Natural Gas in the U.S. is Not a Scarce Resource, but $4 Natural Gas Is
Investment in the cleantech industry is premised on the basic assumption that climate change is really occurring, which necessitates a market for new technologies that generate electricity while emitting low levels of greenhouse gases.
As I touched on in my previous post, even if climate change is not your shot of bourbon, perhaps resource constraints may be a more compelling concern. In other words, even if you don’t think that climate change is really occurring or GHG emissions simply do not concern you, resource scarcity should be reason enough for you to support diversifying the U.S. energy supply.
Today’s price of natural gas is relatively low – $4/MMbtu (compared with historic prices of $9/MMBtu). While it’s true that natural gas is an abundant resource in the United States, $4 gas is not.
The price of natural gas will rise in the foreseeable future because:
- Fuel-switching at power plants. Generators are increasingly feedstock from coal to natural gas due to a number of factors, particularly new regulations by the U.S. Environmental Protection Agency (EPA) and consumer demand for less polluting sources of electricity (natural gas is half as polluting as coal);
- Increased scrutiny of fracking. Hydraulic fracturing – commonly referred to as “fracking” – is the process of injecting chemicals into the ground to extract gas from subterranean shale reserves. Federal and state regulators are taking a closer look at fracking, while shareholders of gas companies have made headlines during recent proxy seasons for asking the companies they own to be more transparent in reporting the chemicals and processes associated with extracting shale; and
- Long-term impacts on supply and demand. Although it is a number of years off, the U.S. will increase the level of domestic resources exported abroad in the form of liquefied natural gas (LNG). This will drive domestic natural gas prices up, as they equalize with gas prices in Europe and Asia. Also, the use of clean natural gas (CNG) will increase in the United States, particularly among fleets.
It typically takes 10 to 15 years for new energy technologies to achieve commercial scale. The price of natural gas will rise well above $4 over the next decade for the reasons outlined above, or other factors, including supply constraints resulting from international conflict or natural disaster. With that kind of lead time, investors who do not see the need for investment in energy resources outside of conventional fossil fuels or shale gas are embracing a short-sighted approach at the expense of their bottom line.