Twenty Dollar Natural Gas in Sight

Quarterly models of favorite natural gas income stocks illustrate how rising futures prices propel rising distributions (namely for: Cross Timbers Royalty Trust (CRT), Dorchester Minerals (DMLP), Hugoton Royalty Trust (HGT) and San Juan Basin Royalty Trust (SJT)). Beyond the current average U.S. futures price for the next twelve months of about $13 a million British thermal units (Btu) that is in the projections, hot weather in the summer and/or cold weather in the winter may bring us $20 natural gas within months.

Natural gas price upside is a logical consequence of crude oil price having reached the inflation-adjusted equivalent of our vision of $150 a barrel in 2010. Recall that the energy equivalent price of natural gas compared to crude oil is oil price divided by 6, i.e., oil price of $150 a barrel divided by 6 equates to natural gas price of $25 a million Btu. Since crude oil still has to be refined to be consumed cleanly, the economic equivalent is roughly oil price divided by 5, i.e. $150 a barrel divided by 5 equates to natural gas price of $30 a million Btu. The good news for consumers is that U.S. natural gas producers are very competitive and supply is expanding in response to higher price. As a result, it may be 2012 before natural gas price reaches the economic equivalent of oil throughout the year.

Originally published on July 3, 2008.

Comments

[redbaron:]

Who you gonna' listen to? Kurt Wulff, or the CNBC and Wall Street pundits that called the bottom to the financials in January? Given those choices, I like Kurt Wulff!

2008 Jul 28 08:03 AM

[kurt walter:]

Natural gas has a long way to go to get to $20.00.

2008 Jul 28 07:46 PM

[Chubbs:]

The significance of this re-post is?

2008 Jul 28 07:57 PM

[Joe888:]

NG traditionally trades at 1/2 the BTU of oil. Dividing by 10 is more realistic.

2008 Jul 28 11:19 PM

[User 234133:]

Love the ratio game with NG, but until NG and oil are both consumed in the same end use, not sure why this is as significant as the pundits would have us believe,

2008 Jul 29 10:42 AM