Wednesday, April 15, 2009

Natural Gas: "Betting on an Energy Surge That Might Be Powerless"

From MarketBeat:

Portfolio managers are once again betting energy companies will power fund performance in 2009, but they may be suffering from a bit of a short memory.

A surge in oil prices has portfolio managers getting back into energy after oil-price declines had them selling out last year. Thanks to the spending spree currently ongoing in Washington, these managers expect that cash to create an inflationary environment for energy prices down the road.

But using oil’s run as justification for buying energy companies is a risky strategy, because other energy markets, particularly natural gas, along with economic indicators, suggest that oil could end up pulling back again. So far in 2009, natural gas prices are off 34%. Natural gas prices and oil prices tend to move somewhat in tandem with each other, but in mid-February, they diverged, with oil maintaining its strength and natural gas falling sharply (see chart).>>>MORE
MarketBeat's confreres at Environmental Capital point to one fact that will bring supply and demand closer to balance:

Slow Leak: U.S. Oil and Natural Gas Drilling Continues to Drop

Energy companies slammed on the brakes in the U.S. in the first three months of 2009, drilling the fewest wells since 2004.

That’s according to the American Petroleum Institute, which is out this morning with its quarterly report on U.S. drilling activity. According to the API, U.S. producers completed 11,071 oil and gas wells in the first quarter of 2009, down 22% from a year ago and down 35% from the fourth quarter of 2008.

The numbers won’t come as a big surprise to anyone who’s been watching the weekly Baker Hughes rig count, which has fallen by more than half from its peak. Look for this week’s data to show the rig count falling below 1,000 for the first time since 2003....MORE

And another part of the empire (yesterday's WSJ) has this:

Natural-Gas Price Touches 6½-Year Low

Natural-gas futures touched a 6½-year low before bargain-hunters came in and futures rose a bit.

Natural gas for May delivery on the New York Mercantile Exchange settled floor trade up 1.8 cents, or 0.5%, at $3.628 a million British thermal units. Gas futures fell as low as $3.504 per million BTUs, the lowest level since September 2002, in earlier trading, tracking a drop in crude-oil prices.

[Natural Gas Futures]

The rebound in gas came as crude pared some of its losses. "A lot of the influence on natural gas today has been the performance of the crude market," said Tim Evans, analyst with Citi Futures Perspective in New York.

Market watchers said bargain buying also spurred natural gas higher as traders took advantage of low prices. "Some people wanted to take a dip in the cheaper waters," said Pax Saunders, an analyst with Houston-based Gelber & Associates....MORE

And from Treehugger of all places, another take on what we think is a major consideration for anyone in the gas biz, the rise of LNG and the move toward an integrated worldwide market.
(we linked to EC's post on Gazprom a week ago):

Unknown to each other, two world script writers have helped ensure the long term reliability of cheap US natural gas supplies. Hollywood celebrities won't suffer LNG depots in sight of their lovely coast. That's plot #1. Russia, the new big kid on the natural gas block, wants to diversify it's customer base so that, you know, no more fights over pipelines in the Stan countries. That's #2. The upshot, via Hard Assets Investor, is that "Gazprom [is] to export liquefied natural gas (LNG) to Shell's terminal in Baja California. The gas will then be transported via pipeline to Southern California."

No matter that short term gas prices are falling steadily in the USA.

Natural Gas (NG, NYMEX) Monthly Price Chart Via: Hard Assets Investor
natural gas prices over time usa image

That Mexican border is a leaker of many essential frangibles; and, a long-range problem solver, too. The low gas prices will surely kill King Coal.

The Pickens Plan is about to turn into the Putin Plan. So much for America shedding it's addiction to Middle Eastern Oil. One drug as good as another.

From Russia With LNG: US-Bound Natural Gas Piped Across Mexican Border