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Watch Oil Prices Drop as China Focuses on Natural Gas

Two major changes in China's energy needs will happen as production moves higher. The first is the mitigation and likely end of oil imports into China, removing massive demand in the oil markets.

The second significant change is the production of vehicles. As domestic natural gas supplies increasingly come online, expect vehicles to either drive out of the factory able to use dual fuel (gas/diesel or natural gas), or simply natural gas.

Both Ford Motor (F) and General Motors (GM) produce natural gas vehicles and have factories in China. Ford recently committed to expanding their presence in Asia and China. (Read my Get Ready To Accelerate Your Ford Investment article.)

Financially, it makes perfect sense for Ford and GM to produce natural gas vehicles in both markets. China is the largest auto market in the world and the U.S. is the second largest. Both countries drive on the "right" side of the road although I believe the safety standards are different. The salient point is the total market for natural gas cars is more than needed to justify the research and development investment for both Ford and GM.

When the two largest oil-consuming nations in the world rotate out of oil and into natural gas, expect oil price headwinds. Also, expect a higher floor in the price of natural gas. Both countries will continue to use oil but the amount imported is almost assured to fall. (Read my EU's Iran Sanctions More Bark Than Bite article.)

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

At the time of publication the author did not hold a position in any stock mentioned.
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