Friday, November 23, 2012

What's wrong with the natural gas price chart in the Blog Header

The natural gas and oil price data in this blog's header are delivered automatically from oil-price.net. I am uncertain what contracts or markets are quoted. Below is the NYMEX chart for the last year that shows what is going on with natural gas prices and why a significant number of analysts now feel that we're heading this winter for $4.00+ prices.

My personal view is that gas prices have bottomed and likely will, overtime, recover to the $6.00 - $8.00 range. This may take several years, but we have likely turned the corner. Current statistics suggest that it costs around $6.00 for many companies to produce gas on a break-even basis. The current gas glut has forced many producers to sell their gas for much less. This gas 'on sale' situation will only last until supply and demand are back in balance. I do not foresee prices to rise much above $6.00 because then economics will justify renewed drilling. We have drilling prospects for the next hundred year according to many reserves studies. Thus gas prices will fall as soon production causes the market to become over supplied.

This scenario will provide North America extensive gas supplies at reasonable prices for many years which will benefit manufacturing, power generation and transportation. It will help keep energy imports to a minimum thus reducing our trade balances and foreign debts.  From an energy perspective we will experience for the next decades a Goldie Locks market - not too cold and not too hot but just right.

Something similar is going on in the oil markets but it tends to trail the natural gas markets probably by 3 to 5 years.


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