The Realities of Natural Gas

Since the publication of my natural gas book (1987), many changes have taken place in this market. Globally, the growth in the demand for gas may still exceed that of all energy media, except renewables, and until recently gas was often highly recommended as an input for electric power generation. (In both the U.S. and UK, a gigantic infusion of gas-based equipment was planned before the authentic supply-demand situation for gas was identified.)

A main reason for the popularity of gas was the advent of combined cycle gas burning equipment with a very high efficiency. What happens here is that in addition to the gas turbine, there is a secondary turbine producing steam from the waste gases/heat of the gas turbine. The kinetic energy in this steam is transformed to mechanical energy that turns a generator. When compared with earlier equipment, additional electricity could be produced for a given input of gas.

However, as often happens, there are many misconceptions in circulation about natural gas, the most pernicious of which – at least in Europe – have to do with the restructuring (i.e. deregulation/liberalization) of gas markets. Some questions need to be asked as to why and how these misconceptions came into existence, and it appears that the answer has to do with the inability of consumers, and to a certain extent producers, to judge the future availability of gas. For instance, one of the arguments for deregulation turned on the crank belief that more ‘competition’ – to include a greater resort to spot markets and derivatives (i.e. futures and options) – could compensate for the unavoidable depletion of physical resources.

In addition, in some parts of the world, gas producers expressed themselves in such a way as to give the impression that there was virtually an infinite amount of natural gas reserves (in one form or another) that would eventually be available for exploitation, if their transactions were not disturbed by ‘regulators’. Similarly, many gas buyers were almost totally unaware of how supply and demand could develop in the long-run, and instead continued to make plans for a future in which they would have access to all the gas that they would need, at prices that resembled those of the recent past. This might be a good place to note that in Brazil, some starry-eyed deregulators counted on gas-based electric power being cheaper than hydroelectricity and nuclear. As they now admit, this incredibly gauche supposition was completely wrong.

In much of North America, despite propaganda to the contrary, exploration and production have been yielding disappointing results for a long time, and expectations about e.g. the Gulf of Mexico and imports into the U.S. by pipeline from Canada often have an air of unreality about them. In Europe a more rational tale can be deduced on the basis of what happened in Finland. With copious potential gas supplies adjacent to Finland in Russia and Norway, the decision-makers in that country chose nuclear as the best option for additional power. They understood that given the likely future demand for gas in Europe, Asia and North America, in the long-run they might have found themselves relying on imports from very distant sources – e.g, Qatar and Iran.

According to the International Energy Agency [IEA] of the OECD, fossil fuels will account for 90% of the world primary energy mix by 2020. Global gas demand is expected to rise by 2.5-2.7%/y (although in the U.S. this figure will be 2%/y), even though the price has started moving up rapidly. The big consuming area will likely be Asia, where it has been suggested that demand will increase by an average of 3.5%/y between 2001 and 2025. The share of gas in world energy demand could move in that period from 21% to at least 24%. An earlier estimate had the average global gas production increasing by 2.75%/y until at least 2025, and gas quickly overtaking coal in the global energy picture. This no longer sounds right, nor does an absurd forecast the IEA which envisaged the global consumption of oil in 2030 reaching 120mb/d.

World gas prices might already be on an unambiguous upward trend. In picturing world gas prices remaining flat until 2005, the IEA was clearly mistaken, but they are correct in noting that a tightening of U.S. and Canadian gas supplies is unavoidable, and this process could turn out to be very unpleasant for buyers. A wellhead price of $2.5/mBtu (in 1997 prices) for purely conventional U.S. gas in 2020 seemed offbeat to me when it was predicted at the beginning of this century, and unless the global macroeconomy greatly deteriorates, a sustainable gas price of at least $10/Mcf could be experienced before the end of this year, with occasional ‘spikes’ that carried the price well above that figure. Bargain basement oil has gone out of style, and the same is going to happen with gas.

