Is natural gas a good investment?

is natural gas a good investment - Is natural gas a good investment?

As worldwide demand for energy continues to rise on pace with the expanding global economy, several measures aimed to reduce greenhouse gas emissions have been introduced. In this context, natural gas has emerged as the fuel of choice both from an environmental and economic point of views, helping the transition away from coal-fired power plants to cleaner, cheaper, and more reliable alternatives.

Natural gas is known as the cleanest of all the fossil fuels. International Gas Union (IGU) said that burning natural gas emits about 50% less carbon dioxide (CO2) than coal and up to 30% less than oil.

CO2 is a naturally occurring greenhouse gas that helps keep the Earth warm by absorbing the sun’s heat and redirecting it back to the Earth’s surface. An increase in the amount of CO2, however, creates an overabundance of greenhouse gases that trap additional heat which leads to melting ice caps and rising ocean levels, among others.

In terms of cost, natural gas is as competitive as coal. According to Lazard, a financial advisory firm that publishes annual estimates of the total cost of producing electricity, levelized prices per megawatt hour (MWh) from electricity for coal-fired power plants range from $60 to $143, compared to natural gas that only ranges from $41 to $74.

“Natural gas is an energy source that offers a diverse set of benefits to a global economy that is in the process of an unprecedented energy transition. It is a unique and abundant fuel that is able to reliably supply the world’s rapidly changing energy systems with more energy, while helping to immediately cut emissions and improve air quality,” IGU said in the Global Gas Report 2019.

Considering the various benefits of natural gas to the environment and economy, is investing in natural gas really worth it, especially in the long run?

A POSITIVE OUTLOOK

Over the past years, natural gas gained a firmer foothold despite some market volatility. A report from the International Energy Agency (IEA) showed that global demand for natural gas surged by 4.6% in 2018, its highest growth rate since the beginning of the decade in 2010. The demand, according to IEA, is driven by strong economic growth, the transition away from coal-fired electric power, and weather-related demand, with most of the consumption coming from the United States and China.

After this remarkable clip, IEA still expects positive growth in the coming years, to be driven by strong consumption in fast-growing Asian economies and continued development of the international gas trade.

“Gas demand in the coming five years is set to be driven by Asia Pacific, forecast to account for almost 60% of the total consumption increase to 2024. China will be the main driver for gas demand growth, though slower than in the recent past as economic growth slows, but still accounting for about 40% of total gas demand increase to 2024,” IEA said in its annual gas report in 2019.

In the Philippines, sourcing energy from natural gas is not a new concept. As early as 1990s, natural gas was discovered in the West Philippine Sea, at the Malampaya offshore gas field in Palawan. First Gen Corporation, a subsidiary of First Philippine Holdings Corporation (FPH), led the way in utilizing this power source through the construction of the Sta. Rita and San Lorenzo plants that use gas from the Malampaya field. Since then, natural gas-fired plants have been providing up to 45% of Luzon’s energy needs.

Currently, First Gen owns and operates four natural gas-fired power plants with a combined installed capacity of 2,017 MW, supporting communities and powering millions of households and businesses in the country. As the world transitions into a clean energy future, the firm is continuously developing and strengthening its natural gas portfolio.

A WORTHY INVESTMENT

With the growing energy market share for natural gas, making investments in the industry is becoming a sound choice. According to McKinsey & Company, natural gas remains as the fastest-growing fossil fuel and the only fossil fuel expected to grow beyond 2035. To gain access to this growing global trade, countries across the globe can turn to liquefied natural gas (LNG), and push for the development of LNG terminals.

In its gaseous state, natural gas requires pipelines to deliver the gas to power plants and end-users. But once natural gas is in its liquid form, it can be easily shipped across various points. Upon reaching its destination, the LNG goes through a “regasification” process at LNG terminals where it is turned back into its original form.

In the Philippines, the development of LNG terminals is seen to put the country in the regional supply chain for LNG. First Gen, through its subsidiary FGEN LNG Corp., is helping achieve this by spearheading the development of an LNG terminal in Batangas City.

First Gen said that this LNG terminal is crucial to ensure the continued operations of the country’s 3.2-gigawatt existing natural gas-fired plants, given the expected and continuing reduction in gas supply from the Malampaya field up to the expiration of its service contract by 2024.

Efforts from the public sector to put the Philippines in the regional supply chain for LNG are also underway. Last April, the Department of Energy (DoE) issued rules to regulate the importation, trading, supply and distribution of natural gas in the country.

Under the rules, the DoE requires all businesses engaged in natural gas to submit the appropriate reportorial requirements in compliance with the Philippine Downstream Natural Gas Regulation (PDNGR). This is to ensure a unified and coordinated effort towards establishing a successful and robust natural gas industry in the country.

Considering all the related factors coming into place — from a positive growth forecast to continued development in global gas trade and essential policies — investing in the natural gas sector is indeed a smart choice.

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