April 6, 2011 / 7:51 PM / 8 years ago

UPDATE 1-Gas producers seen benefiting from renewable shift

* Gas seen becoming world’s biggest fuel source

* Shift to renewables won’t be quick

* Investment bank to evaluate alternative energy plays (Adds IEA report on fossil fuel subsidies; in U.S. dollars)

By Jeffrey Jones

CALGARY, Alberta, April 6 (Reuters) - Natural gas will become the world’s most used fuel as countries make the transition to renewable sources, and that points to long-term gains in shares of gas producers, a newly established Canadian investment bank said on Wednesday.

In a report, AltaCorp Capital Inc said that without heavy subsidies most renewable energy is currently too expensive to make a major dent in the use of fossil fuels, which could remain the main energy source into the next century.

AltaCorp analyst John Mawdsley, the report’s author, said that should not discourage development of technology to make solar, wind and biofuel less expensive, but he added that gas companies should benefit in the meantime.

“We need to be clear that we’re going to be driven to use hydrocarbons for a long time yet,” Mawdsley said in an interview. “Coal, natural gas and petroleum account for 84 percent of energy use globally and we need to know how to use those in the best way possible.

“We’re not promoting the use of hydrocarbons, we’re just stating the way it is. But also the way it is, is we need to start moving to renewables.”

Consumers must also improve energy conservation, he said.

Mawdsley described what he calls “the tragedy of hydrocarbons”, in which society keeps depleting the resources due to their convenience and relative low cost, despite the detrimental effects on the environment. This will eventually force a painful shift to renewables.

AltaCorp released the report as the International Energy Agency said global fossil fuel subsidies worth $312 billion should be shifted to ensure renewable energy growth and curb the reliance on carbon-intensive fuels. [ID:nLDE73514N]

The subsidies for hydrocarbons dwarfed $57 billion for alternative energy in 2009, the IEA said.

AltaCorp was founded last year by Calgary financier George Gosbee, who sold his former investment bank, Tristone Capital, to Macquarie Group Ltd (MQG.AX).

Gosbee said the report is aimed at providing an economic comparison of all energy sources as AltaCorp begins producing research based on broad themes rather than just individual companies. AltaCorp may also fund renewable energy ventures along with traditional oil and gas plays, he said.

“When we’re evaluating these, we can have a greater understanding of the risks associated with them, the reliance on government subsidy and what the environment implications are, not just on oil sands but on everything from wind to biofuels,” he said.

As governments push renewable technology and the prospect of green jobs, companies are promoting natural gas. They tout its lower carbon emissions and lower cost compared with oil, and aim for more gas use for power generation and as a transport fuel.

The report shows that gas currently accounts for 22.6 percent of global energy consumption, compared with oil at 35 percent and coal at 26.7 percent. Renewables make up 10.1 percent, mostly from hydroelectric power which makes up 6.1 percent of total consumption.

Nuclear power accounts for 5.5 percent of global energy consumption and AltaCorp said it is likely to keep playing a small role, especially following Japan’s nuclear disaster.

Gas prices have languished as the industry has developed technology that has unlocked massive shale gas reserves across North America and in other parts of the world.

Mawdsley said gas use could increase nearly 80 percent over current levels by 2050.

“In the move towards increasing use of renewables, natural gas will play a much bigger role than just ‘bridge fuel’; we believe it will become the largest source of energy on the planet,” the report said.

“We expect companies levered to natural gas, especially those with long-term unconventional resources, will see significant share price appreciation as natural gas demand increases.”

Producers such as Encana Corp (ECA.TO), Chesapeake Energy Corp (CHK.N) and Apache Corp (APA.N) have all announced transport fuel initiatives in recent days as they seek new markets. [ID:nN05154332] (Reporting by Jeffrey Jones; editing by Peter Galloway and Rob Wilson)

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