Why Royal Dutch Shell Plc Is My Bet On The Global Gas Boom

As the world’s oil reserves disappear, coal is seen as polluting and nuclear energy is expensive, many would say that the future of energy is natural gas.

Natural gas produces less greenhouse emissions than coal, it is easy to burn and produces little pollution. Plus the discovery of shale gas deposits means that it is in plentiful supply, and easily mined. Compare this with expensive and increasingly hard to extract oil.

Much of the easily obtainable oil has already been extracted, and the remaining oil is increasingly difficult to obtain, whether it be in the depths of the Gulf of Mexico or under the snowy wastes of the Arctic.

A fuel for today

What’s more, much of the oil remaining in the world is controlled by state-owned oil companies, such as Saudi Aramco and Russia’s Rosneft, rather than independents such as BP and Exxon Mobil.

In contrast, conventionally extracted gas is still in plentiful supply, but alongside this is the new boom in shale gas. Suddenly, gas has gone from being a stop-gap fuel to a fuel that has a key role in the future of energy. In this increasingly energy-hungry but resource-poor world, gas has an important role to play.

This is the new gold rush

To me, we are seeing what you could describe as a ‘natural gas rush’, as energy companies rush out to invest in this resource. There are several companies thatare particularly well-placed to exploit this boom.

Gas utility Centrica (LSE: CNA) has invested heavily in shale gas, and it should benefit from these investments in future profit growth. Its share price is at an all-time high, but I suspect the share price will push on upwards.

Oil and gas producer BG Group (LSE: BG) also has invested heavily: for example, investing in the world’s first project to liquefy and ship gas produced from coal deposits.

My pick

But my pick is a company not normally thought of as a gas company: Shell (LSE: RDSB) (NYSE: RDS-B.US). Although traditionally thought of as an oil major, Shell has poured money into natural gas, and it is now reaping the benefits of these investments. Gas will make up an increasing proportion of the business’s profits, so Shell can be seen primarily as an investment in the global gas boom.

At a low P/E ratio, with a juicy dividend yield, the company is cheaper than either Centrica or BG Group. Shell is my bet on the global gas boom.

Foolish final thought

There are a large number and range of oil and gas shares in the UK stock market. The range of stocks in this sector can at times seem bewildering.

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> Prabhat owns shares in BP and Shell, but in none of the other companies mentioned in this article.