Everyone is chattering about a renaissance in the global natural gas markets sparked by Japan’s disaster-spawned shift in energy policy. This is something bigger.
Sure, Japan is going to need a lot more liquified natural gas in order to fuel new gas plants — that will do the work once done by nuclear power.
But to assume that the new gas plants are just going to magically appear tomorrow and steal 46% of the gas the United States will need is a little premature.
It will take years to see those plants built and fired up. This kind of transition just does not happen overnight.
It also assumes that currently planned conversions of U.S. coal fired plants to natural gas will really go through as planned, and again that the process will just magically happen overnight.
If anything, Japan’s sudden need for more gas may get U.S. utilities to think twice about swapping their primarily local-oriented fuel for a commodity that is increasingly available to global transport — and so is vulnerable to global swings in demand.
This is why coal prices and producer stocks like the Market Vectors Coal ETF (NYSE:KOL) have been rising right along with natural gas [United States Natural Gas ETF (NYSE:UNG)] and producers like Gazprom.
Coal is mostly local unless you live by the railroad. Gas was once entirely local unless you were willing to spend the money to put in a pipeline.
This has been a double-edged sword for gas producers, who can now sell worldwide, but now have to compete with vast amounts of once-”stranded” gas. Now that gas can move to markets that want it, and the price has gone down.
Still, the bid to natural gas has been undeniable and inventories have been seeing huge drawdowns. Gas is definitely in play. It just will not be an overnight phenomenon.
Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.
About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.