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Where the King of Natural Gas Forecasting Says Prices Are Headed

Commodities / Natural Gas Sep 01, 2010 - 12:51 AM GMT

By: Keith_Schaefer

Commodities

First Energy analyst Martin King – whom I believe has called the natural gas market in North America better than anybody over the last two years – gave up on the likelihood of higher natural gas prices for the next 18 months in a report today, Aug 30.


“Let us reiterate: placing money in the natural gas investment space, aside from special one-time circumstances, is likely to be dead on arrival”  he wrote this morning.  He lowered his forecast for prices in the US for 2010 by 40 cents per million BTU, and in 2011 by a full dollar per million BTU (Mmbtu).

Back in February 2009, he was one of the very few calling for a spring rally in gas prices – but there was one.  Throughout July and August 2009 he counselled investors that a big seasonal run was coming in natural gas prices and gas stocks – and he was right. (See my story on this here: http://oilandgas-investments.com/..)

Today, King was even more negative on Canadian natural gas prices than in the US:

“Impacts for Canadian gas pricing are even more negative as we have also chosen to modestly widen the price spread between Nymex and Aeco prices over the same forecast horizon.”  Canadian natural gas prices usually trade at a discount to the NYMEX price to account for the transportation costs to get western Canadian gas to New York.  But lately that price spread has been getting wider.  (See http://oilandgas-investments.com/..)

In the US, the reason for the lower price forecast is simple: natural gas producers are still drilling, despite low prices.

In Canada, King’s reasoning for even lower prices than the US include one that I have been speaking about for months:

-increased pipeline capacity in the US that makes domestic gas very portable, and has opened up new markets (the Northeast US and California) for previously stranded Rocky Mountain gas in the US – the mainstream Canadian media have not reported on this – and the amount of Canadian gas that is being displaced by this – at all.

-increasing gas supply coming out of Western Canada, as the Montney, Horn River and gas saturated oil plays increase production.   First Energy forecast an actual increase in Western Canadian gas production in 2011, which would be the first time since 2006.

-greater LNG import capacity in eastern Canada and the Northeast US.

King also spoke to a new pipeline taking Canadian gas down into the US at a time when the US market is having a hard time digesting all its own new home-grown supply.

In an entertaining 7 page report, he used the analogy of the supply side being a big dragon, and the only sword that could slay it is sustained low prices for 18-24 months.

“…we are now wielding a price sword to slay this supply dragon with the view that prices low enough for long enough, will tilt the balance of the market firmly to a structurally undersupplied situation.”

Interestingly, natural gas prices rallied today – crawling back over $3/mmcf in Canada and up 11 cents to $3.74 in the US.  Also, this last week of August marked the low price point for natural gas in Canada and the US for all of 2009.

About Oil & Gas Investments Bulletin

Keith Schaefer, Editor and Publisher of Oil & Gas Investments Bulletin, writes on oil and natural gas markets - and stocks - in a simple, easy to read manner. He uses research reports and trade magazines, interviews industry experts and executives to identify trends in the oil and gas industry - and writes about them in a public blog. He then finds investments that make money based on that information. Company information is shared only with Oil & Gas Investments subscribers in the Bulletin - they see what he’s buying, when he buys it, and why.

The Oil & Gas Investments Bulletin subscription service finds, researches and profiles growing oil and gas companies.  The Oil and Gas Investments Bulletin is a completely independent service, written to build subscriber loyalty. Companies do not pay in any way to be profiled. For more information about the Bulletin or to subscribe, please visit: www.oilandgas-investments.com.

Legal Disclaimer: Under no circumstances should any Oil and Gas Investments Bulletin material be construed as an offering of securities or investment advice. Readers should consult with his/her professional investment advisor regarding investments in securities referred to herein. It is our opinion that junior public oil and gas companies should be evaluated as speculative investments. The companies on which we focus are typically smaller, early stage, oil and gas producers. Such companies by nature carry a high level of risk. Keith Schaefer is not a registered investment dealer or advisor. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer to buy or sell the securities mentioned, or the giving of investment advice. Oil and Gas Investments is a commercial enterprise whose revenue is solely derived from subscription fees. It has been designed to serve as a research portal for subscribers, who must rely on themselves or their investment advisors in determining the suitability of any investment decisions they wish to make. Keith Schaefer does not receive fees directly or indirectly in connection with any comments or opinions expressed in his reports. He bases his investment decisions based on his research, and will state in each instance the shares held by him in each company. The copyright in all material on this site is held or used by permission by us. The contents of this site are provided for informational purposes only and may not, in any form or by any means, be copied or reproduced, summarized, distributed, modified, transmitted, revised or commercially exploited without our prior written permission.

© 2010, Oil & Gas Investments Bulletin

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