A golden age for natural gas
09 June 2012
While the price of this commodity is at a record low in North America, this has created opportunities for firms further down the supply chain.
Natural gas is regarded as a bridge technology that can be used in the transitional phase until renewable energy can cover the global population’s requirements.
Various governments are planning to make increased use of this resource, to reduce emissions and make the most of its attractive price, which is currently at a record low in North America.
The release of harmful emissions such as carbon monoxide, nitrogen oxide, sulphur dioxide, mercury and particulate matter is only a tiny percentage of the comparable quantities of oil and coal – a positive step and an interesting theme for investors allocating to the energy sector.
Natural gas is used for heating, generating electricity, and in the manufacture of chemical products. In the key producer countries, a significant proportion of road vehicles are also powered by the resource.
It accounts for around 23 per cent of the global energy mix, but there are marked regional differences. Russia and certain Middle Eastern countries lead the way with around 50 per cent. At the other end of the scale are nations such as India (10 per cent) and China (4 per cent), which are experiencing exceptionally strong growth in energy demand and are tackling the ecological and health consequences of coal and oil combustion.
It therefore comes as no surprise that these countries are keenly interested in this cleanest fossil fuel. China is aiming to increase the proportion of natural gas in its energy mix to 10 per cent by 2020, rising strongly over the long-term.
There are many industries linked to the natural gas value chain. At the start of the chain, there are technologies for the exploration and extraction of natural gas, and also the producers. Then come the companies that refine, process, transport and store the resource, as well as their suppliers. At the end are the utilities, power plants, and natural gas-powered vehicles.
Given that the price of the resource in North America is likely to remain low, and could even fall further over the medium-term, investors should steer clear of companies that would be hit by lower prices, including the natural gas producers first and foremost.
Meanwhile, shares in companies that will profit from rising gas volumes are interesting. These include providers of the drilling and production technologies, for example Helmerich & Payne, that make it possible to find and tap into new sources.
Providers of equipment for transporting and storing natural gas will also benefit from rising volumes. This is especially true in the case of liquefied natural gas (LNG), where suppliers of equipment for liquefying, shipping and "re-gasification" of LNG, such as CBI or Chart Industries offer potential for investors.
Providers of gas turbines for new natural gas power plants such as Siemens are also attractive. Natural gas-powered vehicles are still considered a niche market, but there are significant growth opportunities.
The best opportunities exist in manufacturers of natural gas-powered engines, for example Westport Innovations, and operators of chains of natural gas filling stations, such as Clean Energy Fuels.
Roberto Cominotto is portfolio manager of the JB Energy Transition fund. The views expressed here are his own.
Various governments are planning to make increased use of this resource, to reduce emissions and make the most of its attractive price, which is currently at a record low in North America.
The release of harmful emissions such as carbon monoxide, nitrogen oxide, sulphur dioxide, mercury and particulate matter is only a tiny percentage of the comparable quantities of oil and coal – a positive step and an interesting theme for investors allocating to the energy sector.
Natural gas is used for heating, generating electricity, and in the manufacture of chemical products. In the key producer countries, a significant proportion of road vehicles are also powered by the resource.
It accounts for around 23 per cent of the global energy mix, but there are marked regional differences. Russia and certain Middle Eastern countries lead the way with around 50 per cent. At the other end of the scale are nations such as India (10 per cent) and China (4 per cent), which are experiencing exceptionally strong growth in energy demand and are tackling the ecological and health consequences of coal and oil combustion.
It therefore comes as no surprise that these countries are keenly interested in this cleanest fossil fuel. China is aiming to increase the proportion of natural gas in its energy mix to 10 per cent by 2020, rising strongly over the long-term.
There are many industries linked to the natural gas value chain. At the start of the chain, there are technologies for the exploration and extraction of natural gas, and also the producers. Then come the companies that refine, process, transport and store the resource, as well as their suppliers. At the end are the utilities, power plants, and natural gas-powered vehicles.
Given that the price of the resource in North America is likely to remain low, and could even fall further over the medium-term, investors should steer clear of companies that would be hit by lower prices, including the natural gas producers first and foremost.
Meanwhile, shares in companies that will profit from rising gas volumes are interesting. These include providers of the drilling and production technologies, for example Helmerich & Payne, that make it possible to find and tap into new sources.
Providers of equipment for transporting and storing natural gas will also benefit from rising volumes. This is especially true in the case of liquefied natural gas (LNG), where suppliers of equipment for liquefying, shipping and "re-gasification" of LNG, such as CBI or Chart Industries offer potential for investors.
Providers of gas turbines for new natural gas power plants such as Siemens are also attractive. Natural gas-powered vehicles are still considered a niche market, but there are significant growth opportunities.
The best opportunities exist in manufacturers of natural gas-powered engines, for example Westport Innovations, and operators of chains of natural gas filling stations, such as Clean Energy Fuels.
Roberto Cominotto is portfolio manager of the JB Energy Transition fund. The views expressed here are his own.
More Headlines
-
Why Royal London Global Equity Diversified bought Tesla for the first time this year
16 July 2025
-
The region where positive economic outlook outweighs 'factored in' uncertainties
16 July 2025
-
Rate cuts could dent appeal of money market funds for savers
16 July 2025
-
Why are uranium ETFs topping the performance tables?
16 July 2025
-
H1 2025 fund flows: Equity investors converge on passives
16 July 2025
Editor's Picks
Loading...
Videos from BNY Mellon Investment Management
Loading...
Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.