Believe it or not, it’s natural gas.
After increasing 1.2% Wednesday, natural gas prices now stand around $4.20/mmbtu- up more than 120% from a year ago and almost 30% this year alone.
By comparison, gold prices are down 18% and silver prices are off over 23% since the beginning of 2013.
The good news for natural gas investors is that there are still plenty of reasons why natural gas will continue its recent run.
For one thing, unlike gold and silver which for the past ten years have been on historic bull runs, natural gas is in the early stages of rebounding from a massive decline. Natural gas prices fell from over $13 in the summer of 2008 to under $2 last April before starting to bottom.
But price patterns alone won’t help you truly understand where natural gas is headed.
Instead, the key to knowing where natural gas prices are going revolves around demand.
In fact, Money Morning Global Energy Strategist Dr. Kent Moors says there are five reasons why natural gas prices will continue to rise, reaching $4.35 by this summer and hitting $4.85-$5.15 by the end of 2014.
5 Demand Factors Will Push Natural Gas Prices Higher
According to Moors, natural gas prices had been largely dependent upon how cold winters were and how hot summers were. But that’s not necessarily the case today.
Those influences still exist, Moors says, but that there are other more important determining factors today.
First, widespread industrial use of natural gas has finally returned and now exceeds pre-crisis levels. Moors says this is always the last of the main traditional demand areas to return after a recession.
Second, is that natural gas continues to replace oil as a feeder stock for petrochemicals – from ingredients used in the production of plastics to fertilizers and broadly used chemicals.
Third is the rise in natural fueled vehicles, in both liquefied, (LNG), and compressed (CNG) forms. Several bus, heavy truck, and equipment fleets have been retrofitted to run on natural gas instead of gasoline and diesel. Further, LNG and CNG refueling terminals have been opening near interstates in the U.S. to service those vehicles.
But the truth is the last two factors could be the real drivers for higher natural gas prices.
One is the massive transfer underway from coal to natural gas as the preferred fuel for generating electricity.
Moors says that coal will remain the fuel of choice in several sectors of the world and will still be cost effective in certain regions in the U.S. But the larger reality is the days of “King Coal” in the generation of electricity are drawing to a close.
And finally, the fifth factor that’s pushing natural gas prices higher is the biggest of them all. It’s LNG exports.
While not expected to significantly begin until 2014, LNG exports will be one of the big reasons behind America’s transformation to a net exporter of energy rather than importer.
In fact, within ten years the U.S. will account for 9-12% of the world’s LNG flow from 0% today.
The possibility of exporting LNG, the effect it will have on the U.S. economy, and which companies stand to benefit the most when exporting begins, are subjects that we follow closely here at Money Morning.
In fact, we’ve uncovered five companies that are poised for huge profits when LNG exports really take off. You can read more about them by clicking here.
Related: United States Natural Gas Fund, LP (NYSEARCA:UNG), Chesapeake Energy Corporation (NYSE:CHK).
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