Natural Gas Boom: Cheap, Clean Fuel Presents a Problem for Investors

A natural gas boom is coming in the U.S., CNBC reported Thursday. But while consumers are likely to benefit from the cheap energy source, investors may not.

In the past three years, with the help of new drilling technology, huge reserves of domestic natural gas have been discovered -- enough to produce a 100-year supply of cheap, cleaner-burning fuel at current rates of consumption, says CNBC, citing experts.

While this sounds like great news for investors in the field, the two major obstacles facing the industry -- low prices stemming from vast supplies and a push toward renewable energy -- could put a dent in their high hopes.

40% of U.S. Energy by 2040

Indeed, many energy experts and government officials see natural gas only as a transitional energy source to be used as a bridge while the country moves from foreign oil and dirty coal to renewable biofuels and carbon-free energy powered by wind, solar and nuclear sources, CNBC adds. To wit, the government is giving great subsidies to renewable energy development.

Still, tremendous growth is expected for natural gas use for the next few decades. Despite being a fossil fuel, natural gas is a cleaner-burning than coal or petroleum, and with policies in place to reduce carbon emissions, many would convert to it as a fuel source. A study performed by researchers at Massachusetts Institute of Technology projects natural gas will rise from providing 20% of the nation's energy to 40% in 2040 before falling off as renewable sources gain ground.

As a long-range investment play, natural gas would seem secure, CNBC writes, even if the near-term growth has stalled. If someone wanted to invest in the sector, however, exploration and production companies might not be the best choice. Buying shares in drillers, machinery manufacturers, infrastructure companies, service providers, etc., might be the better bet, stock analyst Alan Brochstein told CNBC.

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Take gas in your house for heating, but not in your investment portfolio. The money to be made in gas is through master limited partnerships (MLPs) that operate distribution pipeline networks. Their payouts are based on the volume of product pushed through their systems, not the price of the commodity and come as a return of capital rather than dividends so there is no tax liability until you sell. Of course your basis will be lowered by the returns collected, but several are now returning well above 5%

December 31 2010 at 11:31 AM Report abuse rate up rate down Reply
Gold Country

We have enough energy resources under the continental US to supply US for 4 thousand years...Get rid of the tree huggers. Bring back a few hundred thousand jobs. And get the Government out of OUR schools.

December 30 2010 at 8:28 PM Report abuse +3 rate up rate down Reply

I am hoping that Natural Gas prices start going up toward the end of the year. If the economy begins to pick up in the first quarter, then refineries, chemical plants, power plants, etc. should begin to consume more Natural Gas in their process. This will be an increase in demand, and hopefully lead to a rise in price. I want this because I own 48 acres in East Texas and have signed a drilling contract. I know that my property sits on top of the Haynesville and Mid-Bossier Shale, and it is possible that other Natrual Gas formations, and oil reserviors are under my property. Instead of buying stock, I am waiting on royalty checks to start coming in.

December 30 2010 at 6:32 PM Report abuse -2 rate up rate down Reply
2 replies to jerrym930's comment

Hey Jerry don't expect to get rich. A man I know had a good gas well. I asked him how much he made off of it, he explained it where I could understand. At 1 million cubic feet per day at $4.00 per million cubic foot paid. First his percent was 20% of the well. After that he had to split with 27 other adjoining land owners. And this was a good well. Needless to say he wasn't getting rich. Now when natural gas was 15 dollars pmcf he was doing O.K. What is paying off today is the oil at $80 per barrel.

December 31 2010 at 9:28 AM Report abuse rate up rate down Reply

Hello, I am with Fossil Royalties LLC. Let me know if you are interested in selling your Mineral or royalty rights. Please e-mail me

January 02 2011 at 3:06 PM Report abuse rate up rate down Reply

Don't bet on anything this article says. The price of natural gas will increase as it displaces other energy sources. "Renewable" and nuclear sources will never become especially prevalent. They're too expensive. Oil is still king as cars will never use chemical storage. Batteries are too heavy.

December 30 2010 at 4:32 PM Report abuse -1 rate up rate down Reply

We need to push for nat gas as a transportation fuel. If we could take 2 mil barrels of oil out of the us per day we would save billions of dollars, create lots of well paying us jobs and cut back on respartory problems.

December 30 2010 at 4:24 PM Report abuse +2 rate up rate down Reply

Renewable energy sources are years away. For them to work, the costs to consumers must be affordable. At this time, the sources are too expensive and payouts too long for investments by consumers.

December 30 2010 at 4:22 PM Report abuse rate up rate down Reply