As I explain in my new textbook (2007), if recent changes in the price of gas continue, they will soon restore gas to the position in the electric generation ‘merit order’ that it occupied before the introduction of combined-cycle technology. In case readers are a bit vague on this subject, what this means is that gas will be judged as economically unsuitable for carrying the electric base load, and as a result the many investments made earlier on the basis of a low expected price of gas were ‘sub-optimal’.

In the Mood for Misunderstandings

That brings us to restructuring. The IEA mostly got it wrong on restructuring in the electricity sector, and as a result I see no reason to expect an improvement in their ability to analyse the economics of world gas. However, since even the experts of the IEA are capable of comprehending that major uncertainties exist about the ability to develop and transport the more distant gas reserves, then it might be appropriate to suggest that considerable effort should be made to prevent the cavalcade of unsound ideas about deregulation/liberalisation from getting in the way of sound engineering and managerial practices. I think it useful to stress that the same exaggerated claims made for electric deregulation have also been made for gas, though not so aggressively as a decade ago. The term “exaggerated” may also apply to the future of liquefied natural gas [LNG]. In the U.S. the only place that LNG has been declared welcome is on the Gulf coast – although a friendly reception is no longer certain in e.g. Louisiana. In the Northeast and on the West Coast, pipeline gas is preferred – although where this pipeline gas will originate is something that nobody seems to know.

A main shortcoming of the gas market debate was, initially, the presence of several academic economists without the slightest feel for either the economics or the engineering aspects of the natural gas sector. This includes economists with a modicum of engineering training in their background. The question was therefore raised as to how we should treat the avalanche of misjudgements about this market in order to help prevent expensive, irreversible investments from taking place.

In my new textbook, I did not treat them at all, because I presumed – perhaps incorrectly – that the lack of availability of gas would soon be revealed by its increased price; and unlike the electric deregulation travesty, gas deregulation was a blunder that was never able to get up full steam. One of the reasons for this was that in the U.S., and perhaps elsewhere, some important politicians and industry people, as well as genuine experts from the academic world, took issue with the more bizarre gas deregulation objectives. For instance, they pointed out that the natural gas market in the U.S. is not informationally efficient, which means that gas prices at widely separate localities do not follow each other in a manner which makes it possible to conclude that – when transportation costs are taken into consideration – these venues are in one market. Accordingly, the kind of arbitrage cannot take place which allows consumers faced with high prices to gain by buying elsewhere at lower prices. And not just in the U.S. A former CEO of British Gas went so far as to contend that the “half-baked fracturing” of the gas markets in order to bring about competition is essentially counter-productive. I can add that prospects for an ‘efficient’ global gas market featuring increased spot sales is as much a delusion today as when first touted .

Probably the most important observation on the ambitions of natural gas deregulators was rendered by Professor David Teece of the University of California (1990). According to him, market liberalization in the U.S. has already “jeopardized long-term supply security and created certain inefficiencies.” He also notes that “While more flexible, a series of end-to-end, short-term contracts are not a substitute for vertical integration, since the incentives of the parties are different and contract terms can be renegotiated at the time of contract renewable. There is no guarantee that contracting parties will be dealing with each other over the long term, and that specialized irreversible investments can be efficiently and competitively utilized.”

For this reason I never miss an opportunity to remind my students that as far as I am concerned, large and complex gas systems operating in a climate of uncertainty are most efficiently run on an integrated basis that emphasises long-term contracting. This kind of arrangement promotes optimally dimensioned installations, and although it may not be mentioned in your economics textbook, if pipeline-compressor-processing systems which fully exploit increasing returns to scale in order to obtain minimum costs are to be readily financed and expediently constructed, then – as I interpret the evidence – the kind of uncertainties associated with short to medium term arrangements should be kept to a minimum. Failing to do so could cause a reduction in physical investment, and in the long run lead to higher rather than lower prices.

