Seeking Alpha

Natural gas has been in a free fall for almost a year now. Speculators have been trying to call a bottom for some time, but the price just kept falling and falling. At least up until the last few months.

The good news is that the bottom looks to be in and I see natural gas soaring over the next six to eight months.

Why do I say this? Take a look at the chart below. The Commitment of Traders report for natural gas shows how large speculators have been adding short positions.

Commitment of Traders report for natural gas, large speculator, previous five years:

The key to my belief that natural gas is ready to take off lies in the fact that the price has stopped falling, even as the large speculators were adding short positions.

Look at the period in late 2007 when the price started rising even as short positions were added. See how natural gas goes on a tear from December ’07 until peaking in June ’08? The price jumped from $7 to almost $14 in just under seven months.

The kicker is that the bearish position that has built up now is almost 40 percent larger than we saw back then. The net number of contracts short at that time was around 110,000 contracts and now we are looking at an approximate 150,000 contract net short position.

Turning our attention to the weekly chart, you can see that natural gas has moved back above its 13-week moving average. See how the 13-week kept the price in check all the way down from the fourth quarter of ’08 through the first quarter of ’09? Now natural gas has moved above this trendline and may very well use it as support over the coming quarters, much like it did in the rally in early ’08.

This is an intermediate term play. The volatility is likely to continue over the short term, but if you handle the volatility correctly, the reward could be huge. The first level of resistance will be in the $5.50 level and then at the $9 level.

My recommendation would be to buy multiple contracts and close out in thirds. Take the first profit at the first resistance point, and then take another third off the table in the $8.75-$9.00 level. Let the final third ride as long as you can or until the price falls below the 13-week moving average again.

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This article has 47 comments:

  •  
    Da Boyz have been working overtime to push this trade on the sheeple. Per Jim Rogers, focus on supply and demand. For NG, the current picture is awful.
    www.eia.doe.gov/oil_ga...

    And some think the future picture is also bad as producers need the cash and are having a hard time slowing their production after years of frantic drilling as described in this 5/21/09 article "No End in Sight to the Natural Gas Glut"
    blogs.wsj.com/environm...

    The often cited oil/gas ratio may be resolved by oil decline rather than NG increase. If the market corrects (my bet), USD should rally as a short term hideout. This would knock commodities down. But I am watching for a long play here, just not yet.
    Jun 29 05:16 AM | Link | Reply
  •  
    Editorial correction for above article link
    blogs.wsj.com/environm.../
    Jun 29 05:17 AM | Link | Reply
  •  
    Wonderful technical analysis. Where is the fundamentals? Fundis are all negative and with UNG artificially proping NG we could see $2 gas before the summer is over. Reminds me of the gold commercial where the guy Says "Gold could rise to $1500 in the future."
    Jun 29 06:32 AM | Link | Reply
  •  
    Yes, you ignore fundamentals at your own peril.
    Jun 29 08:49 AM | Link | Reply
  •  
    I agree with the assessment of the other readers that we have a glut of NG at the moment. However, I saw oil go to the $140's, then down to the $40's, then back up to $70 a barrel with virtually no change in fundamentals. Sadly, the futures traders sometimes have far more control over energy prices than real supply and demand. So, I frankly don't have a clue what will happen.
    Jun 29 08:59 AM | Link | Reply
  •  
    oil/gas well there is a connection. When oilsand companies wants to extract- they buy gas,
    Jun 29 09:03 AM | Link | Reply
  •  
    weak NG prices likely to continue as long as u.s manufacturing remains weak.
    > jack
    Jun 29 09:09 AM | Link | Reply
  •  
    The traders are still befuddled why gas is so cheap.
    Therefore, instead of understanding the reasons,lets rail against it with other people's money.
    Jun 29 09:22 AM | Link | Reply
  •  
    I was looking at one of my textbooks today. According to yours truly if all that talk about shale gas and the like is not true, the gas price has only one way to go, and that is up...fast.
    Jun 29 09:56 AM | Link | Reply
  •  
    Under the recently passed climate bill (In the House)) the 'cap and trade program' would favor NG over coal. If a utility wanted to increase electricity production and their choice was limited to fossil fuels NG is a logical choice-About half the greenhouse gases of coal and as a bonus significantly less nitrous oxides, negligible sulfur and mercury. (And the transportation and disposal of NG are much simpler than coal.
    Yes NG is at 22% over a five year average and at an all time high in inventory-but look at the futures market: $6/MMBtu in Feb/09. (Vs $4/MMBtu now). Isn't it colder in the USA in February and the demand for NG as a heating fuel will go up? If you are a producer wouldn't you rather sell your product for 50% by simply waiting a few months? The costs of storing NG is outweighed by injecting NG into underground storage-They may have already sold the gas, for delivery in the winter.
    NG rig is is falling-now at a seven year low. Eventually demand will catch up with supply. NG simply has coal beat when it comes to producing electricity.
    Jun 29 10:30 AM | Link | Reply
  •  
    Not so fast. The Wall Street Journal made some prescient comments yesterday about how the flood of hedge fund capital into commodities is fundamentally changing the nature of those markets, confounding the old timers. The Northeast is experiencing the coldest summer in 27 years, and you would expect Natural Gas to crater (see www.madhedgefundtrader...). But chart buying by the proliferation of new NG ETF’s out there has been holding it up. Excessive rain has delayed wheat plantings, normally a very positive development for wheat prices. But traders are obsessing over weather Chinese stockpiling of food is leveling off, knocking prices for a loop (see www.madhedgefundtrader...). I avoided trading the soft commodities for most of my life, because, basically, making a bet on the weather always seemed like a loser to me. Better to bet on two flies crawling up a wall. The pros relied on Cray supercomputers processing complex algorithms and historical data to come up with forecasts that were wrong half the time. I actually prefer the new order. I rather place bets on what the Chinese are up to than Mother Nature any day.
    Jun 29 10:32 AM | Link | Reply
  •  
    What could really keep domestic long term NG prices down is importation of LNG into the United States. Overseas supply of NG dwarf proved US reserves-Russia alone has 6 times US reserves. If overseas NG is significantly cheaper than US NG at the well head-then the question is how much does it cost to transport LNG to the US. LNG requires specially designed and expensive ships and port facilities at both ends to handle the same. Presumably infrastructure is in place (via pipeline) once the LNG is landed. It is estimated that it takes between 15% and 25% energy equivalent of a ships load of LNG to deliver: The energy is consumed by liquifyng, maintenance of same and physically moving the ship. Also insuring such a load must be significant.
    Over time fundamentals will drive the price of NG-Speculators are insignificant in the long run.
    Jun 29 10:54 AM | Link | Reply
  •  
    Although many rely on what happened last year, there are a couple of things that I think makes that reliance ... unreliable.

