The Next Great Energy Investment
What’s one of the best alternatives to oil right now? If you said natural gas you’d be among a growing number of people who are looking to the fuel source as a viable alternative for everything from vehicle transportation to electricity generation.
There is a groundswell of enthusiasm building for natural gas. And it’s not just because of the BP (NYSE: BP) oil spill in the Gulf of Mexico and President Obama’s quasi-endorsement for the cheap and abundant commodity.
Although neither of those events are hurting.
But the fundamental reasons make for more than just cocktail conversation. Natural gas is cheap, plentiful, accessible on domestic soil and cleaner than other fossil fuels like coal and oil.
I recently wrote an article for the Burlington Free Press, a local Vermont newspaper, in which I outlined the following case for natural gas as an alternative fuel source:
“The U.S. has the greatest supply of this natural resource in the world, with underground deposits stretching from New York to Texas. It's estimated that there may be enough natural gas to supply all of our needs for more than 200 years.
In addition to being abundant, natural gas is also clean. It produces roughly one-third the amount of carbon dioxide as gasoline, and a quarter of the carbon dioxide of coal. With carbon dioxide emissions being a key contributor to climate change, the reduction of greenhouse gases through the greater use of natural gas would have a positive effect on our environment.
Because it's so plentiful, natural gas is also cheap in comparison to other energy options. Compared with oil, natural gas is about two-thirds less expensive. Natural gas is measured in units of one thousand cubic feet (mcf) which is the equivalent of seven gallons. One mcf of natural gas sells about $4.50, and the diesel fuel equivalent costs about $21, meaning that natural gas costs 80 percent less.”
***I’m not the only one extolling the virtues of this clean burning energy source. Among the proponents are famed energy investor T. Boone Pickens, energy expert Henry Groppe, and Wyatt Investment Research’s own Resource Prospector editor Kevin McElroy.
Mr. Pickens was recently quoted on CNBC as saying, “We'll be identified as the dumbest people in the world if we don't capitalize on this resource and replace OPEC oil.” Mr. Groppe believes the fuel source could see $8.00 by summer’s end, roughly a 75 percent increase from current levels.
***If you’re a long-term reader of Small Cap Investor Daily you know by now that I believe any fuel alternative needs support from the top - if it is going to become a true alternative to oil.
Natural gas may be getting closer to just that.
President Obama has become increasingly vocal with respect to the U.S.’s energy policy. On June 2nd the President said:
“… without a major change in our energy policy, our dependence on oil means that we will continue to send billions of dollars of our hard-earned wealth to other countries every month — including countries in dangerous and unstable regions. In other words, our continued dependence on fossil fuels will jeopardize our national security. It will smother our planet. And it will continue to put our economy and our environment at risk...’
…Now, that means continuing our unprecedented effort to make everything from our homes and businesses to our cars and trucks more energy-efficient. It means tapping into our natural gas reserves, and moving ahead with our plan to expand our nation’s fleet of nuclear power plants.”
It’s seems as though Obama is getting cozier with the idea that natural gas could bridge the gap between oil and other alternatives.
***Regarding the range of alternatives to oil, Kevin McElroy believes natural gas has the clear edge, both now and for the foreseeable future. In a recent issue of Resource Prospector he wrote:
“Think about other alternative energy sources and you’ll realize that none of them meet all three criteria [cheap, abundant & accessible]. Solar is plentiful, but expensive to access, and the technology isn’t quite there yet. Wind is expensive and has accessibility problems. Geothermal is cheap, and we have the technology, but there’s not a lot of supply in this country. The only other alternative energy that comes close is nuclear power, but you can’t drive a nuclear car. There’s also the potential for a uranium supply crunch if we shift to nuclear.
So natural gas is the clear choice for both electricity generation AND automobile fuel. And I believe it will emerge as a partial replacement for crude oil... It will happen because the energy is cheap, plentiful and usable.”
***Kevin recommends investors buy Exxon (NYSE: XOM) to gain exposure since after the company bought XTO Energy (NYSE: XTO) it is now America’s largest producer of natural gas.
Other companies I like in the sector include Chesapeake Energy (NYSE: CHK), and in the smaller (yet still not a small cap) asset class, Petrohawk Energy (NYSE: HK).
In the small cap space, I prefer the technology companies. Some of the stronger names include Westport Innovations (Nasdaq: WPRT) and Fuel Systems Solutions (Nasdaq: FSYS). Both of these companies make components and systems that allow natural gas use as a transportation fuel.
I’ll take a closer look as some of these companies in the future if I hear enough interest from you. Feel free to send me your favorite small cap natural gas stocks, either in the technology or the exploration space. My address is: editorial@smallcapinvestor.com.
***As investors, we want to be aware of major economic shifts that will occur so that we can invest in them for big profits. Growing use of natural gas is looking more and more like one of these shifts.
Of course, nothing is guaranteed in this world so I wouldn’t recommend going ‘all in’ on any natural gas stock you can find. But buying the right small cap natural gas stock could very well be the next great energy investment you’ll make.
