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Today, I'm flying back from Houston… again.
It seems I've been spending quite a bit of time in Texas these days – and for good reason. The rollout of our exciting 25-well oil and natural gas investing project is just one.
But another revolves around the tremendous changes in the industry itself, especially when it comes to natural gas.
In fact, I just presented the keynote address before the annual meeting of the Gas Compressor Association at the Moody Gardens Convention Center in Galveston.
It dealt with the inescapable and irresistible future of natural gas.
Here's what I told those assembled about the new, "gas-driven" world…
Natural Gas: The Emergence of an Unstoppable Trend
My key point was simple: We are witnessing the rapid emergence of a global natural gas market.
Of course, such a "revelation" would hardly be news if this were an oil gathering. Oil transport from one end of the world to the other is commonplace. You could see the tankers awaiting passage into port outside the windows of the hotel.
But what's happening in natural gas is something else entirely.
Given its limitations in transport (as long as it remains in a gaseous state), natural gas has always been a localized energy source, with its deliveries essentially limited by where the pipelines go.
That created a very important pricing reality. Local spot markets were usually not possible except at a few "hubs" or main intersections in the primary trunk pipeline systems.
"Henry Hub" (actually named for a school that used to be in Erath, La., and the location where NYMEX gas futures prices are set) is one such primary hub. Baumgarten in Austria would be another. There are also smaller versions elsewhere providing more constricted local spot pricing.
But without significant exposure to spot pricing, most locations' prices are based on longer-term supply contracts. Internationally, especially in Europe, these are usually 20-year, "take or pay" agreements with the price based on a basket of oil and oil product prices. In this case, the end user is obliged to take a minimum amount monthly – usually 70% or more – or pay as if it had.
This arrangement comes with a noticeable downside that has been magnified these days: The higher the cost of oil, the higher the cost of natural gas.
Spot markets, on the other hand, provide for quicker ad hoc sales, usually over and done in 72 hours. If a regular supply can be assured, these short-term purchases will almost always undercut the multi-year pipeline contract prices of "take or pay."
Here's why the emerging trade in liquefied natural gas (LNG) is such a game changer for natural gas investing (and yes, I know the phrase "game changer" is overused these days, but in this case, it really fits):
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.