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Natural Gas

Natural gas is spurring a new boom in energy production in the U.S., and with it, the potential for a massive economic and employment recovery.  Using new extraction techniques to tap a vast domestic supply could positively impact household income, global trade and a new American competitiveness in the world economy, according to a study by energy consulting firm IHS.

Natural Gas Stocks and the U.S. Economy

natural-gasThis new, “unconventional” oil and natural gas production has already had an impact, increasing disposable income by an average of $1,200 per U.S. household in 2012. Due to savings from lower energy costs, that figure is expected to grow to more than $3,500 in 2025, the study says.

With a significant reduction in energy imports, IHS predicts the trade deficit will be reduced by more than $164 billion in 2020 — equivalent to one-third of the current U.S. trade deficit.

Before hydraulic fracturing, or “fracking,” came into play, the oil and natural gas industries were suffering from lower production and an inability to compete with foreign imports. Now the sector has been reborn, attracting a great deal of domestic — and foreign – investment, as well as creating good paying jobs.

Natural gas production also yields significant additional benefits: byproducts known as natural-gas liquids (NGLs), such as propane and ethane.

Natural Gas Prices

Natural gas prices are sensitive to even minor changes of supply and demand. Prices can be impacted by weather, current levels of production and the amount of gas in storage – and by the price of oil.

When the spread significantly widens between oil and natural gas prices, production favors the higher-profit commodity. Drilling of oil and liquids is then favored over the production of natural gas. But the added value of natural-gas byproducts can uphold, to a large degree, overall natural-gas production.

For example, when natural gas fields such as Haynesville and Fayetteville are out of favor due to prices and demand, liquids-rich plays like Marcellus and Eagle Ford see a boost in production. Oil fields such as Mississippian and Bakken, where gas is a byproduct, will also see more activity.

Investing in natural gas

Investing in natural gas stocks can be accomplished in several ways. Buying shares in natural gas producer stocks is one obvious option, as well as the companies that support the energy producing infrastructure. Futures traded on commodity exchanges are for advanced investors with a big risk appetite.

Exchange-traded funds provide ample exposure to natural gas holdings and can be easily added to your portfolio. And master limited partnerships (MLPs) trade like stocks but also provide a nice dividend for additional income, however you will want to carefully consider the tax treatment of MLPs.

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