Even now, after several years of hype, investing in natural gas remains one of the best ways to cash in on the biggest U.S. economic boom in decades.
And 2014 figures to be the year when all the catalysts driving the U.S. natural gas industry come together.
Already U.S. natural gas production is one of the most stable and intelligent investments available. And given that midstream providers typically offer higher-than-average yields as well as heavy capital appreciation potential, investing in natural gas stocks offers a rare double-upside scenario.
Now add in five big trends for 2014 that all point to higher natural gas prices.
If you aren't already investing in natural gas production or midstream development in the United States, it may be time to reevaluate your investment strategy. Yes, the potential for this sector is that impressive.
Let's take a closer look at the top five trends that will propel natural gas stocks in 2014...
Investing in Natural Gas, Reason No. 1: The Export Boom Is In Reach
Now that 2014 is here, the U.S. liquefied natural gas (LNG) trade is almost upon us. Companies have begun construction of LNG export terminals and locked in long-term contracts with customers around the world.
From 2014 to 2018, the international LNG trade will offer investors extremely attractive opportunities as the global market begins to take shape. The International Energy Agency (IEA) reports that an estimated 138 billion cubic meters of LNG production is under construction right now.
But that capacity is going to skyrocket to more than 500 billion cubic meters over the next five years, as the United States and other exporters begin to supply customers with desperately needed sources of energy... And we're talking about multi-decade deals between U.S. suppliers and global customers that will ensure steady profits for years to come.
The IEA predicts that 80% of LNG exports will end up going to customers in Asian nations, particularly heavy manufacturing-based nations like China and Japan.
Money Morning Global Energy Strategist Dr. Kent Moors has highlighted Cheniere Energy Inc. (NYSE: LNG) as one of the best prospects in this sector for its export contracts set for development through the Sabine Pass in late 2015. There is still time for investors to get in on companies building these export terminals, but every day we get closer to the huge economic boom the LNG trade will create for the United States.
Investing in Natural Gas, Reason No. 2: Higher Prices Expected in the Months Ahead
Natural gas prices hit record lows in early 2012. But thanks to increased demand in the global electricity, transportation, and agricultural sectors, prices have continued to rise. The Energy Information Administration (EIA) forecasts an increase in average prices from $3.81 to $3.90 per British Thermal Unit in 2014.
But costs could just as likely remain over the $4 threshold for most of the year.
In the wake of higher production costs and ever-increasing demand, investors should expect natural gas prices to keep heading north.
That's good news for midstream companies and storage firms that rely on natural gas prices to justify higher toll fees. Expect another big year for pipeline companies, especially as new capacity comes online throughout the year.
Investing in Natural Gas, Reason No. 3: Increases in Electricity Development
Thanks to increased regulation, electricity prices are on the rise. Even though the United States is awash in cheap natural gas, the country's expensive regulatory costs, particularly concerning the coal industry, are driving electricity prices to multi-decade highs. Natural gas is supposed to be the bridge fuel as the nation transitions to "greener" alternatives, but it takes a long time to retrofit facilities and bring that capacity online. Next year will be another important regulatory year and could expedite the transition toward greater use of natural gas to generate electricity.
An important Supreme Court ruling and expected ruling by the DC Court of Appeals will decide just how much the Environmental Protection Agency (EPA) can regulate cross-state emissions through the Clean Air Act. Rules in favor of the government will lead to higher costs of compliance and help kill a number of coal-fired power plants over the next few years. A number of coal plants were to be retired anyway, but the tougher regulatory impact could expedite those closings.
And that will speed the transition toward natural gas as the primary fuel for electricity development. At the current pace of America's energy boom, the Department of Energy (DOE) predicts natural gas will replace coal as the largest source of U.S. electricity by 2035.
The bottom line: More stringent EPA regulations will drive up energy costs and make natural gas an even more attractive fuel for electricity, further strengthening the case for investing in natural gas for the long term.
Investing in Natural Gas, Reason No. 4: Natural Gas Hits the Road
Since the crash in prices for Westport Innovations Inc. (USA) (NASDAQ: WPRT) and Clean Energy Fuels Corp (NASDAQ: CLNE) in the last two years, many investors don't think that the "hype" around natural-gas-fueled vehicles will ever become reality.
The United States has 644 compressed-natural-gas stations - a very small figure when you realize that a vast portion of the U.S. supply chain relies on diesel-fueled vehicles. But 2014 will be the year natural gas fleets make a bigger dent in the U.S. transportation industry.
The reason is simple economics: A gallon of natgas fuel is cheaper than diesel by at least $1. For companies in the transportation business, that adds up quickly. The United Parcel Service Inc. (NYSE: UPS) is already venturing into natural gas transportation. The company will continue to transition its gas fleet to natural-gas trucks and will continue to expand its LNG stations from four to 13 by this time next year.
Investing in Natural Gas, Reason No. 5: The Arctic "Gold Rush"
As we noted in Global Oil Trends for 2014, the rush for oil and natural gas in the Arctic is one of the biggest energy stories in the world right now. But there is far more natural gas in the Arctic than crude oil. And that's big news for major U.S. players like Exxon Mobil Corp. (NYSE: XOM), which has the technological capability and engineering prowess to unlock the vast amounts of natural gas from beneath the icy Arctic Ocean.
The EIA predicts that 30% of the world's undiscovered natural gas is in formations in the Arctic. And that means a huge rush of nations and multi-national players partnering to bring those fields under their control. Expect the ongoing militarization of the Arctic by Russia and renegade sovereign claims by Canada to be a big part of the geopolitical story in the natural gas markets throughout 2014. And keep an eye out for the energy companies that manage to put themselves in the heart of the Arctic action.
Investing in natural gas is not the only prime energy play right now. The next stage of the U.S. shale oil boom is just starting, and the wave of profits from this new phase is expected to dwarf the initial windfalls. Here's a new way to join the shale oil millionaires' club...
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.