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Energy Investing: The Benefits of Natural Gas

As an energy investor, you might want to know that one of the most attractive features of natural gas is that it’s the cleanest-burning fossil fuel. When you burn natural gas, it creates less carbon dioxide (CO2) emissions than both oil and coal. This table highlights the cleaner-burning benefits associated with natural gas.

Fossil Fuel Emissions (Pounds per Billion Btu of Energy)
Pollutant Natural Gas Oil Coal
Carbon dioxide 117,000 164,000 208,000
Carbon monoxide 40 33 208
Nitrogen oxides 92 448 457
Sulfur dioxide 1 1,122 2,591
Particulates 7 84 2,744
Mercury 0 0.007 0.016

Natural gas is clearly cleaner than other fossil fuels, but that doesn’t mean oil and coal will suddenly fizzle out of your life. The U.S. Energy Information Administration (EIA) projects all three fossil fuels will have a role in the world’s future energy consumption. This figure shows their projections, where fossil fuels compose more than three-quarters of total energy demand in 2040.

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Although the majority of natural gas is burned to produce electricity, it also has a wide variety of other uses, including water and air heating, fertilizer and other petrochemical production, and transportation. This table shows the end uses of natural gas in the United States as of 2011.

Natural Gas End Uses
Use Amount (Trillion Cubic Feet) Percent of Total
Electric power generation 7.57 Tcf 31%
Industrial 6.9 Tcf 28%
Residential 4.71 Tcf 19%
Commercial 3.15 Tcf 13%
Lease and plant fuel 1.32 Tcf 5%
Pipeline and distribution 0.68 Tcf 3%
Vehicle fuel 0.03 Tcf <1%

    Electricity generation

Another compelling piece of evidence that natural gas is slowly taking its place as the most important source of energy is through its growing role in power generation.

Between now and 2035, approximately 80 percent of total additions to electrical generation will come from gas-fired generators. The overwhelming number of electrical generators being produced run on natural gas. Notice in the figure that consumers are quickly phasing coal out of the big picture.

image1.jpg

    Transportation

At less than one percent of end uses (refer to the “Natural Gas End Uses” table), transportation is the natural gas wild card. Truthfully, investors don’t usually give it much thought. But they should, because the investment rewards will be huge as it plays out.

Without question, the single most dominated sector in U.S. energy is transportation. Americans love gas guzzlers, and even $4 a gallon at the pump hasn’t scared the SUVs off the road. Petroleum accounted for a whopping 93 percent of the transportation sector in 2011.

But many fleets (think the postal service, trash trucks, and taxis) are beginning to operate their vehicles on natural gas. It’s cheaper and much cleaner than gasoline or diesel. Natural gas prices between $2 and $4 translate into 25 to 50 cents per gallon of gasoline equivalent (GGE). Even with $1.75 refining cost, that still translates to $2 to $2.25 for a gallon.

Across the United States, companies are racing to create the infrastructure necessary to start relying more heavily on natural gas for many needs: rigs, gas-to-liquid plants, pumping stations, pipelines, engines, and more.

This boom is creating a ring of wealth from coast to coast. Clean Energy Fuels (NASDAQ: CLNE) is building “America’s Natural Gas Highway” — 150 LNG fueling stations in two years. Shell (NYSE: RDS) is building an additional 100.

Keep in mind the fortunes that were built on the back of oil. The transition won’t necessarily take place overnight, but it’s an inevitable move to make as gasoline prices climb ever higher.

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