

We'll let the EIA crunch the numbers here:

transportation sector 4-27

Fact is, 95% of our fuel is coming directly from petroleum.

That works out to more than 18 million barrels of oil and petroleum products every day, making up over 37% of our overall energy consumption...

u.s. energy consumption 4-27

Handing Over the Keys

Today, the United States is flush with a different kind of cheap energy.

By 2030 annual consumption of gas in North American will reach about 32 trillion cubic feet, almost 20% more than what we're using today.

We'll need to spend nearly $200 billion on our natural gas infrastructure just to keep pace with that increase.

Believe me, there will be a shift taking place over the next few decades.

The days of cheap oil are over. It's only reasonable to assume we'll move to another inexpensive source of energy.

And it doesn't get much cheaper than this: Natural gas costs over 85% less than it did just four years ago.

(I have to interrupt myself for a moment here to point out that we've been calling the transition to natural gas for years — ever since prices collapsed by more than 80%.)

But here's the part that many investors are missing: Since over 70% of that demand increase is expected to happen in the power sector, they're not looking at the entire picture...

Remember, coal plants are being phased out.

Try to imagine the kind of growth that stands to be seen when the oil industry hands over its share of the transportation sector...

Ground Floor Investments

Things haven't been great for natural gas drillers lately, to the extent that many have been switching their production mix from dry gas to liquids — something that's worth a second look in itself, particularly liquids-rich shale plays like the Bakken and Eagle Ford. 

Earlier this week, I told you one of my colleagues recently hit pay dirt with three stocks ready to take advantage of the transition from gasoline to natural gas.

When people like T. Boone Pickens are able to fill up their tanks for $1 a gallon, it's only a matter of time before the rest of the country catches on. As I wrote on Monday, perhaps that's already under way.

These pick-and-shovel plays are laying the foundation for a natural gas takeover in the transportation sector.

These are the companies building the critical infrastructure needed to make the switch.

Of course, it won't all happen overnight... but the potential to jump on board during these early stages is just too good to pass up.

Next week, we'll take a closer look at how the shale gas boom got started — and more importantly, where it's headed.

Until next time,

Keith Kohl Signature

Keith Kohl

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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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