Best of the Week
Most Popular
1.How U.S. Dollar Destruction Threatens the Global Economy - Steve Forbes
2.Why UK House Prices Will Continue Rising - 'It's Immigration Stupid' - Nadeem_Walayat
3. Bitcoin Price at Beginning of a Move up? - Mike_McAra
4.Gold Price to Plunge, Visiting Fort Knox - David_Hague
5.Silver Price Forecast - Metal to Gain Ground in August on These Factors - Jim Bach
6.Gold And Silver Will Rise With US Dollar Demise, Just Not Soon - Michael_Noonan
7.Bitcoin Price Strong Move Possible - Mike_McAra
8.Israel Gaza War Crimes - Soldier's Ordered to Shoot Civilians Including Children - C4News - C4News
9.UK House Prices Crash Warning - Daily Mail Cognitive Dissonance - Nadeem_Walayat
10.UK House Prices Boom - Top Quick Cheap Tips to Help Sell Your Home - Nadeem_Walayat
Last 5 days
Stock Market Investors What's Your Exit? - 20th Aug 14
The Gold War - Thinker, Trader, Holder, Why? - 20th Aug 14
Ukraine Interest Rates Soars to 17.5% As External Debt Cannot be Repaid - 20th Aug 14
Rising Interest Rates and The End of Stimuland - 20th Aug 14
Inflation Watch: $245,000 to Raise a Child in United States - 20th Aug 14
Inside the Stunning Deal That Put Apple and IBM on the Same Side - 20th Aug 14
The US Gold in Fort Knox is Secure, Gone, or Irrelevant? - 19th Aug 14
Bitcoin Price On The Brink of a Possible Reversal - 19th Aug 14
Why Tesla Stock Price Will Double in the Next 12 Months - 19th Aug 14
Europe's Economic Malaise: The New Normal? - 19th Aug 14
The Coming U.S. Economic Collapse Will Trigger a Revolution - 19th Aug 14
Market Bubbles, Bubbles Everywhere - 19th Aug 14
This is Your Economic Recovery With and Without Drugs - 19th Aug 14
Stock Market Strong Start to Jackson Hole Week - 19th Aug 14
Iraq, Ukraine - Oh, What A Tangled Mess We Weave - 19th Aug 14
How to Apply Moving Averages as a Trading Tool - Video - 18th Aug 14
Why Short Stock Traders Are Losing Money This Week - 18th Aug 14
Stock Market Rally May be Complete - 18th Aug 14
Why Chinese Citizens Invest In Gold - 18th Aug 14
Palladium Reaches 13-Year High Over $900 oz as Gold Trading Volumes Surge 66% - 18th Aug 14
Understand and Profit from Surging European Volatility - 18th Aug 14
No Escape from The Dollar as The Currency Standard - 18th Aug 14
Stock Market New Highs Less Certain - 18th Aug 14
German Stock Market DAX About To Drop - 18th Aug 14
Stay on Board - Stock Market Big Picture - 18th Aug 14
Europe Economy Is Tanking, QE Is Coming - 18th Aug 14
Are You Ready for The Greatest Technology Revolution Yet? - 17th Aug 14
Why King Coal is Bigger than Oil or Gas - 17th Aug 14
U.S. Empire of Death and Lies - 17th Aug 14
Ukraine - Whose Spin Are We Caught Up In Here? - 17th Aug 14
Time Decay And No Escape For Abenomics - 17th Aug 14
India BSE SENSEX The Party Is Over In Bombay - 17th Aug 14
Stock Market Uptrend Looks Underway - 17th Aug 14
The Key Role Of Conspiracy Theory In Dumbing Down Society - 17th Aug 14
The Federal Reserve in Denial Mode - Bond Market Explained - 17th Aug 14
Stock Market Ukraine-Triggered Volatility, But a Flat Finish - 16th Aug 14
Stock Market Investors Conditioned To Catch The Falling Knife - 16th Aug 14
Decline And Fall Of The CO2 Crisis - 16th Aug 14
Gold Stocks Major New Upleg - 15th Aug 14
Don’t Assume What Is “Unseen” Doesn’t Exist - 15th Aug 14
HUI, Gold and Silver; Fun With Monthly Charts - 15th Aug 14
Cry for Argentina: Fiscal Mismanagement or Pillage? - 15th Aug 14
New 'LBMA Silver Price' - Still Not Transparent - 15th Aug 14
America the Neighborhood Bully Recklessly Throws its Weight Around - 15th Aug 14
The Single Best Investment for the Semiconductor Tek Stock Boom - 15th Aug 14
The Something For Nothing Society - Inflation and Getting Paid NOT to Work - 15th Aug 14
Forecasting Ability of the Elliott Wave Principle - Trader Education - 15th Aug 14
The Most Hated Stocks Bull Market - 15th Aug 14 - Puru_Saxena
America's First Oil Sands Producer and Other Natural Resources Surprises - 15th Aug 14
Life and Times in Propagandistan - 15th Aug 14
The Biggest Lesson from Microsoft’s Recent Battle with the US Government - 15th Aug 14
Russian Bear Rattles Stock Markets, but Plunge Protection Team Rides to the Rescue - 14th Aug 14
Back In Iraq: We Only Want To Save You - 14th Aug 14
Learn How to Spot High Confidence Chart Trade Setups for FREE! - 14th Aug 14
More Bad News is Good News for the Stocks Bulls - 14th Aug 14
If Mr. Rogers Ruled Wall Street - 14th Aug 14
Government Spending and Negative Interest Rates - 14th Aug 14
Gold, Silver, Dow and VIX Market Updates - 14th Aug 14
Don't Get Ruined by These 10 Popular Investment Myths - 14th Aug 14
Gold and Silver Miners that Can Make Money Now - 14th Aug 14
Low and Expanding Risk Premiums Are the Root of Abrupt Stock Market Losses - 13th Aug 14
Stock Market at the Precipice - 13th Aug 14
When Gold Miners Have Already Rallied – Will Metals Follow? - 13th Aug 14
Oil Market QE Premium Is Coming out of Price - 13th Aug 14
Putin is Winning the New Cold War - 13th Aug 14
No Silver Money For Mexico, But Perhaps Gold For Eurasia - 13th Aug 14 -
Japan Economic Collapse - GDP Plunges by 6.8%! - 13th Aug 14
Confusion To New “London Silver Price” Launch This Friday - 13th Aug 14
Interest Rate Policy Global Divergence - Really? - 13th Aug 14
Stock Market Two-Day Rally Ends with a Small Loss - 13th Aug 14
Resources Stocks Where to Stash Your Money When Europe Heats Up? - 13th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

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