    First, last year folks watched oil rise to $147 *and* believed that traditional oil/ng price ratios were valid.

    We have since learned that the ratio is "broken".

    Boone Pickens had just started publicizing his transitional plan that emphasized NG for transportation to wean us from $700B being sent out of the country. People believed, forgetting that our government is populated by clowns, that we actually had a chance to do something constructive and that NG would be a part of that.

    Short and long-term investors believed that commodities were their "savior" and NG is in that category. After a while, this religion was proved false.

    As others have mentioned, the fundamentals are horrible.

    If the shorts try often enough, they will be successful as long as the fundamentals don't improve. Since the fundamentals have actually *deteriorated* this year, my take is that the shorts will at last make some money. In other words, don't count on short-covering to help the price rise here. At best, a little support will be provided.

    It has been pointed out in other comments that closing a well has some significant costs, that many suppliers have to keep pumping because of cash-flow issues, that many of the "shut-ins" were moving rigs from older depleted (or nearly so) wells to more efficient sites.

    Now
    - natural gas in U.S. storage has exceeded the 5 year average in storage for two consecutive weeks,
    - weekly injections show no dramatic decrease yet,
    - all prognostications for energy consumption world-wide predict reducing energy consumption (except that China and India may start a big recovery and use some, but nowhere near enough to off set U.S. and the rest of the world's decline in use),
    - milder hurricane season predicted,
    - milder summer predicted,
    - reduced import/export activity at ports (where a lot of vehicles have been converted to NG)
    - etc.

    And the final stroke: after perusing all the news stories about the house energy bill this weekend, the only reference I can find to natural gas in the bill is that Alaska will be permitted to borrow from public coffers at a very low rate to build a pipeline down to the lower 48 to increase the supply above what we already have down here (gee! I guess there are no more sources to be found down here, huh?).

    I see no up-side catalyst at this time. With oil/ng price ratio hanging around 19:1 and oil not able to maintain strength to the up-side, we can't even count on oil to drag NG up. My feeling is that if the dollar index can even just hold stable around the $79/$80 interface, oil is on a slow trend down.

    My Humble Opinion
    HardToLove
    Jun 29 11:06 AM | Link | Reply
  •  
    Interesting article on LNG: shareholdersunite.com/.../ The author claims that the added costs of shipping LNG are in the neighborhood of $2.15/Mcf. (Works out to $2.15/MMBtu) He also adds that China and India have a high potential for utilizing more NG. Interestingly the price of LNG has been higher than natural gas delivered by pipeline from Canada and Mexico- tonto.eia.doe.gov/dnav... This site also lists countries of origin shipping LNG to the US over the six year period 2003-2008.
    Jun 29 11:32 AM | Link | Reply
  •  
    On Jun 29 10:30 AM JJR wrote:

    > Under the recently passed climate bill (In the House)) the 'cap and
    > trade program' would favor NG over coal.

