Oil Producers Heat Up Business with Natural Gas

According to the latest report from Exxon Mobil on December 8, natural gas will replace coal as the leading fuel source for electricity production by 2025 in the United States and will be the second largest fuel source in the world to oil as a result of its availability and cleaner burning. By 2040, Exxon expects consumption will rise 32%.

One may believe that the increased demand for natural gas could be a negative for companies involved in oil exploration and production, however, most natural gas producers main business is oil production.

According to Merrill Lynch, approximately 30% of natural gas obtained in the United States is a byproduct of oil extraction. Historically, if there wasn’t a market for natural gas, which was typically the case since it had to be piped to the end user, it was burned off in the oil field. Today more infrastructures exists to supply it to an end user, thus making it economically feasible to extract and move from the well to the end user. For companies like Exxon Mobil and Royal Dutch Shell focused on diversifying their energy sources, the increased demand for natural gas and improved infrastructure adds to revenue.

In addition, oil companies are acquiring smaller companies which specialize in natural gas. In 2010, Royal Dutch Shell acquired East Resources for $4.7 billion, thus acquiring approximately 1,600 square miles of the Marcellus shale region. Exxon acquired XTO Energy, an independent natural gas producer in a $41 billion dollar deal making Exxon the largest producer of natural gas from U.S. sources.

As indicated in the image below, the majority of the top 10 Natural Gas producers are oil producers.* Indicates companies listed in the ISE Revere Natural Gas Index.

NG-Companies

Data compiled from Natural Gass Supply Association

Most of the organizations listed above are included in the ISE Revere Natural Gas Index™.

For investors who believe that natural gas and oil producers will benefit from rising demand of natural gas, consider GASL. For investors considering a decline for Natural Gas and oil producers, consider GASX.

Related Direxion Shares

GASL	Daily Natural Gas Related Bull 3x Shares
GASX	Daily Natural Gas Related Bear 3x Shares

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