I find it enormously satisfying to note that the majority of energy professionals are coming to their senses where the topics in this paper are concerned, and as icing on the cake, considerably less tolerance is being shown the ravings of flat-earth economists and their adherents where future supplies of gas and oil are concerned. What is happening is that these ladies and gentlemen have started paying closer attention to reality than to the kind of bizarre economic theory that became popular in the U.S. when Professor Milton Friedman proclaimed that the oil price would descend to $5/b. The domestic U.S. gas output has peaked, and more alarmingly the gas rig count in that country also appears to have peaked. This suggests that more than a few important firms now regard North America a hopeless case for large scale investment in the gas sector, even with rising gas prices. Furthermore, as in the U.S., increased drilling in Canada is not raising production by a substantial amount. The situation in both countries can easily be summed up as follows: mature basins, smaller discoveries, and a high rate of natural decline from existing gas wells – which unavoidably translates into higher energy costs if the desire is to increase or even to main output.

In selling electricity and gas deregulation to the voters, among the pseudo-scientific arguments first employed were that increasing returns to scale were a thing of the past. A competent teacher of economics or engineering should be able to expose this myth in a half-hour by employing some secondary-school algebra. Moreover, once increasing returns to scale (or sub-additivity) are recognized, then it should be easy to confirm that any benefits theoretically gained due to competition could be lost. The easiest way to handle this issue though is to ask managers and engineers in the gas (and electricity) industries whether they believe in the non-existence of increasing returns to scale.

Conclusions

In closing, I want to emphasize that until recently there were any number of journalists, academics and assorted paid and unpaid propagandists prepared to inform everyone in their ‘network’ that the high oil and gas prices that have started to appear were irrelevant from a macroeconomic and financial market point of view. Their amateur arguments often claimed that today’s economies are so sophisticated when it comes to energy saving and substitution, that even with oil prices around $100/b, and gas prices that might approach that level, there is no threat to macroeconomic stability.

Since we may encounter this kind of lopsided wisdom arguments again some day, I hope that readers of this paper make it their business to tune out at the first opportunity. In a recent conference of EU movers-and-shakers, it was proposed that the EU countries should formulate a joint strategy for dealing with their energy vulnerabilities, and while I can sympathise with this goal to a certain extent, I fail to see how it conforms with the deregulation nonsense sponsored by the EU Energy Directorate. The commander of the EU Energy Army is a man who believes that ‘peak oil’ (and probably gas) is only a theory, and whose ideas about electric and gas deregulation belong in cloud-cookoo land. He and his colleagues are completely oblivious of what is taking place in real world markets as opposed to those in the fantasy worlds of their advisors and experts. Accordingly, I think that we would all be much better off if we ignore his precious intentions until he absorbs the lessons of economic history and economic theory.

Unless I am mistaken, there are influential persons in Europe and the U.S. who still believe that various deregulatory deficiencies can be ameliorated by greatly ‘thickening’ gas and electricity networks – i.e. thickening them with more pipes and wires. They certainly could be correct, although I suspect that spending serious money in order to facilitate the smooth operation of spot and derivatives markets is at best illogical and a drastic economic mistake. I also have some reservations about the use of the term contestability, and particularly how it was employed by a gentleman in Hong Kong during one of my unfriendly lectures on the subject of electric deregulation. This is a valid and important concept, but for the most part is applicable to activities in which there are low sunk costs. As bad luck would have it though, there are very high sunk costs associated with natural gas networks, and so would-be ‘players’ who enter that particular world thinking that they will gain a reputation for analytical excellence should make sure that there are no gaps in their knowledge of Microeconomics 101.

Finally, what mostly characterizes gas and electricity restructuring up to now is a reduction in economies of scale (due to sub-optimal investment strategies), increased prices, decreased reliability, and perhaps a threat to the security of supply – and all or some of these inexplicable shortcomings are visible in virtually every corner of the globe and as yet show no sign of disappearing..

