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Chesapeake Energy Corporation (CHK): 3 Lessons From the Natural Gas Revolution

For a long time, natural gas has been a relatively regional product, so the two pricing mechanisms could exist. Now, with companies such as Cheniere Energy, Inc. (NYSEMKT:LNG) charging forward with plans to export LNG within the next two years, these two pricing models will clash. If North America’s cheap natural gas starts to hit European and Asian ports, will they break their oil-indexed pricing models? Or will we be able to ride our free-floating prices all the way to the bank?

3. Natural gas users have come out of the woodwork. We could also call this lesson the “Field of Dreams” rule. If you build a cheaper alternative to oil, companies will come. Here are a few examples of industries that are looking to take advantage of natural gas:

Thanks to cheaper feedstocks for chemical building blocks in the U.S., The Dow Chemical Company (NYSE:DOW) and Exxon Mobil Corporation (NYSE:XOM) plan to expand their ethane cracking capacity by 1.5 million tonnes per year. These are only two of the most notable companies in an industry that’s expected to spend about $65 billion between now and 2017 to increase capacity.

The large disparity between the price of a gallon of gas or diesel and a gallon equivalent of compressed natural gas is giving credence to using natural gas as a transportation fuel. Westport Innovations Inc. (USA) (NASDAQ:WPRT) , a pioneer in diesel-to-natural gas engines, has seen revenues grow by more than 400% in the past two years since natural gas has been cheap enough that it’s justifiable to convert from gasoline to natural gas.

Natural gas has also put a lot of pressure on the utility sector to adopt a wider generation portfolio. Exelon Corporation (NYSE:EXC) with its weak natural gas portfolio, just recently cut its dividend in large part because low natural gas prices have cut into earnings. While some utilities may be wary of a big uptick in price, many have planned to balance out their generation capacity with natural gas in the next few years as some coal plants start to retire.

The article 3 Lessons From the Natural Gas Revolution originally appeared on and is written by Tyler Crowe.

Fool contributor Tyler Crowe owns shares of Westport Innovations. You can follow him at under the handle TMFDirtyBird, on Google +, or on Twitter, @TylerCroweFool.The Motley Fool recommends Exelon, Ultra Petroleum, and Westport Innovations; owns shares of Ultra Petroleum and Westport Innovations; and has options on Chesapeake Energy and Ultra Petroleum.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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