Natural gas – still an industry in growth mode and showing promise
In general energy prices appear to have done nothing but drop since the beginning of 2015. The price of West Texas Crude (WTC) is down about 38 percent over the past three months. Coal prices have fallen about 11 percent over the past three months. At the same time, natural gas prices have stayed essentially flat.
Production of natural gas in the U.S. has reached record highs in recent years. But, usage is multiplying across both old and new sectors of the economy. In fact, the natural gas industry appears on track for what some analysts still predict will be a sustained period of growth, perhaps lasting decades.
Further, the outlook for natural gas may bode well for U.S. greenhouse gas emissions levels because although it’s hardly a panacea, natural gas is a far cleaner energy source then nearly any other type of fuel. The U.S. Energy Information Administration (EIA) ranks the carbon dioxide emissions of natural gas behind that of coal, diesel fuel and heating oil, gasoline, and propane. Emitting 228 pounds of CO2 per million Btu of energy, coal is by far the dirtiest when compared to natural gas, which emits just 117 pounds per million Btu. The difference between natural gas and gasoline meanwhile is less drastic, with gasoline emitting about 157 pounds of CO2 per million Btu of energy. It is an energy source that is still viewed as a “bridge” to a new energy economy, one that works under the Obama EPA Clean Power Plan.
This positive state of the natural gas industry in this country is being witnessed on several fronts.
In the electric power industry for instance, natural gas is being used more and more in place of coal. The amount of electricity generated by natural gas fueled plants in April and May was just 3.5 percent less than the projected amount of coal-fired generation, says the EIA. This record level convergence between the two industries is due in large part to the retirement of coal-fired power plants. Small coal plants around the country are shutting down in response to the low cost of natural gas and new regulations regarding mercury and air toxics.
At the same time, natural gas imports have been on a downward spiral for eight years, reaching their lowest level since 1987. Increased production of this domestically abundant resource and consistently low prices are a big factor behind this trend.
Meanwhile, exports are 9 percent above their previous five-year average, according to the EIA. Exports to Mexico alone, which make up nearly half of what the U.S. sells abroad, increased 12 percent in 2014.
The industrial use of natural gas has also grown steadily since 2009, particularly as a feedstock for chemical production, says EIA Analyst Katherine Teller.
There are some silver linings associated with the industry’s growth in spite of frequent local environmental opposition. The Environmental Protection Agency (EPA) says natural gas plays a key role in our nation’s clean energy future. It is part of a notion that natural gas is a still a bridge to a new energy economy. In addition to natural gas emitting less carbon dioxide as an energy source, thus reducing greenhouse gases, it emits far less other particulates (which contribute to smog). What’s more its increased adoption by the industrial sector and in electric generation reduces the pollution typically associated with those two industries.
“Natural gas is much cleaner then traditional forms of fuel. Particularly when you start talking about things like particulates, or carbon monoxide. And the noise from CNG is considerably less then the noise from a diesel engine, so its use reduces noise pollution,” says Grant Zimmerman, senior vice president of business development at ampCNG, a company focused on shifting the heavy duty trucking industry from diesel to natural gas. “We’ve built our business around the core conviction that natural gas is going to be transformative.”
None of which is to suggest that natural gas is without drawbacks. It’s still a fossil fuel after all, which means burning natural gas produces nitrogen oxides and carbon dioxide, but in lower quantities then burning coal or oil. And when not burned completely, natural gas can release methane, a potent greenhouse gas. The EPA says oil and natural gas operations represent a significant source of methane emissions around the world, potentially as much of 23 percent of total human-made methane missions.
Still, the expanding use of this lower CO2 intense product has been good for the country’s natural gas producers. The top five producers are Exxon Mobil (NYSE: XOM), Chesapeake Energy (NYSE: CHK), Anadarko (NYSE: APC), Southwestern Energy Co. (NYSE: SWN) and Devon Energy (NYSE: DVN). It is an industry to watch and to look for leaders who are truly part of a bridge to building to a new energy economy.
“Coal fired plants are going to have a difficult time meeting new regulations, which means more and more utilities will switch to natural gas. So if you’re one of these natural gas companies, that means you will be selling more gas,” says Robert Rapier, a chemical engineer and energy investment strategist.
In addition, the shifting focus to a less CO2 intense product gives natural gas companies some sense of stability for the future, knowing they are producing a commodity that is compatible with stricter greenhouse gas emission standards, says Rapier.
The fact that natural gas is largely a domestic commodity is also a benefit for U.S. producers.
Other Companies to Watch
Of particular note among this crop of companies is Cabot Oil & Gas, (COG: NYSE) says Rapier. The company is widely recognized as the low cost producer and will benefit from construction of the Constitution Pipeline, a 124-mile line connecting abundant Appalachian natural gas supplies in northern Pennsylvania with major northeastern markets, allowing the company’s gas to be sold in more lucrative locations.
Mia Taylor is an award-winning journalist with nearly two decades of experience and a graduate degree in journalism and media studies. Publications she has worked for, or written for, include The Atlanta Journal-Constitution, the San Diego Union-Tribune, KPBS, TheStreet.com, MainStreet.com and TheSimpleDollar.com.