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Natural Gas: The Commodity Everyone Loves to Hate!
The price of Natural Gas, the energy fuel which has been gaining
attention as a safe and clean substitute for nuclear power (since
disaster struck in Japan), never really recovered from the hit it took
from the Big Recession of 2008/2009. Natural Gas is the only commodity
on earth which is still trading a depression levels, while the rest of
the commodity complex is again trading at pre-crisis prices.
Everyone knows the NG story by now: a new technology Hydraulic
Fracturing aka ‘Fracking’was introduced in the NatGas market, freeing
humongous Natural Gas reserves in the American soil. The market was
flooded with gas and NG stockpiles in the US ballooned. The network
couldn’t take much more Natural Gas… at the same time a fierce recession
hit the US economy.
Abundant supply in combination with plummeting demand equals ‘horror’ in the commodity arena.
The Natural Gas price got hammered from the high 12’s to the low 2’s
USD per per million British thermal units (MBtu) within a few months: an
unseen massacre. In the following months, the price recovered somewhat,
but there has always been a lot of resistance around the $5/MBtu level.
Finally, after three years of depression in the NatGas market, things are starting to turn.
Today, the stockpiles of Natural Gas in the US are still bulging, but
the levels aren’t creeping up as fast as before. In fact, underground
storage levels are dropping below the 1 year and 5 year averages!
Via IEA:
Working gas in storage was 1,919 Bcf as of Friday, May
13, 2011, according to EIA estimates. This represents a net increase of
92 Bcf from the previous week. Stocks were 235 Bcf less than last year
at this time and 36 Bcf below the 5-year average of 1,955 Bcf. At 1,919
Bcf, total working gas is within the 5-year historical range.
And there are more signals that the supply side, which has been the biggest drag on the price of NatGas, is tightening.
The number of rigs in the US is dropping again. Baker Hughes Inc., a
top-tier oil and Natural Gas field service company, has a century long
track record of counting NG rigs. Their latest report showed US rig
count dropped to 866 last week, down 6 rigs from a week ago, the lowest
level since the end of January 2011.
Baker Hughes shows that the rig count is in decline once again.
Although fundamentals in the NG complex are changing, the bulk of
commodity analysts and energy specialists are very bearish on Natural
Gas. Of course, that’s what a 3-year long depression does to a person.
The latest survey of the CME showed that of the 17 ‘member’ analysts,
ten are forecasting a price drop, while 4 are predicting the price will
stay flat in the coming period. Only 3 pundits showed some positivism
for the future price evolution of Natural Gas.
So, Natural Gas is still the commodity everyone loves to hate,
although some research firms are starting to raise their price
forecasts. Here are the latest numbers from McDaniel & Associates, an independent Canadian oil and gas consulting firm.
In the end, the current price, taking into account the recent
fundamental shifts on the supply side, is becoming a total joke in the
recent explosive commodity environment!
For instance, if we take the energy equivalents of oil and Natural
Gas, at today’s oil price of $98/barrel, Natural Gas should be trading
around $17 per MBtu. Today, the price of Natural Gas is still hovering
around $4.4/Mbtu!
And of course, one can argue that the demand for NatGas can start to
fall again if another crisis hits. We think the contrary is more likely,
as we calculate that Natural Gas is trading at around $25.5/barrel oil
equivalent. Industrial users could start to switch to the much cheaper
Natural Gas.
Being contrarians, we are becoming very bullish on the
risk/return proposition which Natural Gas has to offer for investors.
The downside looks limited, while the upward potential is enormous. With
a pressure rising every day, even a small event can set the NG price on
fire!
We are positioning our clients in the mid- to small cap
(junior) Natural Gas segment, as we think the prices for the stocks are
currently trading at ‘rapture’ valuations! The second half of 2011 could
turn out to be quite interesting for Natural Gas investors…
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My ng money is in HGT and a nat gas utility, Vectren Energy, VVC. Both pay good div and I've got a decent gain in each.
Yippee the pump and dumpers finally return after the pump last month that was truly a work of art.
After the silver pump and dump - I was wondering what was next, here's your answer.
Everybody all loaded up?
Buy but never ever sell kiddies, to da moon we go. Natgas cereal, nat gas popsicles,the uses are endless. Just try Uncle Bobby's magic natgas elixir made from specially formulated fracking juices.
