If you are an investor, investing in natural gas stocks makes sense. The current crisis in Ukraine has increased the demand for energy, causing prices to skyrocket. While President Biden has tried to curtail the spike by tapping into the Strategic Petroleum Reserve, this has had little effect. The future of energy prices and the conflict in Ukraine are not completely clear. If you're considering investing in natural gas stocks today, here's why.
The price of oil is rising and oil companies are trying to make money by buying back their stock. These buybacks are expected to further strengthen the oil price, but this is a temporary situation and traders are forecasting high prices. Nevertheless, retail investors are already reviewing their attitude toward the oil sector. According to Lucas Mantle, an analyst at data provider VandaTrack, retail investment flows into US oil companies have increased over the past two months. They're likely following the momentum gained during the first three months of the year.
Moreover, oil companies are notorious for releasing greenhouse gas emissions, which worsens global warming. Another reason to avoid investing in oil companies is the fact that they're vulnerable to lawsuits. Furthermore, oil spills can result in expensive litigations, which can negatively impact their returns. Despite these disadvantages, investing in natural gas still makes sense, and the current price of the commodity is far lower than the price of other energy alternatives.
Natural gas is now widely available in the form of LNG, which can help countries deal with supply interruptions. The recent Fukushima nuclear disaster in Japan has shown that gas was essential in making up for lost electricity. It's also cheaper than coal. The cost of a modern gas-fired plant is only about $1,100 per kilowatt. Coal costs can reach as high as $3,700 per kilowatt. Considering long-term air pollution and climate change, gas-fired power becomes increasingly competitive.
When comparing oil and gas companies with the S&P 500, investors should keep in mind that the two sectors are very different. While oil and gas stocks are generally more volatile than other sectors, they are still worth buying in today's environment-friendly market. In addition to meeting the growing needs of American families, oil and natural gas companies also provide the country with a steady stream of income. This means they are highly valuable, especially when compared to other sectors of the S&P 500.
Because of the increasing demand for energy, gas investments have many potential applications. It can be used as a lower-emissions alternative to diesel and heavy fuel oil. Its availability also enables the use of pipelines for these types of fuels. Moreover, natural gas pipelines can be retrofitted with existing infrastructure. This can help lower the costs of transition and ensure reliability in the energy system. When you invest in natural gas, you'll also get to benefit from the low carbon emissions that these fuels produce.
Despite opposition to natural gas pipelines, overall spending on natural gas infrastructure has remained stable. While major pipelines have been closed due to regulatory issues, investment in distribution continues to dominate the industry. Today, distribution represents more than 60 percent of total gas infrastructure investment. The demand for natural gas is growing due to its low price. This has increased its profitability. There are numerous investors who have jumped into the gas industry because they believe that the futures prices are going to increase significantly in the coming months.
If you're considering investing in natural gas, you'd be wise to consider the long-term prospects. The EIA 2020 reference case scenario shows relatively flat natural gas consumption in the US through 2030, with the power sector decreasing and the industrial sector increasing. Even after 2030, gas demand will remain stable, and by 2050, it's expected to reach a hundred Bcf/d. This makes it an attractive investment opportunity.
The crisis in Ukraine has heightened the demand for natural gas. Russia's recent aggression aimed at discouraging tough sanctions against Ukraine has caused inventories in Europe to drop to very low levels. European inventories are 40 percent below the five-year average. As a result, the benchmark TTF price for natural gas soared from $17 per million Btu to $90 a million Btu.