    But this would be only a long-term stimulus since most NG generation is only for peak demand and lots of new generation plants would be needed to make NG a substantial contributor. That means large capex, regulatory delays as rate increases are sought, etc.

    > If a utility wanted to
    > increase electricity production and their choice was limited to fossil
    > fuels NG is a logical choice-About half the greenhouse gases of coal
    > and as a bonus significantly less nitrous oxides, negligible sulfur
    > and mercury. (And the transportation and disposal of NG are much
    > simpler than coal.
    > Yes NG is at 22% over a five year average and at an all time high
    > in inventory-but look at the futures market: $6/MMBtu in Feb/09.
    > (Vs $4/MMBtu now). Isn't it colder in the USA in February and the
    > demand for NG as a heating fuel will go up? If you are a producer
    > wouldn't you rather sell your product for 50% by simply waiting a
    > few months? The costs of storing NG is outweighed by injecting NG
    > into underground storage-They may have already sold the gas, for
    > delivery in the winter.

    If the open interest volume supported that, I could agree. But the months leading into 2010 and beyond have pitiful volume. So I don't think that is happening. I believe that cash-flow needs with prices so low are causing many producers to "take the money and run". Further, if what I have seen in these comments is correct, there gas is actually bought by a storage outfit and they re-sell it later. So they bear the costs of storage and reap the profits later. I *myself* don't know if that is really how it works.

    > NG rig is is falling-now at a seven year low. Eventually demand
    > will catch up with supply. NG simply has coal beat when it comes
    > to producing electricity.

    I think we need to be careful of focus here. From www.reuters.com/articl...

    "The number of rigs drilling for natural gas in the United States fell 3 to 700 this week, a fresh 6-1/2-year low, according to a report issued Friday by oil services firm Baker Hughes in Houston"

    Drilling for natural gas *may* portend future supply reductions if this reduction continues for an extended period. However, *pumping* from already established wells continues unabated.

    Further, since the energy bill lets Alaska get low-cost loans to build the natural gas pipeline down to the lower 48 states, the incentive to increase exploration (long-term) will be reduced, everywhere but Alaska.

    Since shale depletion rates from shale are relatively high, more exploration will be needed down the road. But unless we have a *big* surge in usage, that won't need to start for a long time.

    As to the NG choice encouraged by the energy bill, it is not an explicit statement in the bill. Look at where the tax breaks are eliminated (if I recall correctly) - oil and gas companies. BOH has constantly been promoting "clean coal" and, although I've not yet had time to assure myself, I expect that tax breaks are going to "clean coal". One of the majors is already running big adds about how they are helping that process. They probably know they will make money on it.

    HardToLove
    Jun 29 11:38 AM | Link | Reply
  •  
    Good points, but I believe one other factor needs to be included: dollar strength. If is profitable to ship to the U.S. only if the dlooar has significant value in relation to the source's currency. If the path we're on leads where most expect, the resultant inflation will make other markets much more attractive to exporters.

    That doesn't mean I'm bullish or bearish. I just think that the import argument may not be a factor.

    HardToLove


    On Jun 29 10:54 AM JJR wrote:

    > What could really keep domestic long term NG prices down is importation
    > of LNG into the United States. Overseas supply of NG dwarf proved
    > US reserves-Russia alone has 6 times US reserves. If overseas NG
    > is significantly cheaper than US NG at the well head-then the question
    > is how much does it cost to transport LNG to the US. LNG requires
    > specially designed and expensive ships and port facilities at both
    > ends to handle the same. Presumably infrastructure is in place (via
    > pipeline) once the LNG is landed. It is estimated that it takes
    > between 15% and 25% energy equivalent of a ships load of LNG to deliver:
    > The energy is consumed by liquifyng, maintenance of same and physically
    > moving the ship. Also insuring such a load must be significant.
    >
    > Over time fundamentals will drive the price of NG-Speculators are
    > insignificant in the long run.
    Jun 29 11:42 AM | Link | Reply
  •  
    Thanks for those two links. I've added them to my resources.

    An interesting thing popped up when I went to the tonto... site and looked at the monthy summary. Lots of imports fell off the cliff.

    At least I've finally seen something rational happen in the "new environment". I'd about decided I needed hallucinogenic drugs to make sense of all this. There is certainly no way that rational thought is much use.

