After all, the economies in both China and India are apparently continuing to grow at a fairly rapid pace, and those countries’ demand for transportation and other forms of energy are thus likely to keep pace. For some minerals, the period of high prices from 2005 to 2008 has produced a surplus. But no such effect has been seen in the oil market, as large new discoveries are hard to find.

If we’ve learned anything in the last few years, it’s that political risk is very important in oil investments. It’s not just a question of outright nationalization – as is true in Venezuela. Other greedy countries, like Nigeria, boosted the royalties payable when oil prices were high, and have shown little willingness to reduce them again now that they have declined.

Hence, it’s once again time to look at investments in the one important energy source whose friendliness to the United States and decent quality of governance can be assured.

I’m speaking, of course, about Canada.

Canadian oil-and-gas investments are attractive for three reasons.

• Canada’s political stability makes it a buffer against turmoil from less-stable oil sources.
• The country’s conventional oil-and-gas sources add substantial capacity at reasonable prices to U.S. domestic oil production; these sources are profitable at almost any plausible oil price.
• And Canada’s tar sands in the Athabasca region represent a potential source of oil, with approximately 1.6 trillion barrels of theoretically recoverable reserves. That’s potentially larger than the Middle East, but with two major problems: The cost of production is high and the environmental impact could be substantial.

That last point – and the two major problems it identifies – is key. At low oil prices, both factors make tar sands problematic; it is politically more difficult to overcome environmentalist objections if secure oil sources do not appear a priority. However, at high prices, environmentalist problems go away, although they may add to extraction costs. However, if prices escalate rapidly, extraction costs also tend to escalate, so oil-shale-producers reaped less of a bonanza than they might have in 2007-2008.

Now that oil prices have stabilized, the cost increase has slowed, so that (for example) Suncor Energy Inc.’s (NYSE: SU) tar-sands-production costs in this year’s first quarter rose only 6% from the previous year, hitting $28 per barrel. Since oil prices are currently around $58 a barrel, that leaves plenty of profit margin.

The Canadian oil business is still rather more entrepreneurial than the international majors – Calgary is that kind of place. I remember an instance when I was working as a banker back in the 1980s. I’d spent the weekend in New York with my girlfriend, and then turned up for a scheduled Monday lunch with some oilmen at the Ranchmen’s Club. Not thinking, I’d ordered my normal urban cocktail, an Apricot Sour. This was quite rightly treated with great derision, and I was firmly presented with a bullshot (vodka and beef bouillon) – in a pint beer mug!  Got the deal, I’m proud to say, but was pretty worthless for the rest of the day.

The message: Investing in Calgary oil is a little like dining at the Ranchmen’s Club; you have to have certain qualities of fortitude and stamina!

Canadian oil companies you might look at include the following (when looking at earnings, the first quarter of 2009 is a good guide; 2008 is all over the place because of the bizarre behavior of oil prices):

Canadian Natural Resources Ltd. (NYSE: CNQ): Primarily a conventional oil producer, this company’s operations are centered on Western Canada, the North Sea and offshore West Africa (Gabon), though it is also building an oil sands plant north of Fort McMurray, Alberta. It is trading at about 14 times earnings when you strip out misguided risk management, and about 80% above book value. It’s over-leveraged, too. Conclusion: A decent company, but pricey.

EnCana Corp. (NYSE: ECA): North America’s largest natural gas producer and conventional oil producer, with operations in Western Canada, offshore Nova Scotia and the Western United States. It is a leader in oil recovery through steam-assisted natural drainage. Based on first-quarter earnings, its Price/Earnings (P/E) ratio is about 9, and its Price/Book (P/B) ratio is about 1.7. It has only moderate leverage. Conclusion: This one looks like a decent value; it even pays a semi-respectable dividend, yielding 2.8%.

Imperial Oil Ltd. (NYSE: IMO): Majority-owned by ExxonMobil Corp. (NYSE: XOM). Even though it’s now headquartered in Calgary, Imperial is the least Calgary-ish of Canada’s oil majors. It owns 25% of Syncrude Canada Ltd., the oldest tar sands project, and also explores for and produces conventional oil in Western Canada and in the offshore Atlantic provinces. Imperial also refines and markets petroleum, owning a chain of service stations and convenience stores, and produces petrochemicals. It experienced a sharp drop in first-quarter earnings, its P/E based on the lower first-quarter results is about 40, with the stock trading at four times book value. Conclusion: Overpriced.