DA SKY IS THE LIMIT PEOPLE!!
DA SKY IS THE LIMIT!!
COILED SPRING!~~~~~~~~~~~~~~~~~
http://deadcatbouncing.blogspot.com/2011/05/natural-gas-ng-end-of-day-524.html
Ain't no lie, buy buy buy (natural gas) ;)
How do you figure that fracturing is a new technology when they have been doing it for 100 years? I did my first frac job on a shale well in 1975.
The problem with natural gas is demand. Industries can switch to gas, but there is little industry left and most are shutting down.
pumpers are a pumping man. It never fails about every 4 years they start jacking 'er up and fish just gobble it up.
I can't count how many traders of Natgas I've seen jump out windows or owe the house millions.
It is the untradeable tradeable that attracts the value trap idiot spawn of value trap idiot parents.
agree with your analysis, although $25 is a possibility. i expect more development of domestic sources. NG solves the problem of cafe standards. read a report on the decaying rig infratstructure problem and building new drilling rigs makes more sense than fixing old ones, and more of the new rigs will be natgas.
people drive shorter trips on average which mean storing fuel is less critical.
buying shares in the UNG your income is reported on schedule K which means you take gains and losses yearly without closing out your position. put my 90 year old mother in UNG. when Bernanke blows the inflation bubble she can afford to stay warm anyway.
Put her in HGT or SBR....
Natural gas will skyrocket when small NG to Methanol conversion devices become available. These will basically convert natural gas to a lquid fuel which can be used in internal combustion engines.
If NG skyrockets, then what would be the point of the converters? We might end up paying more for the LNG than gasoline.
Hate to be so negative, but No Economy = No need for Natgas. It is that simple. No matter how much supply they pull or wells they close the most abundant and readily available resource on the planet will remain dirt cheap. No demand = no price increase. Give it 4 to 5 years then NG's will shine.
I like NG and live on in one of the largest NG producing areas in the world, but not much will improve until the supply system improves. NG is a captive market for each major market - you can have shortages in one place and over-supply in another. Liquified NG will help, but it will take a while for that come online and it increases the cost of the end product.
Where I live, there are still new wells being sunk each month so that tells me we are still months from the bottom. Right now, all the NG in the U.S. is still stuck here in the U.S. - it cannot go anywhere else, so prices just stagnate as new wells come online. All this supply needs somewhere to go and new well volume will exceed demand growth for some time.
If you ask me, it has great long term potential but I would rather have my money in gold or silver over the next two years. NG prices may not budge much till 2013.
We used to look at the old rising gas storage tanks downtown and see for ourselves how we are doing on gas.
Never mind that it was shipped in from Iran to the port at the time.
Today? I don't even notice the gas bill hardly. What is a couple dozen CCF? Tiddlewinks.
The damn money charged for the billing and whatever else is more than the actual usage charge anyway.
Now that I am through ranting, I will point out that there are a 1000+ gas rigs working in our area and some are doing quite well. Others needed fracking to open up enough to fart in sufficient quanity to pay for the fracking.
Just wait till cars start converting to CNG.
Shell is building the largest ship ever built and will be used for Natural Gas field development offshore.
If Shell is shelling this kind of money, is because they already are bull on NG.
oh and i forgot to mention theyre installing 5 of these floating plants around the country.
prob more around the world.
gorgon gas project in australia, shell installing a floating NG condensor lets call it, to bottle and ship to market right from the well.
yeah tightening supplies my ass
Great. I better start saving now in preparation of next winter.....
I wondered about this when Pickens was touting NG for transportation. I wasn't too excited to see my heating bills quadruple, but it appears they will anyway.
As several have said, patient money. How much lower can it go? Not much methinks. 20% downside, 200% upside if you can wait it out.
The question is how long do you want to park your money on it and which companies do you invest in? It could take 2 years or 20 years.
Agree. Thats the rub.
Oil is getting dirtier and harder to get every day. Besides the carbon, the other problem with natgas is getting it out of the ground is causing major ground water contamination. If they can fix that problem then natgas has a bright future. It is a great and currently cheap energy source, infrastructure exists, it is close to markets, etc.