    HardToLove


    On Jun 29 11:32 AM JJR wrote:

    > Interesting article on LNG: shareholdersunite.com/.../
    > The author claims that the added costs of shipping LNG are in the
    > neighborhood of $2.15/Mcf. (Works out to $2.15/MMBtu) He also adds
    > that China and India have a high potential for utilizing more NG.
    > Interestingly the price of LNG has been higher than natural gas delivered
    > by pipeline from Canada and Mexico- tonto.eia.doe.gov/dnav...
    > This site also lists countries of origin shipping LNG to the US over
    > the six year period 2003-2008.
    Jun 29 12:40 PM | Link | Reply
  •  
    I believe LNG import/export will be one factor among many to drive natural gas in the US market much higher, in short term. Check out the pricing:

    tonto.eia.doe.gov/dnav...

    Do you notice that US LNG import price in April was $4.20, much lower than the norm of LNG import price but still much higher than domestic natural gas price. Mean while the US LNG export price was $7.33, much higher than import price and much higher than domestic natural gas price.

    There is now a huge incentive to STOP all US LNG importation, purchase natural gas from domestic market, liquify the gas and EXPORT the LNG to other countries. This will drive up the price.
    Jun 29 06:13 PM | Link | Reply
  •  
    LOL-Greed and fear: Maybe that is why markets seem so irrational HTL. I have not factored currency rates into any of this LNG business. Also an article today on using algae to make cheap bio-fuel. www.nytimes.com/2009/0... I wouldn't worry too much-yet!
    JJR
    Jun 29 09:11 PM | Link | Reply
  •  
    The fundamantals of NG was awful too in the rebound of september of 2007. And look at what happened:

    sailingmarkets.blogspo...

    It went UP.

    On Jun 29 05:16 AM basehitz wrote:

    > Da Boyz have been working overtime to push this trade on the sheeple.
    > Per Jim Rogers, focus on supply and demand. For NG, the current picture
    > is awful.
    > www.eia.doe.gov/oil_ga...
    >
    > And some think the future picture is also bad as producers need the
    > cash and are having a hard time slowing their production after years
    > of frantic drilling as described in this 5/21/09 article "No End
    > in Sight to the Natural Gas Glut"
    > blogs.wsj.com/environm...
    >
    > The often cited oil/gas ratio may be resolved by oil decline rather
    > than NG increase. If the market corrects (my bet), USD should rally
    > as a short term hideout. This would knock commodities down. But I
    > am watching for a long play here, just not yet.
    Jun 29 11:54 PM | Link | Reply
  •  
    My guess, without examining any factors, is that prior to the identified begin of the big decline in the economy, we had nice growth. That would cause an increase in use of all consumables in the economy (the EIA report indicates consumption still growing during 2007 & 2008). With the exuberance in such a period, optimism would drive the price higher, as pricing would be more affected by the outlook that consumption would continue to grow at a rate sufficient to support higher prices.

    For now, that optimism does not exist in the economy. And the monthly reports show that April (the latest month reported so far) is the 3rd lowest levels since reporting began in 2001. And the prior months are not showing growth, but middling-to-lower consumption.

    Although development wells drilled dropped to 1337 (April '09), there are still 452.8K producing wells (end of 2007) and 11,823 development wells were drilled 11/08-04/09. If all those went to production, we bump producing wells to 453K. this doesn't include the oil wells, which often contain dissolved or associated gas that might be produced from those wells.

    So the different environment we are now in might negate any effects that comes from unbridled optimism.

    HardToLove

    On Jun 29 11:54 PM El rosarino wrote:

    > The fundamantals of NG was awful too in the rebound of september
    > of 2007. And look at what happened:
    >
    > sailingmarkets.blogspo...
    >
    > It went UP.
    >
    > On Jun 29 05:16 AM basehitz wrote:
    Jun 30 05:25 AM | Link | Reply
  •  
    Since 2003, LNG exports have dropped to 75% (end of 2008) of 2003 totals.. The increased prices you mention include costs not paid to the wellhead, so that doesn't benefit the producers at the well. This can be seen by looking at the wellhead, export by pipeline and export as LNG prices.

    We'll need to see increased demand for our LNG exports, regardless that increased foreign capacity is supposed to come on-line next year (if I recall correctly) to see quantity/price increases for our exports. Since Mexico accounts for almost zilch and Japan's demand has dropped to less than 50% of 11/08 quantities, I can't see the scenario to support increases of either quantity or price for now.

    Japan is not notorious for its explosive growth.