Nexen Inc. (NYSE: NXY): The former Canadian arm of Occidental Petroleum Corp. (NYSE: OXY), it owns 7% of Syncrude and another (Long Lake) start-up tar sands project, and has oil producing operations in Yemen, the North Sea, the Gulf of Mexico, Colombia and offshore West Africa. Its P/E is about 20 based on first-quarter results and it is very over-leveraged. Conclusion: Given the non-Canada risk, not very attractive.

Suncor Energy Inc. (NYSE: SU): A major tar sands play, Suncor has now agreed to merge with Petro Canada (NYSE: PCZ), a deal that’s expected to close in the third quarter. Suncor also produces natural gas in Western Canada and operates refineries. Petro Canada has tar sands, natural gas, pipeline and retail operations. It is priced at about 30 times annualized first-quarter operating earnings, but oil prices are up about $10 since then (which should boost its earnings), and its tar sands production is ramping up. Conclusion: At 2.3 times book value, with a respectable balance sheet, it’s a decent bet on oil’s growth sector.

Talisman Energy Inc. (NYSE: TLM): The former BP Canada (NYSE ADR: BP), it was spun off in 1992, grew through acquisitions, and now has a diversified portfolio of holdings. It’s active in Western Canada, the Western United States, the United Kingdom (including a wind-farm operation), Norway, Colombia, Peru, Algeria, Tunisia, Indonesia, Malaysia, Vietnam, Australia and Qatar. It has sold $2.5 billion worth of operations to raise cash. Talisman has a P/E ratio of about 8, based on its first quarter, or 11, based on continuing operations in that quarter. It has a P/B ratio of about 1.4, and only moderate leverage. Conclusion: An iffy company in terms of quality, but cheap, and is thus worth a look.

Source: The Six Ways to Play Canada’s Oil Sector

[Editor's Note: When it comes to banking or global economics, there's literally no one better than Money Morning Contributing Editor Martin Hutchinson - a former investment banker with more than a 25 years experience. Hutchinson has proven himself to be a market maven and he is currently offering investors an opportunity to make $4.201 in cash in just 12 days. You can also subscribe to Martin's new investment service, The Permanent Wealth Investor, byclicking here .]

All thanks to the fact that we could soon be facing rising industrial demand and the possibility of supply outages caused by the looming Hurricane season. Not to mention that demand typically rises during the summer as individuals turn up the air conditioning.

There’s no doubt about it; the best risk-adjusted speculation now for commodities investors is natural gas. There’s no other commodity that’s this cheap, this battered and this oversold (see chart below.)

From its high in July of last year, spot natural gas prices have now collapsed a cumulative 74%. In 2009 prices have declined 37%. Crude oil – on the other hand – has been driven higher by big supply cuts by OPEC and Russia earlier this year, seeing prices rise 19% to $53 a barrel.

Over the last several months, natural gas has been hammered as the global economy suffers its worst recession since 1981-82 coupled with soaring gas inventories. Though an extremely volatile commodity, natural gas at these levels has historically been a strong speculation following big bear market crashes.

Canada is home to some of the best natural gas companies, including Encana (NYSE:ECA). The stock is more than 50% below its all-time high and pays a 3.6% annual dividend at current prices.

It’s time to ride natural gas.

At just $3.55 BTUs (British Therman Units) it’s hard to believe prices can head much lower. All the bad news is already baked into gas prices. It’s my favorite energy play right now in Commodity Trend Alert (CTA) – celebrating its 7th year this summer.

Source: Natural Gas: The Cheapest Commodity Speculation

This from Money Mornings Peter Krauth:

There’s an epic confrontation brewing inside the new administration of U.S. President Barack Obama. And it has nothing to do with the controversial economic stimulus package, or the new banking-bailout blueprint that U.S. Treasury Secretary Timothy F. Geithner is expected to unveil today (Tuesday).

This “other” confrontation has to do with energy. And the two sides are very clearly delineated.

On the left is renewable energy. On the right: Secure access to oil.

Upping the ante in this already monumental debate is the huge decline in the stock and commodities markets – a skid that’s firmly etched in investors’ minds. Here’s why.

Anyone who followed the Obama campaign remembers his pledges to ensure forceful action aimed at reducing greenhouse gas emissions by raising energy efficiency, increasing the use of “greener” energy sources, and rolling out emissions standards that would apply across the nation.

