The factors that drive natural gas demand and supply increasingly point to a future in which natural gas plays a greater role in the global energy mix. Global uncertainties afflicting the energy sector can be seen as opportunities for natural gas. When replacing other fossil-fuels, natural gas can lead to lower emissions of greenhouse gases and local pollutants. It can help to diversify energy supply, and so improve energy security. It can provide the flexibility and back-up capacity needed as more variable capacity comes on-line in power generation. Gas is a particularly attractive fuel for regions, such as China, India and the Middle East, which are urbanising and seeking to satisfy rapid growth in energy demand. These are the very regions that will largely determine the extent to which gas use expands over the next quarter of a century.

The global natural gas resource base is vast and widely dispersed geographically. Conventional recoverable resources are equivalent to more than 120 years of current global consumption, while total recoverable resources could sustain today's production for over 250 years. All major regions have recoverable resources equal to at least 75 years of current consumption. Timely and successful development depends on a complex set of factors, including policy choices, technological capability and market conditions. Once discovered, major gas resources can sometimes take several decades to reach production.

Unconventional natural gas resources are now estimated to be as large as conventional resources. Unconventional gas now makes up about 60% of marketed production in the United States. Coal bed methane (CBM) development is growing in Australia, while projects in China, India and Indonesia are in the early stages of development. Use of hydraulic fracturing in unconventional gas production has raised serious environmental concerns and tested existing regulatory regimes. Based on available data, we estimate that shale gas produced to proper standards of environmental responsibility has slightly higher "well-to- burner" emissions than conventional gas, with the combustion of gas being the dominant source of emissions. Best practice in production, effectively monitored and regulated, can mitigate other potential environmental risks, such as excessive water use, contamination and disposal.|

David Fuller's view Fullermoney has often described natural gas - both conventional and unconventional (shale gas) - as a game changer in terms of global energy supplies. Today, it is in third position - behind oil and coal - in terms of energy usage but well ahead of both biomass and nuclear (see graphic on page 19). Natural gas currently supplies 21 percent of our global energy. The IEA predicts this will increase to 25 percent by 2035, as an energy-hungry world consumes 50 percent more natural gas than we use today. This would take its usage above that of coal - the primary pollutant - and close to the demand for crude oil.

Inevitably, a large degree of creative license is used in such long-term forecasts which cannot take account of many events certain to occur between now and 2035. Price will be the most important variable but given the amount of recoverable gas - both conventional and unconventional - which is widely distributed across the globe, I would not be surprised if natural gas becomes the world's leading source of energy before 2035.

What would be some of the implications?

In an uncertain world, two related and extremely important megatrends seem logical to me: 1) Barring a global depression, demand for energy in its various forms should increase significantly in the decades ahead, driven by the growth economies; 2) The abundant supplies of affordable energy - from gas, oil (including shale oil), biomass, nuclear, hydroelectric, geothermal, solar, wind, etc - which Fullermoney anticipates in 12 to 15 years time, should not only prevent a depression but also fuel a global GDP growth supercycle.

Energy will certainly remain a Fullermoney secular theme. My current equity participation is via Royal Dutch Shell (RDSB LN) (monthly & weekly), which is the second largest weighting in my personal long-term investment portfolio. I bought it after the contagion reaction caused by BP's accident. RDSB's uptrend was checked last month by a weekly key reversal but I will continue to hold it for yield, currently 4.93%, and its longer-term upside scope.

Some years ago I also held the US dollar-denominated Guinness Atkinson Global Energy Funds (GUINGEA ID) and (GAGEX US). Both appear susceptible to some further short to medium-term mean reversion towards the rising 200-day moving averages. There is also a Guinness Atkinson Alternative Energy Fund (GAAEX US) which is a serial underperformer and does not tempt me. Too many of these companies lack earnings and yield. A search of the Library under - energy - will produce many more funds, ITs and ETFs, some of which may be of interest to subscribers at a future date.

Natural gas (NYME) (weekly & daily) has long shown evidence that a large base formation was developing. This is of the 'sleeper' variety, with lots of tedious ranging, not least because of the shale gas boom in the USA. However, as informed subscribers pointed out recently, US drillers have been moving rigs away from shale gas in favour of shale oil, because WTI crude had become so much more expensive relative to gas, as you can see from this ratio chart.

Consequently, it would not be surprising to see natural gas complete its base over the medium term and commence a significant uptrend. First, however, some pullback and consolidation of the temporarily overstretched gains appears likely. That would tempt me to open a long position via a spread-bet. Delegates from The Chart Seminar will recognise that natural gas commenced last month's rally with an upside key day reversal.

Incidentally, if we compare NYME US dollar-denominated natural gas above with the UK's sterling-denominated ICE contract, although not comparing like with like in terms of currencies, you will still see that the latter has significantly outperformed since last August. It is also a better reflection of global prices.

Lastly, I disagree with two forecasts on page 8 of the IEA Summary:

1) "China will grow to become one of the largest importers of natural gas globally,"

2) "Natural gas displaces coal and to a lesser extent oil, driving down emissions, but it also displaces some nuclear power, pushing up emissions."

Re 1 above, perhaps in the short term but China has the world's largest reserve of shale gas, as I have previously pointed out. It has also purchased the technology, mainly from Canada, to develop this hugely important resource.

Re 2 above, natural gas will only displace nuclear development if governments encourage such a short-sighted policy. If so, the irony is that natural gas extraction, particularly regarding shale gas, is much more dangerous to human populations due to pollutants (see also email below).