Best of the Week
Most Popular
1.Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK - Nadeem_Walayat
2.Bank of England Panic! Scottish Independence Bank Run Already Underway! - Nadeem_Walayat
3.Scottish Independence Referendum Result NO 55%, YES 45% - Vote Forecast - Nadeem_Walayat
4.Scotland Independence Result NO Win 55% to Yes on 45% - Nadeem_Walayat
5.US Dollar Forecast to Go Much Higher - David_Petch
6.Russian Union Of Engineers Accuses Ukraine Airforce In MH17 Crash - Raul_I_Meijer
7.The Emergence of the US Petro-Dollar - Gary_Dorsch
8.Don't Miss This Gold Buying Opportunity - Brien Lundinr
9.Silver Price: A Collapse and a Rally - DeviantInvesto
10.Silver Buyers Keep Stacking And Demand Higher Despite Falling Prices - 18th Sept 14 - GoldCore
Last 5 days
Indian Stock Market BSE SENSEX The Encore Rally - 21st Sept 14
ISIS Fear-Mongering Ahead of Another US False Flag? - 21st Sept 14
Ecology Politics And Haeckel's Tree Of Meaning - 21st Sept 14
ASX200 Stock Market Index Set For New Highs - 21st Sept 14
Scottish Referendum Not Avoiding The Future - 21st Sept 14
Five Lessons Learned from the Scottish Referendum - 21st Sept 14
The Problem With UKIP And Other I I P's - 21st Sept 14
Stocks Bull Market Resumes - 20th Sept 14
Gold And Silver - Current Price Is The Story - 20th Sept 14
Can the U.S. Economy Withstand Another Housing Market Breakdown? - 20th Sept 14
Nervous Investors Will Hate the Money You Make With This Strategy - 20th Sept 14
Cheap Gold Stocks Upleg Intact - 20th Sept 14
Monetary Policy Killing The System - 20th Sept 14
Scotland and the Spirit of Our Time - 20th Sept 14
Bitcoin Price Charts In-Depth Analysis - 19th Sept 14
Alibaba is Focused, Will Use Money in Emerging Areas - 19th Sept 14
Bird's Eye View of the Gold Stocks - 19th Sept 14
Scotland Independence Result NO Win 55% to Yes on 45% - 18th Sept 14
Silver Price: A Collapse and a Rally - 18th Sept 14
Here's Why Trendlines are Your New Trading Best Friend - 18th Sept 14
Silver Buyers Keep Stacking And Demand Higher Despite Falling Prices - 18th Sept 14
The "Hidden" Billions in the Alibaba IPO - 18th Sept 14
Russian Union Of Engineers Accuses Ukraine Airforce In MH17 Crash - 18th Sept 14
Monetary Policy Weighs on Gold and Silver - 18th Sept 14
Global Currencies Analysis...The World According to Chartology - 18th Sept 14
Gold Price Hammered by Strong U.S. Dollar - 18th Sept 14
Is Citigroup the Dumbest Bank Ever? - 18th Sept 14
Scotland Must Vote Yes! For All Of Us - 18th Sept 14
Scottish Independence Referendum Result NO 55%, YES 45% - Vote Forecast - 18th Sept 14
A Public Bank Option for and Independent Scotland - 17th Sept 14
The Charade of Independence for Scotland and UKIP - 17th Sept 14
Gold Report - U.S. National Debt Surges $1 Trillion In Just 12 Months - 17th Sept 14
How to Find Trading Opportunities in ANY Market Using Fibonacci Analysis - 17th Sept 14
Why Money Is Worse Than Debt - 17th Sept 14
Can Gold Price Finally Recover? - 17th Sept 14
Scotland Independence - Europe Holds Its Breath - 17th Sept 14
The Energy Prices at Risk with Scottish Independence - 17th Sept 14
Scottish Independence SNP Lies on NHS, Economy, Debt, Oil and Currency - 17th Sept 14
The Truth Behind the Dangerous "Helicopter Money" Delusion - 16th Sept 14
Central Bank Balance Bullying: Investor Implications - 16th Sept 14
U.S. Dollar and Gold Elliott Wave Projection - 16th Sept 14
The Origins and Implications of the Scottish Referendum - 16th Sept 14
The Collapse Of U.S. Silver Stocks As Public Debt Skyrockets - 16th Sept 14
Emerging Markets Are Set Up for a Crisis, What’s on Your Radar Screen? - 16th Sept 14
Scottish Independence Bank Run Already Underway - Video - 16th Sept 14
The Emergence of the US Petro-Dollar - 16th Sept 14
Economic GDP Drives Stock Prices Inestment Myth - 16th Sept 14
Don't Miss This Gold Buying Opportunity - 16th Sept 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

You've never seen this before and may never again

Why Natural Gas Prices Will Continue to Rise

Commodities / Natural Gas Mar 17, 2013 - 04:38 PM GMT

By: Raul_I_Meijer

Commodities

Dr. Kent Moors writes: Not long ago, the market was laboring under expectations that the NYMEX futures contract for natural gas would remain at around $3 per 1,000 cubic feet (or million BTUs).

