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 June 09, 2010
The Energy Market: Gas's Grip Begins

 

My colleagues Keith Kohl and Ian Cooper have been rattling the natural gas cage for a few weeks now.

Today, I'm officially jumping on the bandwagon.

And the reasons for it are simple:

  1. We can meet our domestic energy needs with North American resources rather than importing two-thirds of the oil we use.

  2. Natural gas is much cheaper than oil.

  3. Natural gas burns cleaner than oil.

A nat gas no-brainer

If oil were $20 cheaper per barrel or we could somehow find enough of it in the U.S. to last more than a few years, then this issue wouldn't be so cut and dry.

But it's not, and we can't. So natural gas is emerging as the clear alternative.

And as Cooper recently pointed out, natural gas has run from $4 to more than $4.85 as the Dow plunged from 11,200 to the mid-9,000s. It would seem mainstream investors are starting to catch on.

Indeed, just take a look at how United States Natural Gas (NYSE: UNG) has performed over the past three months:

United States Natural Gas (NYSE:UNG)

With the drilling ban and change in public sentiment likely to follow the BP incident in the Gulf, natural gas will be looked to as not only an abundant domestic energy source, but also a source of much-needed jobs.

In fact the Obama administration has already announced any drilling in the Gulf will be in less than 500 feet of water.

According to CNN, "Shallow water wells account for just 20% of the Gulf's oil output, but over 50% of its natural gas production and the majority of offshore jobs." 

Point: natural gas.

Gas's grip begins

As coal comes under fire for its mining practices and heavy emissions, utilities are once again turning to natural gas for baseload generation.

Just this week, Constellation Energy (NYSY: CEG) announced the commissioning of its Hillabee Power Plant.

According to the press release:

The Hillabee plant is fueled by clean-burning natural gas and uses combined cycle technology which recycles heat exhaust to create additional electricity with minimal waste and less water usage. The plant is also fitted with Selective Catalytic Reduction technology which significantly reduces nitrogen oxide emissions.

Expect the shift away from coal to continue.

Even more exciting, natural gas is increasingly gaining share in the auto market...

Major cities have long retrofitted their fleets to run on natural gas, but their use is quickly spreading to other areas; natural gas engines are being offered by more and more automakers as original equipment.

Ford offers its Transit Connect as a natural gas model — and cities have been buying them up.

Tim Conlon, president of California Yellow Cab, even says it could be “the iconic taxi of the future.”

Honda offers the Civic with a 1.8L natural gas engine; Ford, Chevy, GMC, and Isuzu each offer natural gas conversions for several models.

And just this week, Ford announced it will offer compressed natural gas (CNG) conversion kits for its F-450 and F-550 trucks — a big move for traditionally manly, diesel-powered trucks.

From fleets to your street

Right now, natural gas cars and trucks make the most sense for fleets.

If you were to buy one for personal use, where would you fill it up?

Fleets, on the other hand — like buses, big rigs, police and fire, meter readers, local and federal governments, etc. — can install one natural gas station to fuel all their vehicles.

I'll let Keith and Ian guide you on the production side of natural gas — the explorers, drillers, and other companies that fall under their umbrella of expertise...

But I will say that as natural gas vehicles take hold in the United States, a pure play would be on the company building the fueling stations.

The only pure play doing that right now is Clean Energy Fuels Corp. (NASDAQ: CLNE), and recent volatility has knocked it down to attractive levels.

What's more, several members of Congress or their family members — including Paul Pelosi — own this stock.

You think there's some favorable natural gas vehicle legislation on the way?

More on that topic in coming weeks.

Call it like you see it,

Nick Hodge

Nick