Natural Gas: Cheapest Asset Won't Stay That Way for Long

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Includes: GAZ, UNG
by: Kevin McElroy

Natural gas eventually will take a more prominent role in the lives of the world energy consumer.

In the mean time, we’re still in the infancy of natural gas adoption. And that means there’s plenty of room for growth.

Before I get into some of the more interesting aspects of the IEA’s Natural Gas Report (which you can click here to read for yourself - pdf), I’d like to quickly tell you about an incredible opportunity in European natural gas investing that you’re not likely to hear about anywhere else.

Now for one of the more interesting, and potentially profitable data points from the IEA report.

Everyone already knows that natural gas fuels power plants, that it heats homes and cooks food.

And while you’ve probably seen a few token natural gas vehicles (NGV), the assumption in the markets is that natural gas will never really put a dent in crude oil consumption, because it’s difficult to adopt on a large scale as a vehicle fuel.

Well, take a look at the chart below, which shows the 16 largest NGV consuming countries.

(Click chart to expand)


Currently, our ally in the War on Terror, Pakistan has nearly 40% of its vehicle fleet using NGVs.

Now, that should tell you all you need to know about the possibility of NGV adoption. If a war-torn, second-tier country with a huge population like Pakistan can adopt NGVs to take up nearly 40% of their vehicles, then it should be within the realm of possibility that America, much of Europe and large swaths of Asia can do the same.

Will natural gas become the next oil? Of course not. Crude oil is the best fuel for vehicles for a variety of obvious reasons.

But natural gas is already being utilized as a vehicle fuel. And as oil prices continue to rise, it’s only a matter of when, not if vehicle manufactures here in the United States will produce NGV capable vehicles.

What’s the tipping point? Is it $5 gasoline in the states over the next 5 years? I don’t know. But right now natural gas is so incredibly inexpensive on an energy-to-energy comparison, that you probably won’t even believe me when I tell you.

Right now, the natural gas equivalent of a gallon of gasoline costs less than 75 cents.
So…75 cents of natural gas gives you the same amount of energy as ~$4 worth of gasoline. I don’t know about you, but I’d be thrilled to drive a car that was 80% less expensive to fuel up.

Will natural gas prices stay this low once NGV adoption begins in the United States?

No!

That’s why you need to adopt natural gas into your portfolio now – not when you see Toyota (NYSE:TM) rolling its production NGV hybrid into the Detroit auto show.

You can click here to read the research report.

Read disclosure information here.