We’ve come a long way since a single, 27-foot well drilled in Fredonia, New York kick-started the U.S. natural gas industry.
It was drilled by a man named William Hart almost forty years before Colonel Drake’s famous well in Titusville. Yet the “father of natural gas” has been largely tucked away in our history books.
I can probably count on one hand the number of schoolchildren who are taught about Hart’s well, which directly led to the formation of the first U.S. natural gas distribution company soon after: Fredonia Gas Light Company.
Even today, natural gas is still one of the most overlooked components to our energy security. I mentioned earlier this week how decisive a role it is playing (and will play, for that matter) in our electric power sector, which accounted for roughly 40% of the United States’ total energy consumption in 2013.
Calling natural gas vital to U.S. energy security is a gross understatement. I’ve said this countless times before, but our love affair with natural gas has only just started…
From Glut to Glory
Blame it on polar vortexes, the day-traders in Erath, Louisiana, or even the dearth in natural gas drilling activity over the last five years, but you can’t deny the comeback that natural gas prices experienced during the latter half of 2013.
Truth is, things are about to get even dicier. Demand has been setting new records for the past three years — despite the economic turmoil that has plagued individual investors since 2008!
Not surprisingly, the Energy Information Administration is expecting another banner year for natural gas consumption.
Present estimates expect demand will average 70.2 billion cubic feet per day this year. Not only is this a slight revision from the EIA’s previous estimate, but we also can’t ignore that some estimates get even more drastic over the next few decades.
One of the world’s largest publicly traded gas companies — ExxonMobil — believes global natural gas demand will grow by 65% between now and 2040, with the fuel accounting for one-quarter of the world’s energy consumption.
This, of course, is on top of the current supply glut that stemmed from suddenly ramping up our shale gas resources.
Remember, we’re only talking about shale gas here. Below, you can see a quick snapshot of the amount of gross natural gas withdrawals from U.S. wells. Between 2007 and 2012, natural gas withdrawals from shale gas wells increased by more than 417%, while output declined virtually everywhere else.
Don’t forget that this boost in shale production took place as companies across the board switched their focus to more liquids-rich plays. We’re at the point now that just 19% of the drilling rigs operating in North America are actually targeting natural gas.
With areas like the Marcellus region single-handedly keeping domestic gas production afloat within the U.S., the next logical — and profitable — step is what to do with this oversupply.
And although I can sense more than a few eyes light up over the possibility of tapping into the Asian LNG market, that isn’t necessarily the best way to profit from future gas exports.
All you have to do is turn your gaze south…
1 Simple Secret to Natural Gas Profit
First and foremost, U.S. pipeline exports of natural gas have grown rapidly over the last three years.
This is simply due to the fact that natural gas is predominantly a regional market. And make no mistake about it, these pipeline exports are taking off:
Although Canada has always been our biggest customer, things are about to change.
Unlike the Canadian natural gas industry, which has suffered from lower prices thanks to the shale gas boom in the lower 48 states, Mexico’s natural gas industry is in shambles.
Up until 2000, Mexico’s natural gas production was easily keeping pace with demand. Now, the country is forced to import more than one-third of its supply from the United States… and the situation is only getting worse.
Last year, U.S. gas exports to Mexico averaged roughly 2 billion cubic feet per day. Even though we’ll see a slight increase in 2014, the amount will more than double by 2016 — fully one year before the first LNG shipments head out of the Sabine Pass Facility in Louisiana!
That’s more than just wishful thinking, mind you. Granted, the only way we’ll be able to keep up with Mexico’s burgeoning need for more natural gas is through the addition of more pipeline capacity.
These are the gas profits you can count on while the rest of the herd becomes obsessed with LNG projects (never mind the fact that most U.S. LNG exports will be directed toward Europe, not Asia). And while Mexico clamors for more U.S. gas, nearly 6 Bcf/d in pipeline capacity will come on-line.
As it turns out, we’re not the only ones developing a love affair with natural gas.
Until next time,
Keith Kohl
Check us out on YouTube!A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.
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