The U.S. natural gas industry is undergoing seismic changes that are inverting the traditional gas supply-and-demand map of the United States - literally redrawing it.
And this offers the opportunity to make even more money than before for those who know how to invest in natural gas today.
You see, southern states like Texas and Louisiana have functioned as the major supplier to the U.S. gas market, and the eastern and western states have been the two high-consumption regions.
But current conditions and future projections have triggered a rapid shift in this process.
In fact, many energy experts, including Money Morning Global Energy Strategist Dr. Kent Moors, believe the U.S. natural gas market will be turned on its head before the start of the next decade.
The U.S. Natural Gas Market: A "True Sea Change"
An Oct. 8 report from energy analytic firm Bentek Energy highlighted just how big this transformation will be.
"Based on our latest modeling, the U.S. is embarking on a true sea change," said Bentek director of energy analysis Rocco Canonica, lead author of the report.
Bentek wrote that gas production from the entire Northeast has soared more than 500% since 2005. This is due in large part to the Marcellus Shale in Pennsylvania and West Virginia and the Utica Shale in Ohio.
Production from the Marcellus Shale is rising much faster than expected, up about 50% so far this year from 2012 levels. Bentek reported that 36% of total U.S. natural gas production growth from 2013 to 2023 will be in the Northeast United States.
However, while production takes off, the region will account for only 15% of growth in gas demand.
Instead, Bentek said the traditional gas-production region in the southeast will become a "premium market area" for natural gas.
This "explosive demand growth" for natural gas will come from more gas-fueled power plants, gas-powered industrial projects (including petrochemicals), and large exports of liquefied natural gas (LNG).
This redrawing of the gas supply-and-demand map in the United States has many implications - for both companies and investors (evidenced by the five picks we give away below...)
For one, the existing pipeline infrastructure is designed to transport gas from the Gulf Coast to the high-consumption regions in the west and the northeast. This has been true for over half a century.
"In the future, however, many of these systems will have to be reconfigured to move gas into the southeast," the report continued, "and gas price relationships will have to change to reflect these adjustments."
Bentek's report stated that at least 40 Northeast natural gas pipeline expansions are planned, with half geared to moving Appalachian gas to the Southeast.
Among the notable other natural gas pipelines will be the first gas transmission pipeline into New York City to be built in 40 years.
In addition, the United States is expected to become a net gas exporter by 2017... three years ahead of predictions set forth by the White House.
In the Southeast alone, nine LNG export projects are on the drawing board.
These alterations will influence how to invest in the natural gas market.
Five Picks to Invest in the New Natural Gas Market
Here are a few ways to play the natural gas companies best positioned to profit from this new market:
- The first way to invest in this shift is to focus on the Marcellus producers like Range Resources Corp. (NYSE: RRC) and Cabot Oil & Gas Corp (NYSE: COG). These companies were covered in greater depth right here in Money Morning.
- The second is to focus on companies involved in LNG exports, including TransCanada Corp (NYSE: TRP), which Moors discussed recently in Best Investments in Natural Gas: This New Demand Source Is Changing Everything.
Another LNG play to consider is the company that received the first approval from the Obama administration to export LNG - Cheniere Energy (NYSE: LNG). It has two major LNG projects in the works, Sabine Pass and Corpus Christi. Production from Sabine Pass is expected to begin in 2015.
- Finally, with all the changes coming in natural gas transmission infrastructure, investors should consider the pipeline companies.
One obvious choice is Kinder Morgan (NYSE: KMI). It is the largest midstream company in North America and the continent's third biggest energy company.
It has a joint venture with MarkWest Energy Partners (NYSE: MWE) to build a new gas pipeline to the Gulf Coast from the Marcellus/Utica. The two companies also plan to build a large scale processing facility in the Utica region, Tuscarawas County, Ohio.
Besides pipelines and storage facilities, the company is also involved in LNG. Its Elba Island project is located in Chatham County, Georgia.
Kinder Morgan is a smart, broad way to play the new natural gas market and it has a 4.62% yield too.
The shale revolution taking place in the Northeast will continue to evolve as more and more companies seek to profit from increased natural gas production and falling prices. And Money Morning readers will reap the rewards of our ongoing updates on how to invest in the U.S. shale boom. Check back often for updates.
Money Morning members also get free access to this special natural gas investing report: There's a New Way to Join the Shale Oil Millionaires' Club -- Today