And only a couple of weeks ago, as we sat fixated on his inaugural speech, the new president reminded us of the need to harness the power of wind and sun to safeguard the environment.

But he also unmistakably reaffirmed the importance of energy security to America.

So, in building his cabinet, President Obama has positioned some heavyweights to back up his words, on both sides of the debate.

The Dilemma

How will these seasoned veterans, as they set out to accomplish their own objectives, reshape the future of energy policy?

Well, one sure bet is to expect a regular stream of abundant pressure from the environmentalists. They will be eager to legislate new standards for greenhouse gas emissions, and they’ll appeal to the president’s stated goals of shifting energy use toward environmentally friendlier technologies.

But achieving a “greener environment” brings new costs, such as cap-and-trade schemes, carbon taxes and maybe even new gasoline taxes.

Yet right now, America is contending with the rawest of nerve endings in the form of a highly frail economy that is “teetering on the brink” of an even deeper downturn than we’re already ensconced in, thanks to escalating job losses and a massive credit drought.

So it’s naïve to think these factors won’t influence policy, at least in the near-to-medium term.

And, to add to the mix, we have to factor in a vital American concern: The U.S. economy would seize up like the Tin Woodsman in a monsoon without the continued supply of foreign oil.

The Team

Defending the “environmental camp” are Carol Browner, Lisa Jackson and Stephen Chu.

Browner, the former Environmental Protection Agency (EPA) administrator, is now adviser for energy and climate change.  Jackson, who spent 15 years with the EPA and most recently served as New Jersey’s environmental protection commissioner, will replace Browner as the new EPA administrator. And Chu, a Nobel Prize-winning physicist and vocal advocate of national-emissions caps, is now the U.S. energy secretary.

In the “secure energy” camp are Gen. James L. Jones and Hillary R. Clinton.

Gen. Jones is Obama’s new national security advisor. He is retired from the U.S. Marine Corps and was once the NATO supreme commander. Those who know him say he’s well respected (read tough) and fair, with the ability to assess a variety of options, no matter their source.

Probably the most prominent face on the team is that of Clinton, the new secretary of state. As most of us know, Clinton is an experienced politician, and is likely to wield considerable influence that we shouldn’t underestimate.

What’s Next?

So who will win out? And more importantly, how should you position your portfolio to benefit?
Obama will work hard to seek common ground. But I expect that the pressures of an economy on life support will prevail over the next 12-18 months.

Of the $850 billion stimulus package, a good portion is sure to find its way into green energy, but will only get spent by late 2010.  In the meantime, it will be too risky to cripple the economy further with additional tax burdens and higher costs.

In that case, you can look for the new president to enact legislation that is beneficial to the environment, but will only take effect within about two years.

That gives the economy a reprieve, and also allows the demand and price of oil to climb back toward the $70 to $80 a barrel, a level that would allow costlier oil production to turn a reasonable profit.

From an investment standpoint, then, a higher price, and a secure source of oil from U.S. neighbors, means the Canadian oil sands, natural gas, and conventional oil producers should be on your radar, experts agree.

What The Players Are Saying

Both Gen. Jones and Secretary of State Clinton recognize Canada as a stable and abundant source of oil.  That’s logical in my view, as Canada’s oil reserves are second only to those of Saudi Arabia.

[Editor's Note: By the way - and this is a point that both Money Morning Investment Director Keith Fitz-Gerald and investing icon Jim Rogers have repeatedly made - no independent source has been allowed to verify the Saudi numbers.]

And as it turns out, Gen. Jones is a staunch supporter of Canada and its oil sands.

As chairman of the Institute for 21st Century Energy, Gen. Jones has delivered a number of defining speeches in which he highlighted energy security as a top priority for America’s safety.

And the Institute supports both Canada and Mexico as strategic sources of oil as America tries to wean itself from the oil of “less stable” nations.  What’s more, 21st Century cautions that imposing costly climate change legislation could cause the already foundering U.S. economy to fail.

So while Canada and the United States have longed enjoyed a rather close relationship (usually friendly, though at times antagonistic), I do expect it will become more intense.  Scores of issues, including NATO, the Northwest Passage, harmonized emissions standards, and energy security will take center stage.
None of this has been lost on the new secretary of state either.