The pundits were proclaiming that a surplus of shale gas, over production, and historic storage surpluses translated into long-term discounts in natural gas prices.


Last year's historically warm winter over much of the U.S. had not helped the price either.

While this year the weather is more seasonal, there are other factors in the price rise. For the investor this means there will be plays developing in specific areas that were simply nonexistent six months ago.

Make no mistake, we are not about to go back up to the $12 plus levels experienced a few years ago. Those days may be gone forever - one of the tangible impacts of the unconventional gas revolution (shale, tight, coal bed methane). There will still be volatility in this sector as the ongoing balance between extraction potential and well counts works itself out.

But we are likely to move into a manageable pricing dynamic.

And that means for investing in gas - with apologies to Sherlock Holmes - the game's afoot!

A Change in Drivers for Natural Gas Prices
Natural gas prices used to be largely about how cold winters were and how hot summers were.

Heating needs were the driver in the first case, electricity generation for air conditioning determining the second.

These still exist, but today there are other determining factors.

The environment in which they operate has changed dramatically. Given the known extractable reserves currently available in the U.S. market, it would be possible to increase overall gas production 25% a year for the foreseeable future.

Nobody is about to do that, of course.

It would destroy the market and most of the companies working in it. But that amount of available volume eliminates a concern on the supply side. In fact, it will serve to moderate and put some downward pressure on pricing whether or not it is extracted.

The key is on the demand side.

Here, several factors are emerging to portend higher prices. Once again, we need to keep this in perspective. My estimate remains for an average price of about $4.35 come high summer, absent any unforeseen developments, with an increase to $4.85 to $5.15 by the end of 2014.

Not a major advance, but enough to kick start an entire sector.

Why?

Because of five underlying reasons, all of which I have discussed in previous issues of Oil & Energy Investor. Each has been enhanced by the period of reduced prices since lower prices will always encourage greater energy use. As the reliance increases with the usage levels, so will the commodity price.

Five Factors to Consider in Natural Gas Prices
First, broad based industrial use has finally returned and exceeded pre-crisis levels. This is always the last of the main traditional demand areas to return after a recession (and the most recent was the worst in seventy years).

Second, natural gas is replacing oil as a feeder stock for petrochemicals - everything from ingredients used in the production of plastics to fertilizers and widely used chemicals. This flow is actually increasing quicker than I had initially anticipated.

Third, we continue to witness a move to liquefied natural gas (LNG) and compressed natural gas (CNG) as a vehicle fuel. The transition remains primarily noticeable in higher end trucks, with the emphasis on passenger vehicles still awaiting cost reductions. Nonetheless, heavy truck, bus and equipment fleets are moving to natural gas.

However, it is the last two categories that are the main stimuli.

Fourth is the move from coal to gas for the production of electricity, a development occurring more rapidly than even the rather optimistic predictions I made last year.

The background is this.

The U.S. will retire at least 90 GW of capacity by 2020, with an additional 20-30 GW likely from the imposition of EPA non carbon emission standards (mercury, sulfurous and nitrous oxides). Most of this capacity is currently fueled by coal.

Last year, I estimated that for each 10 GW transferred, 1 billion cubic feet of natural gas per day would be required. Well, based on the initial figures, it's actually coming in at 1.2 billion. It sets up this startling conclusion. If half of the transition I expect from coal to gas actually takes place, it will eat up three times the current volume in storage.

Certainly, some of that will be offset by increasing production. But the operators have learned that flooding the market does not help any of them. That is another lesson taught by the shale gas age.

Finally, we have the advent of LNG exports from the U.S. and Canada. These are not likely to begin in earnest until late 2014, but will transform the sector. From providing none of the current global LNG trade, the U.S. will account for at least 9% within ten years.

For those concerned about what the exports will do to domestic end user costs, remember there is plenty of spare volume capacity waiting to be drilled. In short, this is not going to be an increase in exports at the expense of rising costs at home. There is plenty to satisfy both.

Once again, the key here is balancing production. As we move into this new gas age, remember this: LNG exports will act as a primary outlet for excess shale gas extraction. The greater the exports, the lower will be the volatility in pricing at home.

We are, therefore, watching a number of new investment opportunities emerging as the gas market shakes itself out. This is not a tide, but more like a series of escalating ripples, and it is not going to raise all boats.

How should the individual investor play this?

That will be the subject of my next article. So stay tuned.

[Editor's Note: Dr. Kent Moors is one of the most renowned and most connected oil and energy experts in the world. His Energy Inner Circle is an invitation into his private world of high-level energy contacts, where he recommends companies most likely to be impacted ahead of the seismic changes within the energy sector.

And now for a limited time, you can get immediate full access to The Energy Inner Circle model portfolio for just $99. But that's only a small part of this story. The same deal includes a "test drive" all of our premium services but one. That's $27,500 in research, for just $99! You can go here for the details]

Source :http://moneymorning.com/2013/03/17/five-reasons-why-natural-gas-prices-will-continue-to-rise/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014