Increasing Demand Fuels Natural Gas Industry

Natural gas has become one of America’s most important domestic energy solutions. Over the past 10 years*, U.S. consumption of natural gas has risen 28%, even though overall energy consumption declined slightly.

March 2019
  • Ryan C. Kelley
    Ryan C. Kelley, CFA
    Chief Investment Officer and Portfolio Manager

Drivers of Increasing Natural Gas Consumption

Natural gas enjoys the following advantages:

  1. Abundant supply. Due to advances in drilling technology in recent years, vast reserves of natural gas have been found in the U.S., and there is now an estimated supply of over 100 years worth of usage.
  2. Low and competitive pricing. U.S. natural gas prices have steadily declined over the past decade and are at historic lows.
  3. Cleaner energy alternative. The combustion of natural gas emits far fewer harmful chemicals than the burning of coal or oil.

As a result, natural gas is experiencing a growing demand from three main areas:

Power Generation
Natural gas provided 32% of the fuel for power generation in 2017. In fact, natural gas has now surpassed coal as the largest source of fuel used for U.S. power generation.

Natural gas exports have been growing at 16% annually over the last five years, primarily driven by increasing demand for liquefied natural gas (LNG). The U.S. began exporting LNG in 2016 and it now accounts for 30% of total exports of natural gas. Industry commentators forecast tremendous growth in LNG exports in the years ahead. Terminal export capacity is set to increase 8-fold over the next decade, just in time to meet growing demand from China, eager to replace coal with cleaner-burning natural gas in its power stations. As a result of an increase in pipeline capacity and strong growth in demand, pipeline exports of natural gas to Mexico have also been growing steadily.

Residential End Users
Over the last 10 years, 171,000 miles of main distribution pipeline has been added in the U.S., an increase of 15% and over 5 million residential users have been added, an increase of almost 8%. Today new residential gas customers are being added at the rate of about one per minute.

Potential Advantage for Investors:

Consumption is Key
With global consumption of natural gas rising and projected to increase by 40% over the next decade, we believe that natural gas distribution companies, those whose performance is more closely tied to the demand for and consumption of natural gas, rather than the price of the commodity, provide a compelling investment opportunity.

*October 2008 - October 2018. Dividend payments are not guaranteed.