    HardToLove

    On Jun 29 06:13 PM Mark Anthony wrote:

    > I believe LNG import/export will be one factor among many to drive
    > natural gas in the US market much higher, in short term. Check out
    > the pricing:
    >
    > tonto.eia.doe.gov/dnav...
    >
    > Do you notice that US LNG import price in April was $4.20, much lower
    > than the norm of LNG import price but still much higher than domestic
    > natural gas price. Mean while the US LNG export price was $7.33,
    > much higher than import price and much higher than domestic natural
    > gas price.
    >
    > There is now a huge incentive to STOP all US LNG importation, purchase
    > natural gas from domestic market, liquify the gas and EXPORT the
    > LNG to other countries. This will drive up the price.
    Jun 30 05:45 AM | Link | Reply
  •  
    Yeah, I saw that algae was being developed for that some months back. My humble opinion is that it *will* be "The Next Big Thing" (TM). Now that the kids are grown and gone, I expect to become a rich man off my swimming pool. :-)) And I won't have to spend on all those chemicals anymore, close and open the pool, with all the associated cleaning, scrubbing, etc.

    And here I thought it was a big wste of $$ all these years,

    HardToLove

    On Jun 29 09:11 PM JJR wrote:

    > LOL-Greed and fear: Maybe that is why markets seem so irrational
    > HTL. I have not factored currency rates into any of this LNG business.
    > Also an article today on using algae to make cheap bio-fuel. www.nytimes.com/2009/0...
    > I wouldn't worry too much-yet!
    > JJR
    Jun 30 05:52 AM | Link | Reply
  •  
    Today's fundamentals are bad, but so were the fundamentals for the global economy on March 9th, 2009. Equities have since rallied 30%.

    Perhaps today's $3.95 natural gas reflects the bad fundamentals of today, but not the improving fundamentals of tomorrow. Are we being overly pessimistic?

    As John Templeton said: buy at the point of maximum pessimism.
    Jun 30 07:42 AM | Link | Reply
  •  
    Yes. But for how long does one want to tie up capital in the hope of uncertain returns? Capital costs. To be most productive capital should be invested in an asset at or near a point of beginning appreciation (if growth, not dividends, is the compelling reason for the investment).

    With the forecasts for world economy, energy consumption, etc. negative for near-term, that can't indicate a good entry time.

    With excess supplies, still-falling demand, supplies *still* growing, a cfurrent severe supply-demand imbalance indicates this is not a good time to invest.

    There *are* catalysts lurking in the shadows, but they are at least a couple years, if not more, in the future.

    Properly identifying the leading indicators and the time-frame they portend will guide one to the correct entry point.

    HardToLove

    On Jun 30 07:42 AM Plan B Economics wrote:

    > Today's fundamentals are bad, but so were the fundamentals for the
    > global economy on March 9th, 2009. Equities have since rallied 30%.
    >
    >
    > Perhaps today's $3.95 natural gas reflects the bad fundamentals of
    > today, but not the improving fundamentals of tomorrow. Are we being
    > overly pessimistic?
    >
    > As John Templeton said: buy at the point of maximum pessimism.
    Jun 30 07:52 AM | Link | Reply
  •  
    So, if NG is nearing max storage capacity, and there is no economic upturn for at least 9 mos to a year, where is the demand going to come from? Why aren't we exporting LNG if we have "excess" natural gas? I recall reading somewhere that LNG was not profitable < $10 mmcf, but that was back in 2008.
    Jun 30 08:54 AM | Link | Reply
  •  
    Since I haven't yet had time to start serious work on my bull-case article, I can't say when yet. But the $10 should be no longer valid. The LNG process includes lots of steps (ignoring the everything leading up to a producing well-head): pump, ship (usually by pipeline) to a plant (only one in the U.S. right now), liquefy it, load it to a ship, ship to a customer, etc.

    Well-head prices at <$4, the fees for pipeline shipping (either a % of sale price or a chg per qty), processing, shipping, etc. come into play. Plus there is often sales involved (e.g. a storage outfit may buy and then sell later) so that revenue goes to different players.

    As of 4/9 well-head price was $3.43 and LNG was $6.33, -$1.54 from 11/08 prices. As Japan is the biggest purchaser of LNG from us and their recent demand has dropped to less than 50% of 11/08 price and is the lowest level ever for April since 1973 (the earliest year the EIA reports), I can't see a comeback based on LNG exports.

    As mentioned elsewhere, there are supposed to be competing LNG plants opening in the middle east soon(?) that will be shipping to places that might have been potential customers. Some said they woulkd ship here, but I never believed that because of the $ weakness and the low well-head prices here.

    If Mexico recovers, there could be some small demand there, but a pittance (single-digit values) compared to what Japan was.

    If there is to be demand for NG, it has to be domestically generated. And with the energy bill the U.S. House of Clowns just passed, there won't be government-provided impetus.

