Saturday, December 7, 2013

The natural gas bull market is now in full swing! Hold on to your economic hat, Albertans!

What!!!! You may shout, I thought natural gas is doing terrible and now you say this! 

My answer: Well, hindsight is 20/20 but yes we’re clearly in a natural gas bull market and it started April 2012. Yes, this blog told you to stay alert about the natural gas market and to ‘nibble and nibble’. Not that I was that sure about it the last year or so. But look gas is now trading over $4.11 per Mcf!
Wasn’t that the reason we’re posting daily oil prices and natural gas at the header of this blog (and Gold at the footer)? So below are today’s Gas Price Charts. The first one shows the market bottom and how gas prices have recovered since. But how far will it go up?  In the past, we suggested that prices should go up to the cost of production plus a bit of profit, i.e. to the $6-$8 dollar range.


So is that price range still in the cards? Considering that most large economies of the world are still in recovery mode, I suspect that gas prices will go higher with improving economic conditions. Besides, the world is an ever increasing energy consumer, in particular it likes gas as it is ‘clean’.  These days, converting gasoline powered cars and trucks to natural gas is a booming business. So is the conversion from coal to natural gas a favorite past time in the electricity generation world. Look at the demand forecast by the EIA for natural gas (below). Meanwhile the multi-frac oil and gas boom is about to peak; in fact gas production has already peaked and the number of rigs drilling for gas is severely depressed. If the oil boom hadn’t produced so much flare-able gas, we could experience a significant gas shortage.
Pipeline construction, so strongly opposed by environmentalists may increase gas supply because it may increase gas transportation capacity along with that of oil and less gas may end-up being flared. But looking at the long term gas price chart below, I think that over the coming two years, well see gas prices in the $3.50 to $5.00 range and thereafter it may go even as high as $8.00 not counting spikes.  Of course, during the natural gas bear market, the natural gas industry has learned to find and produce natural gas more efficiently and cheaper.

 

The big beneficiaries may be Alberta natural gas producers such as Peyto and CNRL; even Encana may become a bit more attractive investment. A revival in Alberta’s natural gas industry will improve prospects for many other companies in the industry as well. Finally Alberta’s petroleum industry may stand once again on two legs – oil and natural gas. If that’s the case, hold on to your economic hat, Albertans!




 

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