According to the Energy Information Administration, energy from natural gas accounts for 24 percent of total energy consumed in the United States, second only to oil, which accounts for 40%. Coal accounts for 23%.
There are so many different applications for natural gas and new uses are being discovered all the time, such as in transportation sector. As you can see from the chart below (source), the industrial sector accounts for the greatest proportion of natural gas use in the United States, with the residential sector consuming the second greatest quantity of natural gas.
The government’s Annual Energy Outlook 2009 report shows that the monthly average Henry Hub natural gas spot price is expected to stay under $4 per thousand cubic feet (Mcf) until late in the year as abundant natural gas supplies converge with weak demand driven by an 8-percent decline in industrial sector consumption. The price is projected to increase from an average of $4.13 per Mcf in 2009 to an average $5.49 per Mcf in 2010 as expected economic growth boosts industrial consumption of natural gas.
Following chart shows last 2 years price for EnCana Corp (ECA), United States Oil (USO) and United States Natural Gas (UNG). Beginning this year, the price of oil and gas had different directions: oil (in green) was up and gas (in red) was down. More interestingly, even though EnCana's (in blue) 83% revenue is from natural gas, its price was also opposite of gas’.
Click to enlarge:
With today’s oil price stands on $70.5 and natural gas price of $4.15, the ratio is over 16:1. It is unlikely for price of oil and gas to be out of sync too long. For example, higher oil price could speed up oil sand projects, even though turning oil sands into something you can pour into your car’s gas tank is several times more energy intensive than processing conventional oil.
However, based on a DOE report released on March, 2009 will see the largest surplus of gas supply in recent years. The 2009 projected supply will be 23.72 trillion cubic feet and consumption will be 23.14 TCF. The projected price will be basically flat for the next 7 years. It would not be until year 2016 for price of gas to return to 2006/2007 levels, let along 2008’s.
As oil reserves decline and price skyrocketed, coal, one of the world’s most plentiful energy sources, has become a popular global commodity. U.S. has the largest coal reserves in the world. According to Christine MacDonald, author of Green Inc, the world’s coal consumption has seen double-digit growth in recent years, far outpacing any other source of energy. It predicts coal usage will double by 2030. Market Vectors Coal ETF (KOL) is the largest pure coal ETF.
Coal already provides nearly two-thirds of US electricity. Even though coal contributes 39% of world’s carbon dioxide emission, if gas price is too high, coal might easily takes over rest of electricity power currently generated by gas.
So for me, natural gas is a short-term bet and not a long-term investment.
Disclosure: I have long position on UNG