In her senate confirmation hearing, Secretary of State Clinton thought it vital to mention that “in our efforts to return to economic growth here in the United States, we have an especially critical need to work more closely with Canada, our largest trading partner, and Mexico, our third-largest. Canada and Mexico are also our biggest suppliers of imported energy.”

And just running my quick Google search also reveals that, according to the Energy Information Administration, Canada (in top spot) supplies nearly 50% more oil to the United States than does Saudi Arabia (in 2nd spot).  And Mexico’s (3rd spot) level of oil exports to the United States are shrinking, as its main oil field, the Cantarell Complex, has peaked, and now depletes around 15% per year.

Facts are facts, and President Obama knows that a healthy U.S. economy needs Canada’s secure oil.  Investing in alternative energies is the right action to take, but the costs are high, and the output and payoff are years away.

Early this year, President Obama will go to Canada on his first official foreign visit.  And Canadian Prime Minister Stephen J. Harper is likely to remind the new president of an important statistic:  Alberta’s oil sands already export 500,000 barrels of secure oil to the United States every day.

How To Play This Trend for Maximum Output

Two of the biggest names in Canadian oil should benefit as this scenario plays out. They are Suncor Energy Inc. (SU) and EnCana Corp. (ECA).

Suncor is an integrated energy company, and one of the largest oil sands companies around.  This is no junior explorer.  It produces 220,000 barrels of oil equivalent per day (BOE/D).  And the company is currently tremendously undervalued.

They have ambitious plans to expand as well, to 550,000 (BOE/D) by 2012. Current oil prices would not justify the investment, but that’s if you think oil’s staying at $40, which I don’t.  Refining and marketing are also significant to Suncor’s business.  The company’s 160,000 (BOE/D) refining capacity provides a higher value with respect to its oil sands assets.

Downstream, Suncor also owns 300 Sunoco gas stations in Canada, 44 Phillips stations in Colorado, and offers diesel fuel to corporate clients directly from its Canadian terminals.  All of this ensures direct access to customers for the company’s end products, which protects cash flow under tight credit conditions.

In order to process all that tar sand into oil, Suncor needs plenty of natural gas.  And it’s established a significant collection of natural gas projects that are able to amply supply its internal production, while generating excess to sell into the market. This internal natural gas asset bodes well for the company’s self-reliance, as well as its investment attractiveness.

And interestingly enough, Suncor has forayed into alternative energies, as well.  The company has four wind farms in Ontario, Alberta and Saskatchewan, and runs the largest ethanol facility north of the U.S. border.

Both of these “green” energy projects help provide two vital benefits:

• Diversification.
• And carbon credits.

Should a cap-and-trade scheme eventually be implemented, these credits would help offset current production emissions.

Suncor needs $49 a barrel oil to break even. So unless you think that we’re going to remain at or below that level for an extended period, you’ll want to own this company for the long term.

The aforementioned EnCana is another leading oil-and gas-producer in North America, with 100% of its production and reserves on this continent. Natural gas production is in the neighborhood of 2.2 billion cubic feet per day, and oil and natural gas liquids are about 120,000 barrels per day, with about 50,000 of that from oil sands.

Together with ConocoPhillips (COP), EnCana has formed an integrated North American heavy oil business.  EnCana’s contributions to this 50/50 venture are two oil sands projects with 6.5 billion barrels of recoverable resources. Conoco’s contributions are Illinois and Texas based refineries with heavy oil processing facilities.

About 80% of EnCana’s current production is in natural gas, which is interesting for two reasons:

• First, natural gas was recently trading at roughly $4.50 per thousand cubic feet (Mcf), yet the company has hedged its production through October ‘09 at $9.15 Mcf, allowing for considerable profit protection.
• Secondly, natural gas is likely to be favored by the new Obama administration – especially for power generation, since it burns much more cleanly than coal.

For the investor seeking an energy play, EnCana is also a more conservative pick than Suncor, due to its higher relative natural gas revenue, its venture with ConocoPhillips, and more diversified sources of income.

And recently, Innovest Strategic Value Advisors (a New York based research firm) included EnCana in its Top 100 list of most sustainable large companies in the world, citing EnCana’s above-average investments in renewable energy.

Yes, it’s true that oil sands production brings about higher greenhouse-gas emissions.  But oil-sands producers are aware of this.  The province of Alberta will spend $2 billion to develop new methodologies to sequester large amounts of carbon dioxide underground to negate these unwanted effects.

