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Is gas the new gold?

Australia is home to abundant gas assets and has become one of the world’s major exporters of gas in the past three decades, with 17 significant production locations for natural gas and oil, and enough natural gas reserves to power our nation for hundreds of years.

According to Australian-gas.com, gas is estimated to represent 23% of world energy supplies and this figure is anticipated to grow to 29% by 2020 – meaning gas is no small fry in the energy space.

With nuclear power understandably on the nose with the Australian populace, and “clean coal” technology looking like nothing other than an uneconomical pipe dream – the only potentially acceptable technology to meet the growing energy needs of Australians seems to be gas-powered plants.

So it is clear why there are several massive liquid natural gas developments projects across Australia at present, including coal seam methane projects.

But which ASX companies are most likely to benefit from the assurance the gas industry will continue to grow?

Santos Ltd (ASX: STO)

Santos has been one of Australia’s largest producers of natural gas for half a century after making a significant discovery of natural gas in the Cooper Basin in South Australia in 1963.

These days, Santos exports natural gas to Asia by way of its Queensland and Northern Territory facilities.

According to an article in Financial Review, Santos’ CEO Kevin Gallagher has this week declared gas from its Petrel, Tern and Frigate fields off the Northern coast could be delivered in Darwin at “very competitive prices” – stepping up a broader push to persuade eastern state manufacturers to relocate to avoid high tariffs.

Santos recently announced the acquisition of Quadrant Energy – delivering increased ownership of high-quality Western Australian natural gas assets – strengthening Santos’ offshore operating capacity and underlining its aim to become Australia’s leading supplier of domestic natural gas.

Investors rallied behind Santos off the back of its half-year results release in late August, which revealed an underlying profit of $217 million – a rise of 99% – plus the reinstatement of its shareholder dividends for the first time since 2016.

BHP Billiton Limited (ASX: BHP)

BHP is not best known for its natural gas production, with the commodity giant also committed to oil, petroleum, potash, copper, iron ore, coal and nickel.

But its gas interests are significant, and investors looking to invest in natural gas could find somewhat of a safe haven in BHP shares given its diversification offers an overall stability companies specialising only in natural gas could not offer if market volatility occurred in the sector.

BHP’s recent release of its FY18 results missed market consensus expectations by about 3% with the miner slashing its forecast on productivity gains for FY19 and posting a statutory net profit drop of 37% to US$3.7 billion despite total revenue jumping 20% to US$43.6 billion and a US63c per share final dividend.

And its broad scope could also work against BHP at times, with its recent results showing costs are tipped to rise with analysts downgrading overall forecasts for FY19 out of BHP on such news.

Beach Energy Ltd (ASX: BPT)

Oil and gas exploration company Beach Energy kicked off the 2018 calendar year with the announcement it had discovered a new gas field in the Otway basin in South Australia, with flow test results confirming the capacity for commercialisation of the resource.

Similar to BHP, but on a smaller scale, Beach has a good product mix on offer, meaning its move to strengthen its natural gas asset portfolio can be balanced out by the successes of its other interests – such as its Cooper Basin assets.

But Beach’s recent results fell short of expectations overall, despite an underlying net profit of $302 million – up 86% – the market had anticipated the figure to be closer to $307 million, with rising oil prices and the Lattice Energy acquisition also causing its bottom line to take a hit.

The Lattice uptake will strengthen Beach’s position as a gas producer and its acquisition should be transformational for the company, but as part of the deal, former parent company Origin Energy Ltd (ASX: ORG) ensured it secured access to Lattice’s future east coast gas production under long-term supply agreements– with the savvy energy company not wanting to give up on gas assets that will meet customer needs well into the future.

Foolish takeaway

In terms of meeting energy supply needs gas seems to be the only option that doesn’t have a significant economic, environmental or baseload viability albatross around its neck. If you’ve not taken a good look into companies with gas assets, now is the time, don’t wait until its too late.

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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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