Overview of the Natural Gas Market, from Universal Compression Holdings (UCO)

Apr.17.06 | About: ProShares Ultra (UCO)

Universal Compression Holdings, Inc. (NYSE: UCO) provides a range of natural gas compression services and products. Excerpt from The Wall Street Transcript's 4/10/06 interview with CEO Stephen Snider:

I will start with the United States because that's our biggest market and the world's biggest natural gas market. In the US today, we see producers of natural gas having difficulty keeping their gas supply balanced with gas demand. Gas demand is increasing slightly in the US, and gas supply has been struggling to keep flat over the years.

So we have a bit of strain on the US delivery system. One of the dynamics in that change that's occurring is that in the past, energy producers used to bring to market conventional gas ' drill a well, get high pressure gas, and put it in a pipeline. Over the last 20 years or so, energy producers are increasingly developing unconventional gas reserves, which are replacing the depleting conventional gas.

Unconventional gas comes from sources such as coal bed methane, shale gas, and tight sand gas. The difference is that it's all very low- pressure gas, comes out of the ground at low pressure, and it takes more horsepower of compression to bring it to market because it's lower pressure lifting to a higher pipeline pressure. So for a gas compressor company, it takes more horsepower to get that gas to market. Therefore, the domestic compression business is growing quickly as we have moved to a low gas pressure environment.

The international market is linked to the US. Over time, with gas demand increasing and our US supply being relatively flat, we are going to need to develop alternative sources of natural gas just to meet demand in the US. So the US suppliers are looking at beefing up our LNG capacity, and that would be capacity to receive and regasify liquified natural gas from international markets and then put it in the US grid system. So our company is quickly moving around the globe, finding locations that have stranded natural gas, and positioning ourselves to compress that gas in the local market overseas to an LNG facility where it's liquified and then transported by a tanker. So, some of our international expansion has been on the back of liquified natural gas opportunities.