While the industry and investors seems to favor crude oil and other liquids over natural gas, EnCana (NYSE:ECA) and others envision a solid long-term future for this commodity as demand soars, due to its low cost and abundant supply in North America.
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Demand
EnCana estimates that demand for natural gas in North America will increase to 110 billions of cubic feet equivalent (Bcfe) per day by 2030, compared to current consumption levels of 72 Bcfe per day. The company believes that the greatest potential for demand growth will come from generating electric power as a transportation fuel. (Investors looking into this industry are faced with a confusing amount of information. (For more, see Natural Gas Industry: An Investment Guide.)

Transportation Fuel
Only 1% of natural gas is currently being used as a transportation fuel in North America, with crude oil refined into gasoline as the primary fuel in the market. EnCana's strategy is to encourage the use of natural gas as a transportation fuel through active participation in various advocacy groups, including America's Natural Gas Alliance and Natural Gas Vehicles for America. The company has also converted a portion of its truck fleet, and some drilling rigs to use compressed natural gas as a fuel.

Other energy companies are also trying to increase interest in natural gas as a transportation fuel. Chesapeake Energy (NYSE:CHK) is investing $155 million in a facility that will use natural gas and waste biomass to produce fuel. Chesapeake Energy is also investing $150 million with Clean Energy Fuels Corp (Nasdaq:CLNE) to build out refueling infrastructure for heavy trucks at truck stops along the interstate highway system in the United States.

Electric Power Generation
Thirty one percent of natural gas in North America is currently being used to generate electricity, and EnCana sees strong growth here, as well, through 2030. The company believes that this growth will come from an increasing organic share of the market, and displacement of coal generated power. The company expects the recent push to reduce harmful emissions will lead to the retirement of older units that generate power using coal, as these facilities may be unable to comply with new regulations.

Many of these, announced or anticipated, retirements are located in the southern U.S. close to the company's operations in the Haynesville Shale. EnCana estimates that this incremental demand could total 5 to 10 Bcfe per day by 2030, compared to regional consumption of 10.5 Bcfe per day in 2010.

LNG Export
EnCana also expects demand for natural gas to emerge from international markets in the long term through liquefied natural gas (LNG) exports. There are several LNG projects being planned for the Gulf Coast area, which could increase demand for natural gas by 5.8 Bcfe per day. Another 800 million cubic feet per day would be consumed by a gas-to-liquids plant proposed by Sasol (NYSE:SSL).

Top Five
Other producers of natural gas in North America will also benefit from the outlook proffered by EnCana. The top five producers of natural gas in the U.S. in the third quarter of 2011 were:

Exxon Mobil (NYSE:XOM) - 3.9 Bcfe per day

Chesapeake Energy - 2.8 Bcfe

Anadarko Petroleum (NYSE:APC) - 2.3 Bcfe

Devon Energy (NYSE:DVN) - 2 Bcfe

EnCana - 1.9 Bcfe

The Bottom Line
EnCana makes a positive and fairly compelling case in support of natural gas fundamentals in the long term, and believes that its properties in the Haynesville Shale, and other areas, will be ideally positioned for this bright future. (For related reading, see What Determines Oil Prices?)

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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

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