Futures Market News
MIT study shows significant long-term role for natural gas
Jun 25, 2010 03:05 PM
A group of 30 Massachusetts Institute of Technology faculty members, researchers and grad students presented their findings on natural gas to a group of lawmakers and administration officials in Washington this week.
The two year study found that natural gas "will play a leading role" in the effort to reduce greenhouse gas emissions over the coming decades, a conclusion that could have a significant and long-term impact on natural gas futures, companies and investments.
The MIT study concluded that "natural gas truly is a bridge to a low-carbon future" according to MIT Energy Initiative Director Ernest J. Moritz. Natural gas is far more efficient and burns much more cleanly than traditional hydrocarbon fuels like oil and coal.
The study found that the U.S. has a large resource base of natural gas, as much as 92 years worth at the current rate of domestic consumption. Around the world, there are about 16.2 trillion cubic feet of natural gas, enough to satisfy 160 years of global consumption.
Of course, those numbers would have to be drastically revised if natural gas increases its share of the U.S. power market. MIT's study also made a point of noting the important complementary role that natural gas plays with renewable energy sources like wind turbines and solar photovoltaic panels.
Wind and solar are inherently irregular and "peaky" sources of energy; wind generates the most power in windy conditions, and solar is useless at night or in heavy cloud cover. To smooth out these peaks and valleys in generation, most utilities need another source of energy that can be quickly activated and deactivated. Coal and oil power plants lose a great deal of efficiency and become expensive when turned on and off repeatedly, while natural gas is perfectly suited to this on-and-off role.
The study emphasized the need for a "global 'liquid' market in which supply sources are diverse and gas prices are transparent, set by supply and demand with price differences based on transportation costs." Currently, three separate markets exist in North America, Europe and Asia, and they have little in common in terms of pricing, transportation or distribution.
For investors, the role of natural gas presents a compelling but complicated investment opportunity. Although the New York Mercantile Exchange quotes natural gas futures for delivery as far as ten years in advance. Most contracts are thinly traded beyond 2011 or 2012.
However, an investor with a 10 year or longer investment horizon and the ability to hold illiquid contracts might be able to make a significant profit betting on a worldwide surge in natural gas consumption. Natural gas companies represent another leveraged play, although it's hard to say which companies will fare best in the really long term.
Whatever the investment strategy, MIT's scientists seem to think that natural gas could very well be the next big thing in energy, ahead of wind, solar or oil shale.
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