Natural Gas ready to Move Up?

[Show-me]

Very nice!

[alevin]

Best most useful article I've seen yet about interplay between big picture natural gas prices and production! Enjoy!

http://www.financialsense.com/editor...2009/0722.html

U.S. natural gas available for production “has jumped 58% in the past four years, driven by improved drilling techniques and the discovery of huge shale fields in Texas, Louisiana, Arkansas and Pennsylvania, according to a report issued Thursday by the nonprofit Potential Gas Committee (PGC).”

The numbers currently kicked around are that something around 2,000 trillion cubic feet of gas are technically recoverable in the United States. At current production rates, this supply would last about 90 years.
Even if the U.S. economy recovers in the next year, the amount of gas discovered to date in gas shales will severely dampen any increase in gas price for some time.

Another complementary fact is that over 50% of natural gas consumed in the United States today is from wells drilled less than three years ago, and 25-30% of the gas produced today comes from wells drilled last year (Figure 2).

Hence it follows that if there are 50% fewer wells drilled this year (from the drop in rig activity), new production will decline about 35-40% by the end of the year, so there will be gas shortages. Those will in turn lead to higher North American prices, which in turn should lead to additional drilling.

Many prospects become economic at around the $6 MMBtu range. Among them are the Haynesville and Marcellus shales – and it's no large leap from there to see their tremendous gas production potential acting as a buffer to gas prices going much higher in the near term. the overhang of ready supply places a fairly firm cap on the price.
Just because something is “cheap” doesn’t mean it can’t stay cheap, regardless of historical ratios -- if there has been a fundamental shift in the supply/demand equation. Which is very much the case with North American natural gas.

Europe [OTH] is forced to rely on the Russians. There are companies looking to break the Russian grip by applying the same unconventional gas technologies that have so successfully built gas supplies in the U.S. -- technologies that are only just now being applied in Europe. Early investors could reap huge profits.

In short, the real opportunities are not found by simply “investing in energy” but rather by taking the time to understand the structural differences within the energy complex and cherry picking the special situations.

My ATN is a play on the Marcellus shales, they are both exploration and production. They've tracked oil prices lately. They also have oil, which buffers the fluctuations in ng price (I think). ONly issue I have at this point is they stopped paying dividends, so I might add somebody else that still pays dividends, to balance.

[Bullitt]

Still holding onto my UNG with an average cost of 14.15 and my opinion hasn't changed. The chart is still a mess but at least we may have bounced back over the 12.50 support/resistance line. Again, this more of a play on the disparity between oil and gas than anything else. For a while when the price took off, there seemed to be a swing towards the bullish side of UNG, but since it's been hammered once again, we're back on the bear side. What will happen if we get a colder winter or more hurricanes than expected? I don't know, but there isn't much overhead resistance if it can put together a rally. I just can't believe that the folks who bought anywhere over 30 are still holding on.

[etftalk]

Amazing action, particularly with a falling dollar. What's the opposite of a bubble?

[alevin]

I reading some trader chatter yesterday, one suggested waiting til Labor Day to buy in. UNG-I'd like to make a little green back from my utility bills this winter. Maybe I'll go buy some utilities too, same reason, but haven't researched any to date.

[Bullitt]

OK, I know I have an agenda as I'm long UNG here, but I can't help but to notice that gas is at 7 year lows.

[etftalk]

The only was nat gas goes higher is if I sell my UNG. I can be bribed.

[etftalk]

By the way, UNG hit my mental stop and I am frozen like a deer in headlights hating to sell a possible low. With oil rallying and the dollar floundering, it seems like a poor decision to sell here.

[Bullitt]

That's just it, when will people begin to capitulate out of Nat Gas? I haven't heard one positive thing about this fund in the past 2 months. I'm still in it, but I was also planning on holding this until mid winter when gas prices should hit their peak. My only qualm is that it's trading to around a 13% premium to NAV.

UNG does appear to have a bid under it lately.

[alevin]

guys, UNG will not be issuing new shares for the foreseeable future, so it's begun to behave like a closed-end fund instead of an ETF. People don't want to buy at a premium. study up on how closed-ends work, it may help.