So when you boil things down, Canada is far and away the largest, nearest, most reliable source of friendly oil for the United States.  And until the U.S. economy recovers during the next year or more, transforming “green” energy into “affordable” energy will remain more of a challenge than a reality.

Source: Two Ways to Profit From the Obama Administration’s Energy Dilemma

Schlumberger is pulling back as a collapse in petroleum prices led to a sharp drop in exploration spending by its customers.

Commodity prices have plummeted in recent months, as recessions in some of the world’s largest economies dampened demand. Like all oil producers, Schlumberger has been hurt by the plunge in the price of oil, which has fallen from $147 per barrel in July to about $42 per barrel now. The company has also seen its budget for exploration cut by 40%.

Schlumberger reported net profit of $1.15 billion, or 95 cents per share, down from $1.38 billion, or $1.12 per share, although revenue rose nearly 10% to $6.87 billion.

Schlumberger Chief Executive Officer Andrew Gould told investors on a conference call that the company was cutting 5,000 jobs out of 87,000 worldwide, and did not rule out more cuts in the first half of 2009, if necessary.

“It is a good sign that they’re coming front and center and acknowledging things have gotten a lot worse,” Mark Brown, an analyst at Pritchard Capital Partners in New York, told Bloomberg News. “We had to get this negative news out there.”

Schlumberger’s results echoed the sentiment of energy analysts who have forecast spending by oil and gas producers would drop by one-fifth or more in 2009 as companies move to conserve cash.

Spending by companies around the world on oil and natural gas exploration will fall to $400 billion in 2009, according to a Dec. 19 report by analysts James Crandell and James West of Barclays Capital Research.

The biggest decline in exploration spending is expected to come in North America, where U.S. spending will fall 26% to $79 billion and Canadian spending will slide 23% to $22 billion, Barclays said. By contrast, capital spending outside North America will fall only 6% to $300 billion.

“At current prices, most of the new categories of hydrocarbon resources are not economic to develop,” Gould said in the statement. “We expect 2009 activity to weaken across the board with the most significant declines occurring in North American gas drilling, Russian oil production enhancement and in mature offshore basins.”

Russia is part of Schlumberger’s largest regional market, which includes Europe and Africa.

In Canada, big producers like EnCana Corp. (ECA), Canadian Natural Resources and Husky Energy Inc. (PINK: HUSKF) have cut 25% to 30% from their capital budgets, according to Gary Leach, president of the Small Explorers and Producers Association of Canada.

“Right now it’s way cheaper to buy gas and oil on the market than to go drill for it,” Leach told the Calgary Herald.
But all those spending cuts may soon lead to a significant rebound in prices, Gould said.

Despite heavy spending by producers to develop new resources in recent years, the supply situation is still depressed and the cuts in investments hitting the industry now will “sow the seeds of strong rebound,” Gould said.

That seemed to be reflected in at least one of Schlumberger’s units.

Even though it posted a 68% drop in profit and a 25% drop in revenue in the quarter, Schlumberger’s WesternGeco seismic business – which measures prospective oil and gas reservoirs – is sitting on a record $1.77 billion order backlog.

And the gloomy earnings report from Schlumberger did nothing to dispel the notion among investors that oil prices will move higher.

“The fact that because this wasn’t the quarter that was prophesying the end of the world, it’s causing people to rethink their pessimism,” Bill Herbert an analyst at Simmons & Co. in Houstonsaid told Bloomberg. Indeed, oil services stocks rebounded in trading Friday.

Source: Schlumberger Sees End in Sight for Slumping Oil Prices

Irwin says the decision by China Investment Corp (CIC), the country’s $200-billion sovereign wealth fund (SWF) to allocate $250 million in emerging markets means Latin ETFs could receive a big boost.

Irwin says China needs to diversify out the diving dollar and gain greater control of energy reserves – and Latin America serves both purposes best…

One of the biggest business stories of the year has literally been buried by the media – and it could cost you a lucrative opportunity.

On July 9, the China Investment Corp (CIC), the country’s $200-billion sovereign wealth fund, said it will start investing in global equity markets through its overseas asset managers, according to the China Securities Journal.

CIC said it will allocate $250 million to eight different overseas asset managers.

