Natural Gas - Commentary 19 Sept 2010

Natural gas has gained steadily over the week, rising 6.69% to trade at $4.02 per million British Thermal Units (MMBTUs) on Thursday morning. Concerns that tropical cyclones in the Gulf of Mexico may hamper gas production supported prices earlier in the week. Tropical Storm Karl may hit wells in the western region of the Gulf of Mexico, while Hurricane Igor is moving towards the Bermuda area with Category 4-force winds. Natural gas has performed horribly over the year as excess supply has suppressed gas prices. Yet there are some bright spots that exist, which should see prices rebound at some point. From an environmental perspective, natural gas emits 30% less CO2 compared to burning petroleum and 45% less CO2 than burning coal. In that respect, gas may benefit as economies push towards more carbon-friendly energy sources and begin to implement stricter carbon capping schemes. Research firm Empa recently conducted a study for the Swiss Federal Office for the Environment where they compared the CO2 emissions from hybrid cars and natural-gas–powered vehicles. They found cars powered by natural gas were better for emissions when driving on motorways, while hybrids performed better for inner-city driving. However, with hybrid technology still in its early stages and gas readily available, a move towards gas-powered vehicles, especially for trucks and buses that travel long distances, could have immediate benefits in reducing CO2 emissions. Demand for liquefied natural gas (LNG) is also set to rise in the long term as Asia and Europe start to see their domestic gas production begins to trail demand. According to gas producer Total, committed natural gas projects account for only 25% of the LNG that these regions will require in 2020. In the short term, demand for natural gas is set to increase as we approach winter and as the need for heating increases during the cooler months