    The demand will be caused by weather and the organic growth of industries that are switching regardless of the idiots' actions (businesses are driven by business cases, not polidiotical socialist-oriented programs). The business cases are out there, but it just takes a while for all the infrastructure, conversions, etc. to get done. This is exacerbated when a weak economy causes a reduction in capex and a conservative approach to making major changes at this time.

    As I've been advising (keep in mind that I'm a n00b, but I've been doing ok so far on this issue - trying not to crow about what NG/UNG is doing today - OOPS! Just blew that goal for the day!). So be sure you do your DD and make you own judgements. I won't point to my blog or article - you've probably seen them.

    HTH (Hope This Helps),
    HardToLove

    On Jun 30 08:54 AM pockyclips 2020 wrote:

    > So, if NG is nearing max storage capacity, and there is no economic
    > upturn for at least 9 mos to a year, where is the demand going to
    > come from? Why aren't we exporting LNG if we have "excess" natural
    > gas? I recall reading somewhere that LNG was not profitable < $10
    > mmcf, but that was back in 2008.
    Jun 30 10:48 AM | Link | Reply
  •  
    "demand has dropped to less than 50% of 11/08 price"

    should be "demand has dropped to less than 50% of 11/08 quantity".

    Sorry,
    HardToLove
    Jun 30 10:51 AM | Link | Reply
  •  
    OOPS!


    On Jun 30 05:25 AM H. T. Love wrote:

    > <snip>
    > Although development wells drilled dropped to 1337 (April '09), there
    > are still 452.8K producing wells (end of 2007) and 11,823 development
    > wells were drilled 11/08-04/09. If all those went to production,
    > we bump producing wells to 453K. this doesn't include the oil wells,

    That would be 463K wells.

    > which often contain dissolved or associated gas that might be produced
    > from those wells.
    ><snip>

    Sorry for the error,
    HardToLove
    Jun 30 11:06 AM | Link | Reply
  •  
    Natgas prices will largely mirror the u.s. economy - a long, L-shaped ''recovery'' at best. Lots of foreign LNG will hit the USA. So many terminals planned and financed years ago will have to sell their stuff no matter what, even if below costs, to get some cash flow back to serve the loans that were incurred to build these terminals. a couple domestic NG producers will go broke, before it's all over. spot prices (currently 3.70-4.10$) may be near marginal producers' costs but futures prices are around $6. Even though I don't believe spot will fall to $3 or below, futures prices will eventually decline to nearly current spot rates. producers who build hedges in time and plentiful at these prices ($6-7) even though they seem low by historical comparisons, will at least ensure their survival.
    investment implication:
    suggestion 1)
    buy UNG (or ditm calls on UNG with long dated expirations 2010/20011) and sell covered calls against those every month. watch the market carefully, especially the fundamentals to decide when to stop this.

    suggestion 2) accumulate high quality, low cost ng producers at rock bottom valuations (MCF; CHK)
    Jun 30 11:30 AM | Link | Reply
  •  
    That is impossible, there is no way to liquify US nat gas (any LNG leaving the US was liquified oversees and brought here to be stored). On top of the fact that it is illegal.


    On Jun 29 06:13 PM Mark Anthony wrote:

    > I believe LNG import/export will be one factor among many to drive
    > natural gas in the US market much higher, in short term. Check out
    > the pricing:
    >
    > tonto.eia.doe.gov/dnav...
    >
    > Do you notice that US LNG import price in April was $4.20, much lower
    > than the norm of LNG import price but still much higher than domestic
    > natural gas price. Mean while the US LNG export price was $7.33,
    > much higher than import price and much higher than domestic natural
    > gas price.
    >
    > There is now a huge incentive to STOP all US LNG importation, purchase
    > natural gas from domestic market, liquify the gas and EXPORT the
    > LNG to other countries. This will drive up the price.
    Jun 30 12:18 PM | Link | Reply
  •  
    I showed you the EIA price chart, it shows an LNG export price:

    tonto.eia.doe.gov/dnav...

    If there were no LNG export how could there be a market price for LNG export? Of course there were LNG export. And where does it say it is illegal to export LNG?


    On Jun 30 12:18 PM Energy Trader wrote:

    > That is impossible, there is no way to liquify US nat gas (any LNG
    > leaving the US was liquified oversees and brought here to be stored).
    > On top of the fact that it is illegal.
    Jun 30 01:34 PM | Link | Reply
  •  
    Being new, I don't understand. The charts here indicate the we exported LNG. tonto.eia.doe.gov/dnav...

    Since we exported to Canada and Mexico via pipeline, must we presume that we imported LNG, stored it and then shipped it out via pipeline to the two countries? And did we import somehow, store, re-load onto a ship and send to Japan?