References

• Banks, Ferdinand E. (2007). The Political Economy of World Energy: An Introductory Textbook. London, Singapore and New York: World Scientific.
• '______ ´(1987) The Political Economy of Natural Gas. London and Sydney: Croom Helm.
• Chew, Ken (2003). ‘The world’s gas resources’. Petroleum Economist.
• Darley, Julian (2004). High Noon for Natural gas. London: Chelsea Green.
• Lorec, Phillipe et Fabrice Noilhan (2006).’ La stratégie gasière de la Russie et L’Union Européenne’. Géoéconomie (No 38).
• Teece, David J. (1990). ‘Structure and organization in the natural gas industry’. The Energy Journal. 11(3):1-35.

Comments

[Georealist]

Spare me the classroom lecture...we get it..you wrote a book..So what??? NOT A SINGLE INVESTIBLE IDEA...PEOPLE WHO READ ALPHA (AND I'M BEGINNING TO WONDER WHY WHEN I SEE ARTICLES LIKE YOURS) ARE LOOKING FOR EQUITY AND COMMODITY ANALYSIS FOR INVESTMENT...NOT FOOTNOTES!!! Pretentious pseudo professorial self pumping!
Really pretentious garbage...and by the by...regulation of natural gas means what? It would result in what? What is happening is a reallocation of resources..people who didn't use before are using now...and "regulating" something isn't going to make it more abundant

[AL Berta]

Bravo Georealist!

[User 137542]

Very academic, intellectual rendering of the situation surrounding the growth or demise of natural gas and its present use and future value in North America and the global economy, if any. One question seems to go unanswered (apparently my Econ 101 has failed me) -- should I invest in natural gas producers and midstream operators or not?

[Alan von Altendorf]

Sure, invest in gas if you can separate the goats from the sheep. U.S. pipeline companies look good, for instance. I like producers in Canada and Michigan.

Unlike other commenters, I very much appreciated this article.

[GaryD]

Georealist,God forbid you actually think for yourself and draw your own investment conclusions. You are a sponge looking for others to do your work for you. Go away.

[ericinNE]

My take on this was that, while nat gas would appear to have been seen as a more cost effectively integrateable alternate electricity generating fuel than it will probably actually be, nat gas itself is going to be as subject to supply/demand problems as oil is, making large scale investments in new production facilty construction, or existing facility conversion, less cost effective than here-to-for supposed. As nat gas catches up to oil in overall btu-kwh cost, these largescale investments lose much of their economic appeal. The article totaly ignored the peripheral, but very important aspect of nat gas's cleaner impact on the environment, compared to oil or coal. Some perspective on the investment cost of expanded nat gas usage compared to renewable's would have made the article more pertinant. My final takeaway was that nat gas is going higher, but it's higher cost will negatively impact it's consistant run-up, causing similar pullbacks in price due to reduced demand at times. What the "powers that be" choose to do by way of furthur infrastructure investing may well have a more negative than positive overall effect on the macroeconomic landscape than those same "powers that be" are capable of understanding. The regulatory approach issue will, of course, be a cluster****. So whats new?

[ericinNE]

Oh, and yeah. Buy some UNG or GAZ.

[ericinNE]

That was for Georealist.

[MIRU]

I'm surprised such a long diatribe omits mention of shale. At $10 per MCF we have over 200 years supply of natural gas.

[JCM]

Combined cycle power plants have been around for over 40 years. As with many technologies, the efficiency has improved over that time with the advancement in Gas Turbine technology. Natural gas was an attractive fuel while low in cost as it also resulted in lower emissions and less wear-and-tear on the gas turbine and accessories. Note, that the gas turbine exhaust is used to make steam for the coexisting steam turbine/generator.

[User 69445]

Obviously a textbook writer/professor!

