Natural Gas - The Perfect Storm Is Coming
Summary
The perfect storm is coming.
Natural gas demand is structurally increasing, while supply continues to fall.
We expect natural gas prices to average $3.50-$4.00 over the long run.
Buckle your seat belt, because a ride of a lifetime is coming.
Natural Gas - The Perfect Storm Is Coming
Just like the perfect storm that hit natural gas last year to sub $2/MMBtu, the perfect storm that will cause natural gas (NYSEARCA:UNG) prices to spike higher than $3.50/MMBtu is coming. In Jefferies' latest natural gas report, the energy team there believes that Nymex prices should be at least $3.50-$4.00 in the long run due to supplies finally falling and demand picking up. Even under the scenario of a normal weather season, supplies will considerably tighten, but our analysis points to a much more favorable weather pattern.
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The perfect storm is coming. After a 7-year bear market, many natural gas bulls have given up entirely on the sector. The continued rig efficiencies and technological improvements proved many shale bears wrong, and gas production continued to climb despite rig counts sitting at historic lows.
We think the market is ripe for a rip, and prices this time around will remain higher for longer. We think prices will average $3.50/MMBtu versus the STRIP estimate of $3/MMBtu, and natural gas producers will outperform going forward.
Views: 3800
Replies to This Discussion
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Permalink Reply by Skip Peel - Mineral Consultant on -
Some times Seeking Alpha fails to seek rational analysis. Other times they are very rational. Probably just a momentary lapse of reason.
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Permalink Reply by Kevin Dentzer on
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The Sage of Wall Street has predicted this over and over and over again for over 30 years. The fact is that you may see a spike but it will be short lived because like oil if the price is there and the production is not regulated as by an OPEC type of organization, everyone will want their share and a bit of everyone else’s and a glut is born (again).
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Permalink Reply by Keith Mauck (Site Publisher) on
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Do we know how the capital markets will respond..is there going to be the easy money available to ramp up quickly? That seems to be the $$$ question for pricing to me.
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Permalink Reply by Skip Peel - Mineral Consultant on
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There seems to be a lot of equity companies looking for opportunities to invest in energy companies with quality underlying assets. They have bemoaned the fact that far too many companies have been able to hold out for far too long owing to lenient lenders and management willing to delute stock. The prevalence of "pre-packaged" bankruptcies supports just how willing lenders have been to creat soft landings for E&P companies. Equity firms have been disappointed that there have been few chances to pick up first class assets at bargain basement values. IMO the capital markets will reward the energy companies that hold superior reserves and reasonable long term debt obligations. When the commodity prices meet the IRR requirements, there will be plenty of money to restart drilling programs for the better positioned companies.
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Permalink Reply by Joe Aldridge on
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Hope you are right Skip. The lack of equity participation has concerned me. I have been afraid that could be a problem in the future. Again, I hope you are right.
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Permalink Reply by Skip Peel - Mineral Consultant on
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I performed some research and provided some analysis to one of those equity companies last week. They are considering acquiring stock in a Haynesville Shale operator.
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Permalink Reply by Franks on
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Shale Bailout (Engineered Hike)
https://www.youtube.com/watch?v=QGmCjbju8Y0
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Permalink Reply by Joe Aldridge on
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Franks, Is he saying that the fires in Canada and the revolutions in Nigeria and Venezuela were started to protect the banks? This guy is full of it or himself.
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Rob Kirby also has an interesting take on all of this; same syrup, propping up bank reserves.
https://www.youtube.com/watch?v=afUuQe1HoU4 -
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“Charles Tenner worked for Goldman Sachs and has since become one of the world's leading researchers of market cycles! https://www.youtube.com/watch?v=cavudDouMHk
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Permalink Reply by Michael Lowe on
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Jay is correct---pass the smoke!
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Permalink Reply by jscottrx on
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- The Beginning of The Shale Revolution's course "began", "ran", and now can it be The End of The Beginning? It "can".
- In the top-rated book about The Shale Revolution, to be written, of course, not for another 50-100 years, the beginning of the revolution ends in Chapter 11. lmao.
- Now for Chapter 12 and beyond.
- "...the energy team there believes that Nymex prices should be at least $3.50-$4.00 in the long run...". IMHO I (wishfully lol) think more like $7.00 avg.
MHO is influenced by the following for the near-term :
- The price decline of natural gas was primarily a "moving in tandem" with the price of crude oil whose fate for who knew how long then was decided in Nov 2014 immediately after OPEC met and agreed to NOT attempt to shore up an already sub-$100 and declining price with production cuts in crude oil yes, but not also natural gas as it is not also within the domain of OPEC.
- The level and degree of "capitulation" in Jan 2016 in which everything and anything was being blamed on the non-stop plunge in the price of crude oil, including the plunging stock market to erectile dysfunction. lmao.
- The track record of, following the winter-spring end of wicked "El Nino's", "La Nina's" that are quickly and firmly in place by summer, as is the case Jun 2016.
MHO is influenced by the following for the longer-term :
- At some point, and for whatever reason, what if controls on frac'ing are introduced?
- Hello interested parties? Why not explore the idea of supply control?
- Hello Northeast? Pipeline infrastructure expansion? NO! click. lol.
- For whatever reason (a fair price AND with a smile?) LNG exports from the U.S.A. become really popular globally?
- What if the "global warming due to the burning of gasoline/diesel" issue "heats up to a boiling point" globally lol much quicker than anticipated?
- What will be the source of the surely massive demand for electricity if all-electric motor vehicles become the norm much quicker than anticipated?
Stay tuned!
{ `_`} .
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