Last week Japan’s Inpex Corp made a final decision to build a $32 billion liquefied natural gas terminal near Darwin.
Now natural gas price is back to the 2009 low… below USD$3 per mmBtu (million British thermal units). And a long way from the 2005 peak of USD$16 per mmBtu.
Yet despite the low gas price, energy companies keep investing big bucks in the industry.
The reason is simple: gas is plentiful… and companies discover more of it all the time. If you’re investing in a gas explorer, that’s just what you want. You want to look for a resource that’s easy to find and in high demand.
Natural gas ticks those boxes.
And on top of that, natural gas is in high demand because it’s the only true alternative to oil as a viable energy source.
You can forget about solar, wind and wave power. Sure, they’ll contribute around the fringes of energy generation. But they won’t reach the scale of oil, gas and coal.
Of course, a low natural gas price does present some problems for gas explorers and producers. If the price sinks too low it could have an impact on some of the high-cost projects.
But so far that hasn’t been a problem.
And with so many new discoveries… some of which are using new recovery methods (such as the shale gas industry, something we’ve covered in Australian Small-Cap Investigator), it would take a big upset in the energy industry for it to knock the gas industry for six.
The U.S. Energy Information Administration says that U.S. natural gas production could increase by 30% over the next 20 years… Couple that with the high oil price and it gives you a clue to where the energy market is heading – and that’s to more demand for natural gas.
As we see it, the only outcome that could dent the demand for natural gas is if the oil price falls and a series of new oil discoveries is made.
But if recent history is anything to go by it’s clear that the age of oil is coming to a close. And the age of natural gas is only beginning.
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Written by Kris Sayce
Kris Sayce is Editor in Chief of Australia’s biggest circulation daily financial email — Money Morning. (You can subscribe to Money Morning for free here).
Kris is also editor of Australian Small-Cap Investigator, his small-cap stock research service, where he provides detailed analysis on some the brightest, smallest listed companies on the ASX.
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