[John Egan]

I too appreciated the article.. Agreed there are no obvious stock-picks.. But what's wrong with getting background from someone that obviously knows his stuff? Background gives you a gut feeling when you are indecisive about a ticker...Articles like this do give you an edge in the market. Otherwise, just become a pure-play techie and don't read fundamental articles at all.

As an example; food prices rise (partly) on ethanol production. Rising food prices push TNH, MOS and POT higher...Consider what the article says and either use it as a basis for research, or if nothing else as an explanation for market moves after the fact.

Good stuff!!!

Thx jegan ;-)

[swimjames]

John is definitely right! see last paragraph:what mostly characterizes gas and electricity restructuring up to now is a reduction in economies of scale (due to sub-optimal investment strategies), increased prices, decreased reliability, and perhaps a threat to the security of supply – and all or some of these inexplicable shortcomings are visible in virtually every corner of the globe and as yet show no sign of disappearing..
this conclusion to the 'professor's' article basically explains that for the long term, one needs to invest in other forms of energy as gas availability is obviously limited, even with LNG increased supplies, which is not coming anytime soon (that is evidenced by the higher prices of uranium these days, despite the fact that nuclear plants take a long time to approve and build). Other forms of energy of course include alternatives, coal & CTL technologies and oil which is also getting depleted. I also notice that most people don't realize the surge in wind turbine construction all over the world, especially in the US, one good wind power company is Vestas (GE may be a good company to buy now at the lower price). Of course wind power needs more distribution lines, but it's clean, cheaper than nuclear and the Dakotas have an abundant supply of wind in addition to the 2 coasts (offshore).

[sopocistudio]

I have to agree with those who find value in this article. A bit of "macro overview" sure helps with the "stock picking", imho.

Jan

[No Moss]

I am no expert at all, but if I can synopsize his post, it's that we have a limited supply of gas in the long run, although in the short run we seem to have plenty. Gas is still relatively cheap when you measure it in terms of barrels of oil equivalents (comparing the energy produced from each). The problem is that as gas increases in price, demand for it will decrease. Gas prices in both the US and in the world aren't rational, since gas supplies are local and it's difficult to deliver gas from the wellhead to the user. This is true for both internal (US/Canadian) sources, where, as with coal, most production occurs outside of the Northeast, and for external sources, i.e., LNG delivered from places where gas occurs in lavish abundance. Expensive pipelines have to be built to deliver the gas to either gas companies or electric companies, and in the case of LNG, expensive specialized port facilities have to be built.

He believes that the free market is not a good way develop the gas infrastructure (good point!) since, as stated above, gas use will tend to decrease with price. This means that expensive buildout of infrastructure may not ever have a sufficient return on capital to justify the cost, and even if it does, the total cost of the infrastructure might be more expensive than would have been necessary if it could have been rationalized by central planning and financed with investments made more secure by long-term contracts.

I wonder if he's taking into account large recent discoveries of natural gas in the "shale" areas, such as Haynesville.

Gas producers (CHK is an exmple) will benefit from the current price of $10 per MMBTU plus any increase in that price. Prices have been as low as $5.50 in the last year (August, 2007). They are also benefiting from huge recent finds.

The gathering and distribution pipelines are mostly MLPs, or master limited partnerships. Some have commodity price exposure (they make more money when prices are high), and some don't. Some are gatherers and processors, which cluster around a producing area. Others are short or long-range pipelines, which collect fees for the use of their pipelines. Further, some are involved in both gas and oil.

Most of them rely on 50% debt and 50% equity to fund new projects, since they don't accrue earnings because of their structure as partnerships. I don't know the spectrum of MLPs well enough to know which ones are which in the above-mentioned areas, although I do know more about my three holdings in domestic MLPs. I also don't know how to measure the feasability or risk of new projects, but I know something more after reading Professor Kirk's contribution.

I'd welcome any ideas about how to measure the value of producers and MLPs.

[Oldrider]

I never heard of you before, Prof. Banks, but you sure are right. I get most of my stock tips from articles like yours, and not from analysts.

