Investing in Natural Gas: The Basics
Natural gas is another member which belongs to the fossil fuel family. Just like coal is fossil fuel in solid form, crude oil is fossil fuels in liquid form, so is natural gas, the gaseous representation of energy. Often it is found in the same places where crude oil has been found.
Natural gas is one of the cleanest sources of energy in the world and is extensively used worldwide. Right now, natural gas is the second largest provider of energy in the United States just behind crude oil. About a quarter of United States energy needs are met by natural gas. In this article, we will learn more about the varied applications of natural gas in different fields. The growing strategic importance of natural gas in these fields is what makes it a great strategic investment.
Natural gas burns at a consistent temperature. There are very few mishaps when natural gas is used as a source of energy. This is what makes natural gas a clean fuel. There is a growing demand for clean fuel in the industrial world. Natural gas is used to power the blast furnaces that are used to melt metals and recast them into different shapes. Also, heavy industries use industrial boilers. Natural gas is very effective in powering such boilers as well! The list of the uses of natural gas is endless. From the fertilizer industry to waste incineration to usage in food processing, the demand for natural gas is growing at a rapid pace. The important thing is that analysts predict this demand to be stable till around 2030. Therefore, investors have at least 15 years of uninterrupted stable cash flow making natural gas a great investment.
About 70% of the kitchens in the United States use natural gas. About 30% of the kitchens in the world use this source of energy to power their kitchen. The residential consumption of natural gas is stable and has been steadily growing. As an investor, one can be sure that as long as people need to cook, they will need natural gas as well! Also, natural gas is used to power up a wide variety of household appliances. Most of these appliances relate to keeping the house warm during winter. It is for this reason that natural gas always experiences a spike when it is winter in the northern hemisphere. Many investors use this cyclical trend to their advantage and liquidate their natural gas holdings in winter when the world is buying.
Natural gas can also be used as a substitute to diesel to power up generators in case of a power cut. Given that gas is cheaper than diesel, many commercial establishments such as malls, theatres, hospitals etc use gas to power up their facilities in case of a power cut. As natural gas based generator technology becomes mainstream, the consumption of natural gas in this field is expected to skyrocket.
Compressed natural gas or CNG is an extremely clean source of vehicular fuel. The technology to use gas to power up the vehicle has become main stream. The price per unit of natural gas is much lesser as compared to other sources of fuel like petrol and diesel. Also, since these vehicles are environment friendly they are taxed less by the government.
The availability of gas stations as well as the small capacity of the gas based fuel tank are the only major hindrances to this technology. Car manufacturing behemoths like Ford and Honda are bullish on the CNG technology giving investors the optimism that these issues will soon be resolved and natural gas will soon become the preferred source of fuel.
The third world is facing a power crisis. At the same time, other inputs which can be used to generate power are very expensive. Natural gas is extremely cheap in comparison. Hence, countries have now started building power plants which can use natural gas as fuel and provide electricity as output. Currently, even developed nations like United States can attribute about 10% of their power generation to natural gas. Given the impetus on developing a cleaner source of energy, this number is expected to go much higher in the near future.
Investing in Natural Gas
The fundamentals of natural gas appear to be strong. The demand is strong and stable and there is not much pressure from substitutes. Therefore, as an investor one must be able to predict the supply side. Also, there is not much geopolitical tension in the countries which produce natural gas on a massive scale. As a result,
|❮ Previous Article||Next Article ❯|
Authorship/Referencing - About the Author(s)
The article is Written By Prachi Juneja and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.
- Introduction to Commodities Investing
- How to Invest In Commodities Markets
- Why to be Bullish on Commodities ?
- Why Do Commodities Exchanges Exist ?
- How Commodity Prices Affect Other Sectors ?
- Is the Commodities Market in a Bubble ?
- Market Indicators For Commodities Investing
- The Anatomy of Commodity Indices
- Investing in Natural Gas
- Organization of Petroleum Exporting Countries
- Exchange Traded Funds - Types, Advantages and Disadvantages
- Investing in Oil
- The Fuss about Peak Oil
- Fracking: Establishing United States Dominance in the Oil Industry
- The Uglier Side of Fracking
- Concept of Profit Booking and How It Affects Stock Markets
- Why Timing the Market is a Bad Idea ?
- Time Correction: How Markets Tacitly Reconcile Bulls and Bears!
- Indicators That Help in Predicting Stock Market Crashes
- The Anatomy of a Market Trend
- A Primer on Bills of Exchange
- A Primer on Forfaiting
- Bears in the Bond Market