IF GROUND WATER CONTAMINATION BECOMES A PROBLEM BECAUSE OF "FRACKING" DRILLING STOPS, LESS NG, HIGHER PRICES
Big Potential Move In Natural Gas:
http://karrpool.blogspot.com/2011/05/diary-entry-3-big-potential-move-in...
Broadening triangle since early this month signals volatility and possible big move. But be careful, this market loves H & S patterns. Big fight brewing at current levels...
Watch the storms...The Ohio, Tennessee, even Missouri River basins are loading up and my cause more trouble in the Mississippi delta region, potentially shutting in production and pipelines.
Nat gas is the commodity with a mind of its own and that gets noooo respect! It's the only one that seems totally disconnected from the fate of the Dollar, too!
Because it's overwhelmingly domestic. Production paid for in dollars, product sold for dollars. IIRC the breakeven differential for shipping LNG to pay is $3.50 per Million BTU.
I'm still looking for an ETF to SHORT nat gas. I've seen a few to short BOTH oil and nat gas, but not one to short just nat gas. I'm not interested in one to short nat gas companies, either. If you know of an ETF to short nat gas (the commodity), please reply and advise me of the ticker symbol.
Thanks in advance!
Just short UNG
one can also consider the pipelines...a more conservative play, and they can pay a decent dividend.
any in paticular?
503b
With oil so high, volatile, and imported....ya gotta love nat gas. I push around QBC and ARET. Never know what they are gonna do though.
If we used NG instead of oil, we would have to import it. We have enough NG supply at current usage levels. Start using it to power 100 million cars and we won't have enough to produce electricity, cook food, and heat homes.
.
NG is NOT a substitute for good old fashioned oil - That's the problem with it. That means the demand side of NG is very inelastic and even with low prices it takes YEARS and a lot of $$$ to switchover. With this great increase in supply and demand inelasticity there is no reason to think that NG prices will rise.
That is unless they pass a law against fracking, in which case it may actually be a good investment...
exactly
Why does every effin' commodity have to be subject to the whims of paper traders? Can't we just argue that supply/demand is in balance and the purpose of the market is to hedge against the usual suspects like hurricanes and natural disasters?
Damn evil speculators!
Natural gas is subject to severe contango effects. If you are thinking about ETC/ETF positions on natural gas be very very careful.
Could you elaborate? Is this related to how the price of the ETF will underperform the price of natural gas?
Worse, under heavy contango the underlying may go up and the ETF nav down, depending of spot and future price volatility. And natural gas is known for its severe and persistent contango situations. Just look at the performance of the UNG ETF and you will understand. In general ETCs are not long term buy and hold positions.
Primarily, they exist to enable traders to express a short term view on the market.
Sounds like a bunch of methane gas to me.....
Natty gas looks like a good buy
http://deadcatbouncing.blogspot.com/2011/05/it-looks-like-natural-gas-has-confirmed.html
OK. And how do we get long exposure on LNG without or with minimal roll over costs?
Lots of people think we are doomed , but then you get the JUST BUY THE EFFING DIPPERS GUYS!! LOL!!
I subscribe to the guy from australia and his FFT economic newsletter at http://www.forecastfortomorrow.com that guy has called many big events before they have happend, including the stock market crash in 2008 and the current financial collapse of the US. (currently happening) I found him from a friend last year, and he has some important work.
His oil calls are insane, and I have been making good money with them. He is well worth a look, if you want to keep two steps ahead of the sheeple out there.
I am worried about my financial future. Is anyone else nervous out there?
Fuck off with your SPAM, twat.
either contribute directly or spam elsewhere
Nah, not really. The future's so bright, I gotta wear shades!
If not futures, look at Cheniere Energy (ticker:LNG), who just got approved to export LNG.
http://www.fool.com/investing/general/2011/05/20/cheniere-energy-shares-...
If you have around $5K to $10K (depending uponn your stomach for leverage), you can buy the mini-NATGAS futures. I own several outright. I buy out the curve a bit to minimize my rollover costs. I've been accumulating these positions over the last couple of years and trade one or two contracts out once in a while to capture my trading costs and any contango premiums. Since Natty is volatile, you usually get a couple of chance a year to capture these costs. Down side has been low, I LOVE this play and am willing to ride it for a long time....A great wealth builder if you have patient money