Some oil and gas industry operators are still bullish on natural gas in the long term despite current low prices and expect this commodity to increase its share of total energy demand over the next few decades. This share gain will be driven by abundant supply, low cost of development and environmental regulations that support the use of natural gas over other fossil fuel alternatives.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

2012 Energy Perspectives
Statoil (NYSE:STO) recently published the 2012 edition of Energy Perspectives, an annual publication that provides a long term outlook on the supply and demand for energy along with an analysis of important economic drivers in these markets.

Statoil predicts that overall demand for energy will grow at an annual rate of 1.1% through 2040, with demand for natural gas growing at a 1.6% annual rate over that time period. This will increase this commodity's share of overall energy demand to 24.4% in 2040, up from the current share of 21.3%.

SEE: A Guide To Investing In Oil Markets


Other fossil fuels will also see growth, but at a lower rate, with demand for coal and crude oil increasing at an annual rate of only 0.4% through 2040.

Statoil also believes that current low prices for natural gas in the United States are not sustainable and predicts a moderate recovery in the medium term. This recovery will be led lower supply due to a reduction in shale gas drilling in areas where the current price makes drilling uneconomic. The company cites as evidence the drop in the natural gas rig count from above 1600 in late 2008 to the May 2012 level of 594 rigs.

Natural Gas Demand
Demand for natural gas will also increase as power operators switch to the use of this commodity for power generation. This trend is expected to intensify if proposed environmental regulations make some coal generated power plants uneconomic.


SEE: What Determines Oil Prices?


Encana (NYSE:ECA), which is a natural gas company with operations in both the United States and Canada, examined the natural gas forward curve and estimates that demand for the commodity will increase by 4.1 billion cubic feet per day from July to December 2013.

American Electric Power (NYSE:AEP), which is one of the nation's largest is planning to close five coal fired power generation plants as part of a shift to natural gas generated power.

BP (NYSE:BP) also published its own energy outlook and in the 2012 edition of Energy Outlook 2030 predicted that energy demand will at an even faster rate of 1.6% through 2030. Demand for natural gas will grow at a 2% annual rate and increase its share of total energy demand to 25.9% in 2030, up from 21.8% in 1990.

SEE: Oil And Gas Industry Primer


The Bottom Line
Although many investors may have given up on natural gas and sold off gassy exploration and production stocks over the last year, many in the energy industry believe that this commodity has a positive future.


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

Related Articles
  1. Fundamental Analysis

    5 Must-Have Metrics For Value Investors

    Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.
  2. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  3. Fundamental Analysis

    4 Predictions for Oil in 2016

    Learn four predictions for oil markets in 2016 including where prices are heading and the key fundamental factors driving the market.
  4. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  5. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  6. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  7. Stock Analysis

    The Top 5 Micro Cap Alternative Energy Stocks for 2016 (AMSC, SLTD)

    Follow a cautious approach when purchasing micro-cap stocks in the alternative energy sector. Learn about five alternative energy micro-caps worth considering.
  8. Stock Analysis

    Analyzing Porter's Five Forces on Under Armour (UA)

    Learn about Under Armour and how it differentiates itself in the competitive athletic apparel industry in light of the Porter's Five Forces Model.
  9. Stock Analysis

    The Biggest Risks of Investing in Qualcomm Stock (QCOM, BRCM)

    Understand the long-term fundamental risks related to investing in Qualcomm stock, and how financial ratios also play into the investment consideration.
  10. Stock Analysis

    The Biggest Risks of Investing in Johnson & Johnson Stock (JNJ)

    Learn the largest risks to investing in Johnson & Johnson through fundamental analysis and other potential risks. Also discover how JNJ compares to its peers.
RELATED FAQS
  1. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  2. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  3. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  4. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
  5. What is the formula for calculating the current ratio?

    The current ratio is a financial ratio that investors and analysts use to examine the liquidity of a company and its ability ... Read Full Answer >>
  6. What is the formula for calculating earnings per share (EPS)?

    Earnings per share (EPS) is the portion of a company’s profit that is allocated to each outstanding share of common stock, ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center