Gas versus gasoline
Between 2004 and 2013, dry natural gas production in the U.S. surged from ~18 trillion cubic feet a year to ~24 trillion cubic feet a year—an increase of ~30%.
This rise in production can mainly be attributed to the U.S. “shale revolution”—the widespread application of technologies such as hydraulic fracturing and horizontal drilling, to develop oil and gas resources were they were previously uneconomic to extract.
Consumption of natural gas lags production
However, natural gas consumption has increased by only 16% from 2004–2013. According to the U.S. Energy Information Administration (or EIA) Annual Energy Outlook 2014, natural gas consumption will grow 23% from 2012–2040—25.6 trillion cubic feet (or Tcf) in 2012 to 31.6 Tcf in 2040.
It’s possible that excess production could cause natural gas prices to stay low, helping alternative, or new uses for the gas to grow. CNG as a fuel source for vehicles could be a major use.
Natural versus gasoline—round 2
Natural gas has a price advantage over gasoline. Beginning in 2008, natural gas prices in the U.S. went up to more than $2 per barrel equivalent in June 2008. Since then it has stayed low. It has averaged ~$0.65 per barrel from 2009 until June, 2014.
Gasoline price is an indicator of the conventional fuel price in the U.S. It only went to a low of $13 per barrel in December, 2008. Since 2009, it has gone up and averaged $42 per barrel.
According to Clean Energy Fuel Corporation’s (CLNE’s) 2013 10-K, by the end of 2013, crude oil was ~5x more expensive than natural gas on an energy equivalent basis.
Natural gas is also expected to remain significantly cheaper than oil in near future. The low price of natural gas allows CNG or liquefied natural gas (or LNG) to sell at a substantially lower price than gasoline or diesel.
According to CLNE’s 2013 10-K, the price of LNG in California in 2013 was 70% lower than low sulfur diesel on a per gallon equivalent basis. The huge discount of natural gas price will work in favor of using more CNG powered vehicles, as production of CNG-run vehicles increases.
Key stocks and exchange-traded funds (or ETFs)
Energy services companies that would benefit from increased use of CNG include Clean Energy Fuels Corp. (CLNE), AGL Resources Inc. (GAS), and Atmos Energy Corporation (ATO). Some of these are components of the Utilities Select Sector SPDR (XLU) and the SPDR S&P 500 (SPY).
To learn more about the NGV industry landscape, continue reading the next section in this series.