[Mr. Wynn]

I have got to say that the article was written in the most professorial/academician way which is to say, it was not well-written regardless whether it had good information or not. It was classically obfuscatory and for the non-academic mind, muddled and wordy. Two of the commenters have restated what was in the article in much more succinct fashion using fewer words and extracting what was important from all the excess verbiage. Professor, learn to write plainly. No wait, that is an oxymoronic sentence, isn't it? Forget it. As long as we can get some interpreters I suppose we'll do OK. God save us from the Academy!

[boxthinker2000]

PEOPLE WHO READ ALPHA (AND I'M BEGINNING TO WONDER WHY WHEN I SEE ARTICLES LIKE YOURS) ARE LOOKING FOR EQUITY AND COMMODITY ANALYSIS FOR INVESTMENT...

Leeches

[Peter Sterling]

HUGE FREE GAS RESOURCES IN BLAKE RIDGE; OFFSHORE SOUTH CAROLINA.

The Blake Ridge hydrate resource is super-giant sized but the 250 meter thick free-gas underneath is the real commercial prize. The Hydrate zone above serves as a nice cap to trap the free gas underneath.

The entire Blake Ridge-Carolina resource has been estimated to contain between 1,000 to 1,300 trillion cubic feet of methane, mostly 99% pure. An estimated 25-40% of this is a free gas resource much of which is commercially viable today, (Estimated, 100-250 trillion cubic feet recoverable).

Significant clean free gas reserves and associated lower concentration Hydrates are known to be locked beneath the seafloor under vast areas within the Blake Ridge-Carolina Rise region. These super-giant Probable free-gas reserves cover an area, which is 75% within the US OCS 200 mile EEZ.

1. The Strategic Nine Corp., Consortium has made an International Resources Rights Claim, for the approximately 25% area of the Blake Ridge Gas resource located outside of the US 200 mile EEZ.

2. The Consortium has also made application for a very large unsolicited OCS Petroleum Extraction Lease on a non-competitive basis, within an area of the Blake Ridge-Carolina Rise, located beyond state jurisdiction but inside the US EEZ, within an area currently covered by a nation-wide Federal moratorium on new offshore leasing until June 2012. A waiver has been requested.

The Blake Ridge Free gas resources have the following attributes;

1. Confirmed presence of super-giant areal extent of high FREE GAS saturation (proved by coring and well logging, and by geophysical methods) in shallow, easily accessible reservoirs.

2. Occurrence within fine sediments much of sufficient reservoir quality to support horizontal well-based fracc production methods.

3. Site accessibility through close proximity to existing major US East coast markets and other infrastructure.

4. Additional 1,000 Tcf speculative resources of Gas Hydrates, some of which may become economically viable in the future.

WWW.STRATEGICNINE.COM

Messoyakha Gas Field : While the west postulates methane-hydrates recovery, the Russians have been producing from it for years. The Messoyakha gas field in the frozen northern Russia is an excellent example of a hydrocarbon accumulation from which gas has been produced commercially from hydrates, mostly by simple reservoir depressurization.

At least one-third and, most likely, two-thirds of the Messoyakh reservoir, which for 13 years has been in commercial production, occurs in the form of natural gas hydrates.
It is conservatively estimated that about 36% (about 5 billion cubic meters) of the gas withdrawn from the Russian field has come from the gas hydrates.

[Canuck Investor]

Pipeline gas in the Northeast and on the West Coast will originate from the Pinedale anticline in Wyoming--tens of trillions of cubic feet of it.

On a worldwide basis, we are nowhere near the peak of natural gas production. A couple of decades ago many foreign finds of natural gas were considered a nuisance as part of a quest for oil. The problem is, much of the gas is stranded and costs billions to market. Nevertheless, LNG imports are growing and, as a natural gas investor, I'm concerned about the growth of LNG imports in North America.