Why Big Media didn’t play this up more prominently is a real joke. CIC is the world’s sixth biggest sovereign wealth fund (SWF). The decision to start actively investing in emerging market equities is a clear indication that emerging markets cannot be ignored.

For readers unfamiliar with SWFs, they are huge investment organizations owned by central banks. They accumulate the trade surpluses and oil revenues, for example, for long-term investments. They are accountable to no one, although the International Monetary Fund is working with the leading SWFs to increase transparency.

You may have read about SWFs through their investments in several Wall Street financial firms including Citigroup (NYSE:C), Morgan Stanley (NYSE:MS), and Merrill Lynch (NYSE:MER). (In January, CIC said it would be looking for foreign managers to help invest in fixed income products, and their stakes in some of these American investment banks could be a likely source to tap.)

Like many dollar investors, CIC is getting hit hard. It’s the second-biggest foreign holder of U.S. treasury securities, with $490 billion. Japan ranks as number one with $600 billion.

CIC’s emerging markets push accomplishes two objectives: 1) diversifying out of their $1.7 trillion in foreign-exchange reserves, which are mainly in U.S. treasury bonds and other fixed-income assets; and 2) gaining greater control of desperately needed energy reserves.

We believe the second objective will figure prominently in CIC’s emerging-market investment strategy.

China is the world’s second-largest energy consumer. Oil comprised 20.3% of China’s total energy consumption in 2006. Coal is the prime energy source, but the pollution it spews is now a major financial drain in terms of worker productivity and environmental damage to agriculture. China is ramping up like mad its nuclear output.

Oil, however, plays an increasingly important in China’s energy mix. Just last month the government cut oil subsidies to the growing millions of new car owners. They will be forced to pay 18% more for a tank of fuel. It’s unlikely that this move will achieve China’s goal of cutting consumption, since the country had been previously been operating in an artificially regulated $80-a-barrel oil market. Given all the new shiny cars on the road, we don’t believe an extra 18% will amount to a hill of beans.

So if you make the assumption that oil will be a top priority for CIC, our compass points to a greater presence in Latin America. Since 2000, trade between China and Latin America has increased six-fold.

The business deals are not confined strictly to oil. Latin America is also rich in other commodities that China needs to continue is massive economic expansion. We’re talking about copper, iron, silver and other raw materials. But when it comes to oil in the region, China has been very active.

Here’s a quick rundown of China’s energy influence in Latin America…

– China’s Shengli International Petroleum Development Co. Ltd. inked a deal pact Bolivia’s state-run Yacimientos Petroliferos Fiscales. The agreements call for China to invest $1.5 billion over 40 years in Bolivia’s onshore oil and gas sector.

– China’s leading refiner Sinopec reached a $239 million deal with state-owned Petrobras for construction of a stretch of a major natural gas pipeline across Brazil.

– Sinopec also showed up in Cuba, where it an agreement with Cuba’s state-run Cubapetroleo to jointly produce oil on the island in January 2005.

– A Chinese-led consortium, which includes China National Petroleum Corp. and Sinopec, bought Canadian-based (NYSE:ECA) Encana’s oil and pipeline assets in Ecuador for $1.42 billion.

– In Peru, the China National Petroleum Corp. produces oil.

– The China National Petroleum Corp. also operates two Venezuelan oil fields in Venezuela and has committed to spend over $400 million in Venezuela’s oil industry. The China National Petroleum Corp. is working with Venezuela’s state oil company in the Junin 4 block of the Orinoco extra heavy oil belt, the world’s largest deposit of crude oil. Chinese investments in Venezuela total more than $1.5 billion.

For investors looking to capitalize on the CIC move into emerging market equities, Latin America seems to be a logical first step. You can do this by talking with your broker about Latin ETFs, or investigating Latin publicly traded oil companies such as Brazil’s Petrobras (NYSE: PBR).

Irwin Greenstein

Source: China’s Next Big Oil Play?

Global consumption is growing almost twice as fast as for oil, it is the cleanest-burning of the fossil fuels, and it is comparatively cheap: it currently trades at about half the cost of crude oil on an energy-equivalent basis.

In an energy-hungry world, it’s therefore not surprising that there’s now a mad scramble to procure long-term supplies and bring them to market.

