A headline on a piece last week by Erik Reguly in Toronto’s Globe and Mail put it succinctly, “Nuclear’s loss not a worry; the new world power is gas.”
Of course, he was talking about the likely public fear of nuclear energy in the wake of Japan’s disaster and the fact that shale gas in North America and elsewhere has boosted natural gas reserves to previously unimagined levels. Moreover, as Reguly explained, gas-burning power plants take roughly two years to complete and cost $1 billion. Compare that to a nuclear plant’s $6 billion price tag and the 10 years required to build one. “How can the nuclear, coal and renewable energy industry compete with vast supplies of cheap gas?” he asked. “They can’t. Even some nuclear industry executives admit as much.”
In fact, there is yet another reason to be bullish on natural gas – namely a new process being developed by several still-private companies that’s able to cost effectively transform natural gas into gasoline. As Scientific American noted in April 2009, the process involves burning a portion of the gas to create temperatures of up to 3,300 degrees F, while a series of chemical reactions transforms it into the longer chains of hydro carbons we put in automobile tanks.
The Texas company that is making this happen, Synfuels International, envisions its process being used to recover some of the trillions of cubic feet of natural gas the World Bank estimates escapes from oil wells or is disposed of by burning. In less developed countries, this converted gasoline could be sold on the local market. Over time — assuming the process is widely adopted — it would exert downward pressure on world oil prices. Assuming the process is scalable, it might even be used to convert gas to gasoline in order to combat temporary oil price hikes. Say good-bye to the Strategic Petroleum Reserve, in other words.
So where does all this leave an investor who is bullish on the natural gas industry? An expanding number of uses for natural gas will keep companies involved in shale gas development busy. And certainly, there are established shale gas plays such as Chesapeake Energy (NYSE:CHK) EOG Resources (NYSE:EOG) Petrohawk Energy (NYSE:HK) that are worth a look.
More speculative plays might include Flowtek Industries, (NYSE:FTK), which jumped 30% last Thursday on what some speculate was its use of citrus-based chemicals to extract gas from shale deposits, a method that’s perhaps more earth-friendly than the fracking chemicals that have aroused the ire of environmentalists and many who live near gas fields.
Meanwhile, companies such as Clean Energy Fuels (NASDAQ:CLNE) are betting that municipalities, along with bus, taxi and trucking companies, or for that matter any organization that wants better control over fuel costs will find it worthwhile to run their vehicles on natural gas vs. gasoline. CLNE develops natural gas dispensing filling stations. Trading at just north of $13, the stock was up 2% on Monday. It’s a pure play in the purest of all easily recoverable naturally produced fuels and worth checking out.
At the time of publication, Mark Ingebretsen did not hold any of the individual stocks named in this article; he may hold some of them through mutual funds.
