Natural Gas is Sticking Around

Brian Hicks

Written By Brian Hicks

Posted December 17, 2013

Natural gas has gone through its ups and downs over the years, but this sector may ultimately win the war. Not only will natural gas grow in energy popularity, but the U.S. is expected to have a more diverse energy economy because of it.

natural gas 16With demand for gasoline at lower levels due to more efficient cars and appliances, and with an increase in wind and solar power, carbon emissions are expected to remain at pre-2005 levels until 2040.

And according to government analysts, a golden age of natural gas is upon us. Projections from the Energy Information Administration stated that prosperous natural gas production will last after 2040.

Production is expected to reach 56 percent from 2012 to 2040, with a forecast of 37.6 trillion cubic feet by 2040. Improving technologies are expected to keep drilling going beyond 2020 and possibly even beyond 2040.

We are also going to see growth in the industrial sector, as more factories will fuel demand for the commodity. Shipments from the industrial sector will climb an annual 3 percent in the next decade, and U.S. manufacturing has already gained in recent years from low natural gas prices.

With higher prices looming because of cold weather, more natural gas developers will be encouraged to start projects, but there is a risk in supply disruptions due to freezing weather.

Currently, natural gas prices are hovering around $4.35 per million BTU.

Natural Gas and Other Commodities

Even though domestic oil will become the more valuable commodity, the EIA predicts that production will begin to decline after 2020.

Lower natural gas prices will make domestic demand more attractive, fueling more production for the next few decades. And tighter restrictions on coal-fired power plants will make natural gas more competitive.

The EIA predicts that coal and natural gas will each comprise 34 percent power generation in 2035, but coal’s use will plummet to 32 percent by 2040, with natural increasing to 35 percent. Renewable energy is expected to grow to 28 percent from 2012 to 2040.

Oil production, meanwhile, is expected to reach over 9 million barrels per day by 2016. And if we see more export approvals in the future, there could be invigorated production efforts. But this could also have an impact on domestic demand.

Natural Gas Investment

Companies that lead the charge in natural gas production have recently gained on the market. Exxon Mobil (NYSE: XOM) shares gained 3 percent recently, along with ConocoPhillips (NYSE: COP) and Chevron (NYSE: CVX).

In the future, we’re going to see more commercial pipelines for natural gas, especially around the Bakken area, where one-third of the commodity is wasted due to a lack of transportation infrastructure. And we’re also going to see more efforts to ship natural gas to higher demand areas on the East Coast.

Natural gas exports are expected to increase by 6 percent in Mexico and 1.2 percent in Canada. LNG exports will also surge in the U.S.

Despite the increase, the U.S. will continue to fall behind as other nations like Russia further engage the Asian market – a region that fosters high demand for LNG. A few LNG export applications have been approved in the U.S., but the EIA has stated no projected time regarding green-lit projects in the future. However, the data may change as it debuts figures based on alternate scenarios.

That being said, lower natural gas prices will also benefit the domestic market. They could fuel more domestic demand within manufacturing and possibly the construction sector. If the LNG market can be boosted at home, this could open many opportunities.

If you’re looking to invest in domestic oil production, you’ll want to stick with smaller companies, as the larger companies have remained committed to natural gas production. But these large companies will also have the international clout to engage abroad if more oil exports are permitted. Companies are already hoping to somewhat engage the international market by applying for conditional oil exports to countries like Canada.

Even though it’s questionable whether oil production will remain lucrative in the long term, the EIA reports a much better energy composition for the United States. The U.S. will continue approaching record liquid and oil production, and it will export more than it imports.

If the U.S. can boost domestic demand while also catering to the demand of markets in Asia, natural gas will be a top-grossing commodity for the next few decades.


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