Let’s take a look at some of the current major developments…

Pipelines. Russia, which has the world’s biggest reserves of natural gas, is building a direct link to Germany beneath the Baltic Sea, and planning others to China and Italy. These are enormous undertakings. The 3,000km Italian link, for example, is expected to cost $15bn.

Elsewhere, the ConocoPhillips-BP pipeline to bring North Slope gas from Alaska to Canada’s oil sands industry and the lower 48 US states will be the largest private-sector construction project in North America. And the pipeline China is building from Turkmenistan in Central Asia to Shanghai will stretch for 9,000 kms.

Liquefaction. An alternative means of moving gas is to liquefy it by freezing, ship the liquids across oceans, then turn it back into gas. The technology is not new, but LNG (Liquified Natural Gas) facilities are hugely expensive. For years this limited its transportation to countries not accessible by pipeline, mainly Japan.

But high energy prices have now made LNG viable on a large scale. And there are other advantages. European nations, for example, nervous about their increasing dependence on Russian gas, are looking to alternative sources such as North Africa, using LNG. China signed a $60bn deal with Qatar last month to buy three million tons of LNG a year over 25 years from 2011.

With its volumes growing 7% a year, LNG is the fastest growing of the fossil-fuel industries. Because of the massive investments required, it is dominated by a handful of very large multinationals.

New Reserves. Oil majors are boosting efforts to find and tap hydrocarbon deposits that are primarily gas, with oil as a side-product.

The newly-discovered Sugar Loaf field under the Atlantic off Brazil, claimed to be one of the world’s biggest, is primarily a natural gas resource. The Shtokman development in the Barents Sea off Russia’s Arctic coast, and several projects off the coast of north-west Australia, focus on production of gas, not oil.

There is also increasing interest in exploiting hard-rock resources that have been neglected in the past because it’s difficult to tap their gas. On the western slopes of the US Rockies, Exxon Mobil is starting to employ an explosive fracturing technique three times more effective than conventional technology to unlock the riches of the Piceance Basin.

Coal-bed Methane. The “fire-damp” found in coal deposits – the curse of miners throughout the ages – is almost pure methane and an excellent substitute for natural gas, which is about three-quarters methane. It may be recovered from worked-out collieries or from coal deposits left unexploited because they are so gassy they are too dangerous to mine, and already accounts for a tenth of natural gas production in the US.

BG Group, the global specialist in the discovery, extraction and supply of natural gas, plans to build the world’s first plant to produce LNG from coal-bed methane piped 400km from fields in the interior of Queensland, Australia.

Liquid fuels. Although currently used as gas to fuel central heating, industrial furnaces and power stations, natural gas can be converted into liquid fuels. In Qatar, which has the world’s third largest gas reserves, they’re building plants to do just that.

Worldwide demand for natural gas has been growing at an average rate of nearly 3% a year, compared to oil’s 1.7%. China’s gas consumption is forecast to triple over the next 12 years, India’s to double. Yet between them they have less than 2% of global reserves, so they will be forced to look to imports from the Mideast, Russia and Australia.

Investing in natural gas: major role in power stations

The strongest demand growth area for natural gas is in electricity generation. Dirk Beeusaert, chief executive of Suez, the world’s biggest operator in the field, says the investment cost per kilowatt of power from gas turbines is “half that of a coal plant, and a third of that from a nuclear plant of the same capacity.”

Gas power stations can be built quickly, are flexible in operation, reduce dependence on other resources such as coal, oil and nuclear – and have particular attractions in these times of ecomania. Not only do they produce less greenhouse gases than other fossil fuel, but they can be used efficiently to generate intermittent power, to fill the gaps when turbines driven by wind and water shut down because of calms or droughts.

A couple of decades ago, gas accounted for little of the world’s electricity generation; now it fuels almost one-fifth.

Although the oil majors are giving increasing attention to finding and producing natural gas, most of the world’s resources are closed to them, or are politically high-risk. Russia seeks to use its gas supplies as a strategic weapon in its dealings with Europe and is squeezing out foreign companies. Iran is a different kind of political minefield. Qatar is happy to partner international oil firms, but is also right in the middle of the potentially explosive Middle East.

One country that is benefiting from all this is Australia, which has reserves almost as large as those of the US, production that is likely to continue expanding for the next quarter-century, and a business-friendly environment. Chevron’s Gorgon project alone, which got its go-ahead from regulators a few months ago, expects to produce more than a trillion cubic metres of gas over its 60-year life.