U.S. President Barack Obama addressed Georgetown University students Wednesday with a speech about U.S. energy policy. Many of his goals were the same as previous U.S. government energy policies: cut foreign oil dependence, promote energy conservation, and explore alternative fuels.
However, it was the president's comments regarding natural gas that had the biggest impact on energy markets.
The natural gas contract for May delivery gained 9 cents, more than 2%, to $4.356 per 1,000 cubic feet on the New York Mercantile Exchange following Obama's speech Wednesday.
Given that it burns cleaner than oil and is particularly abundant in the United States, natural gas is a widely watched commodity and many Money Morning readers have written in with questions about its prospects.
For instance, one reader recently checked in with the following question:
Any updates onnatural gas development, and prices as they sit at the moment, and where they are headed?
– Ian R.
While oil prices have climbed 27% in the past 12 months, a surge in domestic natural gas production has kept prices relatively stable. But if President Obama is successful at reaching the goals he outlined in Wednesday's speech, natural gas could see something of a breakout.
The president aims to cut U.S. oil imports by one-third, or 3 million to 4 million barrels of oil a day, by 2025. He pointed toward using alternative and renewable energy sources to help with this goal.
"The only way for America's energy supply to be truly secure is by permanently reducing our dependence on oil," Obama said.
The president also pledged to have federal agencies buy only hybrid, electric and alternative fuel vehicles, like those powered by natural gas, by 2015.
Energy experts said President Obama's acknowledgement of natural gas is a notable step toward increasing the energy source's use.
"It represents recognition in Washington about how important and how large this new shale resource is," Dan Yergin, oil-industry scholar and head of IHS Cambridge Energy Research Associates, told The Wall Street Journal.
Many government critics are quick to point out that if U.S. energy policy follows the usual path, President Obama's goals will not be met. But some industry experts say more has changed in the oil industry than many realize.
Yergin said U.S. energy policy reform over the past few decades has led to key developments in energy security. Policy changes in the 1970s led to the exploitation of oil reserves in Alaska's North Slope, and recent progress has increased oil imports from Canadian oilsands.
"Policy matters and consistent policy matters even more," said Yergin "In the energy sector, things don't happen overnight."
The president's alternative fuels goal isn't the only force that could boost natural gas prices. The Environmental Protection Agency aims to curb non-carbon emissions at U.S. power plants, meaning coal-fired plants will need cleaner-burning natural gas.
"We can expect natural gas to replace more than 20% of coal in the generation of electricity in the next few years, translating into the need for some five billion cubic feet a day of gas by as early as 2015," Money Morning's Kent Moors wrote in his Oil & Energy Investor newsletter. "There is shortly going to be a hefty increase in domestic demand, and everybody in the industry knows the sourcing of that increasing demand."
Natural gas inventory stockpiles are high enough to limit a drastic surge in prices, and are likely to stay that way through 2011, according to the Energy Information Administration. But the increasing importance of the fuel source in U.S. energy policy is a good sign for natural gas, and a big reason why natural gas stocks surged on Wednesday after the president's speech.
Natural gas engine maker Westport Innovations Inc. (Nasdaq: WPRT) rose 13%, Clean Energy Fuels Corp. (Nasdaq: CLNE) rose nearly 9%, and Fuel Systems Solutions Inc. (Nasdaq: FSYS) climbed more than 7%.
Moors recommends investors look for the following characteristics when choosing natural gas stocks: "solid gross, operating, and net margins; a low (and declining) debt-to-earnings ratio; and central focus upon primary low-cost production assets."
If you want to stay up-to-date with what Dr. Moors thinks about the energy sector, the Middle East crisis, or the Obama administration's energy policies – you don't have to wait for his next guest column here in Money Morning or his next TV appearance. You can subscribe to his "Energy Advantage" advisory service, which will give you regular access to his latest thinking and best profit ideas. For more information on the "Energy Advantage," please click here]
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News and Related Story Links:
- The Wall Street Journal:
Obama Adds New Luster to Old Calls for Energy Independence
- The Wall Street Journal:
Natural Gas Fuel Stocks Surge on Obama Energy Speech.
- Oil & Energy Investor:
Another Assault on Coal, Another Push to Natural Gas
- Energy Information Administration:
- Money Morning News Archive:
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