    According to the comments, we do have one in Alaska. The poster seems "authorative".

    seekingalpha.com/user/...
    seekingalpha.com/user/...
    seekingalpha.com/autho...

    But, it does seem we are certainly not "big time" players. The lead time for new plants is quite long from what I've run across so far.

    HardToLove

    On Jun 30 12:18 PM Energy Trader wrote:

    > That is impossible, there is no way to liquify US nat gas (any LNG
    > leaving the US was liquified oversees and brought here to be stored).
    > On top of the fact that it is illegal.
    Jun 30 01:49 PM | Link | Reply
  •  
    So funny, every week we get a story on SA saying "it's the bottom", and "everyone else was wrong, but i am right".

    I guess if you guys write one of these every week eventually you will be right, after you have lost all your money guessing bottoms.
    Jun 30 01:53 PM | Link | Reply
  •  
    absolutely correct


    On Jun 30 01:53 PM Maxe Paul wrote:

    > So funny, every week we get a story on SA saying "it's the bottom",
    > and "everyone else was wrong, but i am right".
    >
    > I guess if you guys write one of these every week eventually you
    > will be right, after you have lost all your money guessing bottoms.
    Jun 30 02:11 PM | Link | Reply
  •  
    The LNG that is exported from the US is either 1) imported from a foreign country where it was liquified and shipped to the US to be stored and can be sold to the US market or exported and resold in some other country where the nat gas price is higher but in no way was produced in the US and was only ever shipped to the US as nat gas prices are higher or there is LNG storage capacity (this is currently not happening but there are companies with facalitites capable of doing this), or 2) the LNG is from the nat gas fields in Alaksa where they do have the ability to liquify and is exported usually to Asia (currently it is all going to Japan). Alaskan nat gas does not factor into the US nat gas pricing equation as it is stranded and there is no way for it to come to the lower 48 states w/o first being liquified, once it is liquified the nat gas goes to the most desireable markets, which is not the US. The LNG exports do not drive the nat gas higher since the prolific fields in the lower 48 have no ability to liquifiy their product and sell to other markets.

    If you bothered to look at the same graphs for production you would see in April only 2 BCFs were exported, for the whole month! Not very material considering storage builds were 94 bcfs last week

    My point about it being illegal is still correct as there are no pipes taking nat gas to mexico b/c it is illegal. To further explain why nat gas prices are not going up due to exporting of the gas, can you imagine a scenario of CHK or BP exporting nat gas? If they tried to export the nat gas from the Barnett or Haynesville or anywhere they would find Congress calling a hearing about exporting our natural resources. In short it would be political suicide for these companies along with the fact it is illegal.

    On Jun 30 01:34 PM Mark Anthony wrote:

    > I showed you the EIA price chart, it shows an LNG export price:<br/>
    >
    > tonto.eia.doe.gov/dnav...
    >
    > If there were no LNG export how could there be a market price for
    > LNG export? Of course there were LNG export. And where does it say
    > it is illegal to export LNG?
    Jun 30 02:47 PM | Link | Reply
  •  
    The LNG that is exported from the US is either 1) imported from a foreign country where it was liquified and shipped to the US to be stored and can be sold to the US market or exported and resold in some other country where the nat gas price is higher but in no way was produced in the US and was only ever shipped to the US as nat gas prices are higher or there is LNG storage capacity (this is currently not happening but there are companies with facalitites capable of doing this), or 2) the LNG is from the nat gas fields in Alaksa where they do have the ability to liquify and is exported usually to Asia (currently it is all going to Japan). Alaskan nat gas does not factor into the US nat gas pricing equation as it is stranded and there is no way for it to come to the lower 48 states w/o first being liquified, once it is liquified the nat gas goes to the most desireable markets, which is not the US. The LNG exports do not drive the nat gas higher since the prolific fields in the lower 48 have no ability to liquifiy their product and sell to other markets.

    If you bothered to look at the same graphs for production you would see in April only 2 BCFs were exported, for the whole month! Not very material considering storage builds were 94 bcfs last week

    My point about it being illegal is still correct as there are no pipes taking nat gas to mexico b/c it is illegal. To further explain why nat gas prices are not going up due to exporting of the gas, can you imagine a scenario of CHK or BP exporting nat gas? If they tried to export the nat gas from the Barnett or Haynesville or anywhere they would find Congress calling a hearing about exporting our natural resources. In short it would be political suicide for these companies along with the fact it is illegal.

