Monday, October 31, 2016

"The Long Term Outlook For Natural Gas"

Truth be told, we're not sure what to make of the recent action:

Hence the paucity of posts on natty so far this season.
December futures $3.112  +0.007

From Forbes:
It is hard to overstate the impact of the shale gas revolution in the U.S. In 2005, U.S. natural gas production had dropped below 50 billion cubic feet per day (Bcf/d), and it was widely believed that the U.S. was set to become a growing importer of liquefied natural gas (LNG). In fact, a company called Cheniere Energy built a massive complex at Sabine Pass on the coast of Louisiana to handle what was expected to be a deluge of LNG imports.

Fast forward a decade, and natural gas production in the U.S. has surged by 50%, natural gas prices have fallen from $13 per million British thermal unit (MMBtu) to ~$3/MMBtu, and Cheniere Energy is now exporting LNG. (See How Cheniere Energy Got First In Line To Export America’s Natural Gas). In 2009 the U.S. jumped past Russia to become the world’s top natural gas producer:
Natural Gas Production In Russia And The U.S.
These developments weren’t widely foreseen a decade ago, highlighting the difficulty of trying to make long-range predictions. Nevertheless, long-range forecasting is critical for organizations and investors alike. Thus, today I would like to give my outlook for how I see the U.S. natural gas market developing over the next few years.

As I have indicated in recent articles, the short-term outlook for natural gas is most heavily influenced by the weather. While recent projections of a very cold winter are bullish for natural gas prices, the amount of natural gas currently in storage is near a seasonal record. This makes it even more challenging to forecast prices over the next few months, but as I recently argued I would be especially cautious with natural gas prices above $3/MMBtu and with very high inventories. (Natural gas prices have recently retreated since I first urged caution).

The longer term, however, is a different matter.

I believe that there are a number of drivers on the demand side of natural gas that are likely to keep upward pressure on prices in the long term. Natural gas producers will have to aggressively expand production in order to keep up with growing demand. This, I believe, will create many opportunities for natural gas producers and infrastructure providers....MORE