[andydee]

"Probably the most important observation on the ambitions of natural gas deregulators was rendered by Professor David Teece of the University of California (1990). According to him, market liberalization in the U.S. has already “jeopardized long-term supply security and created certain inefficiencies.” He also notes
that “While more flexible, a series of end-to-end, short-term contracts are not a substitute for vertical integration, since the incentives of the parties are different and contract terms can be renegotiated at the time of contract renewable. There is no guarantee that contracting parties will be dealing with each
other over the long term, and that specialized irreversible investments can be efficiently and competitively utilized.”

For this reason I never miss an opportunity to remind my students that as far as I am concerned, large and complex gas systems operating in a climate of uncertainty are most efficiently run on an integrated basis that emphasises long-term contracting. This kind of arrangement promotes optimally dimensioned installations, and although it may not be mentioned in your economics textbook, if pipeline-compressor-processing systems which fully exploit increasing returns to scale in order to obtain minimum costs are to be readily financed and expediently constructed, then – as I interpret the evidence – the kind of uncertainties associated with short to medium term arrangements should be kept to a minimum. Failing to do so could cause a reduction in physical investment, and in the long run lead to higher rather than lower prices."

Garbage dressed up in unintelligible English.

Let me try to summarize.

In the first paragraph he cites a "scholar" that believes de-regulation energy was a bad idea, and is citing one reason for his belief. I worked for two regulated entities - one in energy and one in telecommunications. Regulation simply doesn't work - regulated industries are inefficient and are focused on perpetuating themselves. "Creative Destruction" is a foreign concept to a regulated entity - and necessary if we are to deal with a changing environment.

In the second paragraph our good professor eschews regulation, (good for him!), in favor of long-term commitments. I also believe in long-term commitments. My wife and I have been married almost 50 years. Good for the kids, and good for each of us. I wish our author had taken a course in expository writing while he was a freshman. It could have helped.

[gasman]

The article was rather wordy but made valid points about the misconception of unbundling and deregulation and their premise that they would lead to lower prices more supply and customer choice. Deregulation has been an failure. If you don't believe me ask the citizens of Georgia and California.

A central point that is missed in this whole conversation is that price volatility really became a reality after deregulation. Up until then, nat gas was a minimal player in electrical production. Gas was primarily used for heating, water heating and in manufacturing and chemical processing such as the fertilizer industry. With the advent of efficient gas turbine technology it found a niche in electrical generation, starting with peak load production in the hot summer months and then by supplying some year round demand. Turbines were relative cheap and the environmental permitting process was a breeze compared to coal and especially nuclear. It was cheap and easy (is that concise enough?) and became the path of least resistance. If you don't believe me, does Calpine Energy ring a bell? They were going like gang busters installing turbines all over California and other states back in the late 90's but subsequently, like the tech bubble, they busted as well. Never the less, as a result, the normal summer period where gas used to put into storage at low prices for winter heating use was gone. Gas was being bought and used in the summer for peak electrical generation keeping the price high and introducing more price and supply volatility into the market. That my friends... is why we are in the situation we are today. Gone are the 20 year firm contracts for 3-4 dollars an mcf and they are not coming back. It is a shame because gas is a great efficient and environmentally friendly source of fuel for generating heat and heating water at the source. And, it could be a great fuel for transportation but we have ruined it for the time being. Large scale electrical production is NOT the best use even though turbine technology has made great strides, it still looses energy/efficiency as the electricity is transported from the producer to the end user. I have been in the business for 20 years and have witnessed this first hand, but if you don't believe me....read some articles by Boone Pickens, you will hear the same story.

As for investments, natural gas is a great place to be pipelines and local distribution companies are great dividend low risk plays with steady growth. Exploration and production companies offer more risk and possible returns and the support network companies that surround these companies are attractive as well. I am invested in all of those areas and have been reasonably successful. Not gangbusters mind you, but I sleep well at night. Good Luck.