    On Jun 30 01:34 PM Mark Anthony wrote:

    > I showed you the EIA price chart, it shows an LNG export price:<br/>
    >
    > tonto.eia.doe.gov/dnav...
    >
    > If there were no LNG export how could there be a market price for
    > LNG export? Of course there were LNG export. And where does it say
    > it is illegal to export LNG?
    Jun 30 02:47 PM | Link | Reply
  •  
    All I can say as a novice in the market I HOPE this guys right. I was one of the suckers who bought NG when all the commentators were shoving it down our throats. I have 1k shares of HNU.to and would LOVE for energy prices to go back gas prices to go back UP!
    Jun 30 07:23 PM | Link | Reply
  •  
    NG is the one true temperature indicator on how bad our markets have became. But nobody cares, because there are dirty money behind the oil trade.

    By the way, US has so much NG and I am very curious why the Americans or the governments are not making full use of this CHEAP source of energy, but instead continue importing of oil from other countries?

    It is such a shame that one side complaining about high gasoline price, while on the other side wants to keep continue importing oil. NG is a clean alternate source of energy and there are plenty everywhere. Is it me or is everybody seems to forget the White House had promised to use/invest alternative energy or NG as a new source of energy to replace Oil?

    Whatever the reasons are, NG has a lot of potential and I see it as a a long term HOLD. I am so happy that NG is so cheap and it is a great opportunity to hold a small position first and accumulate more as it goes down.
    Jun 30 08:27 PM | Link | Reply
  •  
    no one seems to be reacting to the cut back in drilling and both for production and exploration. every time the drill cycle went down gas proces eventually went up. add to this the coming crunch on the use of coal with its tax, i believe there will be a rebound in price. long term though the fact of more lng coming in will have a cap on price even with the increased demand. there are huge finds in russia and elseware.
    Jul 01 05:49 AM | Link | Reply
  •  
    Energy Trader said:
    "...but in no way was produced in the US ..."
    and
    "or 2) the LNG is from the nat gas fields in Alaksa where they do have the ability to liquify"

    There's my confusion. I presumed that Alaska is a state of the U.S. and used terms like "here" inclusively.

    I believe that most others would make the same mistake I made. So you might want to clarify in future posts that Alaska is not part of "here" and/or similar euphimisms.

    HardToLove
    Jul 01 06:56 AM | Link | Reply
  •  
    Proof read first dummy!

    On Jul 01 06:56 AM H. T. Love wrote:
    <snip>
    > of "here" and/or similar euphimisms.

    of "here" and/or similar euphemisms

    ><snip>
    Jul 01 06:58 AM | Link | Reply
  •  
    I don't know what you're holding, but if you really want to continue to hold, if you can I suggest you write some covered calls. At least you get some return while you wait. Just be careful that you pick the right strike and time-frame to meet your *goals* for the holdings.

    HardToLove


    On Jun 30 07:23 PM BPYHO wrote:

    > All I can say as a novice in the market I HOPE this guys right. I
    > was one of the suckers who bought NG when all the commentators were
    > shoving it down our throats. I have 1k shares of HNU.to and would
    > LOVE for energy prices to go back gas prices to go back UP!
    Jul 01 07:08 AM | Link | Reply
  •  
    Alaskan nat gas should not be considered in any supply, demand, import or export when talking about the US nat gas industry. Until there is a pipeline that can bring it to market it is just the same as Qatar, Yemen, or Australia's nat gas, a world away.
    So when


    On Jul 01 06:58 AM H. T. Love wrote:

    > Proof read first dummy!
    >
    > On Jul 01 06:56 AM H. T. Love wrote:
    > <snip>
    Jul 01 02:04 PM | Link | Reply
  •  
    Hell, if NG gets any cheaper, we would better of using it in injector wells instead of water!
    Jul 01 02:59 PM | Link | Reply
  •  
    Thanks! Question: the exports that were going to Japan - from Alaska?

    HardToLove


    On Jul 01 02:04 PM Energy Trader wrote:

    > Alaskan nat gas should not be considered in any supply, demand, import
    > or export when talking about the US nat gas industry. Until there
    > is a pipeline that can bring it to market it is just the same as
    > Qatar, Yemen, or Australia's nat gas, a world away.
    > So when
    Jul 01 09:26 PM | Link | Reply
  •  
    This is more of a question than a comment. Does any of the energy traders out there find usefulness in better knowledge of the change in daily prices of 3-month energy futures front contracts? We see alot of models on energy contract pricing when time to maturity is factored in. But what if we look at only the change in the prices of front contracts?

    Are there trading techniques out there that can benefit from knowing how the 3month (or 2 or 1month) energy futures contract prices will change from day to day? In this case, b.c. only the front contract prices are counted day to day, it is at constant maturity... 3month or 2month or 1month.
    Jul 03 08:08 PM | Link | Reply