Natural Gas Prices Set To Surge - Canaccord

Natural gas prices should jump in the coming months if historical trends materialize, Nick Majendie, a portfolio manager at Canaccord Adams says.
Mr. Majendie points out that over the past 10 years, the price of natural gas surged within six months of the ratio of oil to natural gas surpassing 12.6 times. The ratio most recently breached this level on July 25. It was the fifth breach since August 1998.

“Our observations would be that the average gains of 67% in natural gas prices to the high in the following six months are impressive,” Mr. Majendie says. “However, it should be pointed out that the percentage gains have been sequentially lower on each of the four occasions prior to the latest breach of the 12.6 times ratio.”

Natural gas prices rose 34% gain within six months after the last breach on January 25, 2008. The gain was as high as 96% after the breach of May 19, 1999.

Mr. Majendie says cost inflation and balance sheet concerns appear to have muted the impact of the rise in natural gas prices in related stocks.

 

“In sum, trading the underlying commodity rather than gassy stocks looks to be a much more defensible and reliable strategy,” he said.

Comments

[5kDow:]

Nat Gas will move up like it always does, I think the correction is over done here.

2008 Aug 14 01:54 PM

[robc935:]

As someone who lives in the upper midwest and heats an older home with nat'l gas let me be the first to offer congrats to those of you who see profits off the backs of people on fixed incomes who can't afford to heat their homes. This despite continued reports stating how much nat'l gas reserves within our own borders and yet the price has still tripled in the past 5 years. How do you people sleep at night?

2008 Aug 14 02:23 PM

[WEBISKING:]

Apache is great investment at 104

2008 Aug 14 02:40 PM

[pockyclips ...:]

I wouldn't expect UNG to make a strong move upside until after Labor
Day, assuming W not putting more troops in Georgia.

2008 Aug 14 03:11 PM

[happycajun:]

Well, I sleep pretty damn good - despite knowing that an ever increasing portion of my hard earned income goes to paying that "fixed income" to others, knowing that those social(ist) programs won't cover me. The price of natural gas on an oil-equivalent basis is a huge bargain. Demand for NG goes up when the gap between oil BTU's and gas BTU's increases where the gas transportation cost is reasonable (pipelines are not cheap). NG price is set by the market - supply & demand. Back in the '60s and early '70s there was a developing NG shortage because our beloved government regulated NG prices - remember "reserves" are only part of the equation - you have to find them, drill them, produce them, process and treat them, and transport them. The midwest has historically been more of an LPG market because of the more dispersed population - making propane a more economic heating fuel than NG - small diameter pipelines and trucks to the ubiquitous propane tank in the yard. It is all about supply and demand - and if you screw with it - you screw it up...

2008 Aug 14 03:27 PM

[DaveW:]

Well, I have my eyes closed, breathing softly, sometimes snoring a bit.

So robc935, how do you invest such that there are absolutely no downside angles?
McDonalds, Disney, etc.? No, too much globalization and American imperialism.

Agriculture? No, drives up the price of food -- still on the backs of the underprivelaged.

Walmart, Best-Buy, etc.? No, then you are supporting our over-consuming, over-debted culture.

Brazil, India, China? No, there are soo many in abject poverty, we'd be driving up their prices (more back climbing).

I could go on, but I will end by saying that your angst is justified, just pointed at the wrong people. We small fish do little to influence the market these days, while the hedge and quant funds are driving sector rotation like crazy. In fact, their fancy, algorithm-running computers don't sleep at night.......and that s**t keeps me awake at night!

2008 Aug 14 03:48 PM

[erniem:]

robc I sleep well, in the old house I spent a lot of time on insulating.

2008 Aug 14 04:00 PM

[pachanguero:]

*,

I sleep well. I hope you like the cat food that you have to eat because you failed to save and invest. Too bad chump!

2008 Aug 14 04:44 PM

[otbricki:]

Sooner or later the fundamentals (lots of new gas reserves coming online) will cause a break with historical results.

2008 Aug 14 05:02 PM

[MarkMedayski:]

Hi,I am Nat Gas trader just recovered 10,000EUR yesterday on NG futures,even made small profit.
Price of NG (don't have position today) will rise,I think the fall was because bankruptcy of Sem Group LP,big Nat Gas trader who had to liquidate positions to repay bank secured debt,when it's trading book was on the margin call.Same happened to Amaranth Advisors hedge fund 3 years ago,when they bought short term expiration futures and sold long term,those long term was when hurricanes Katrina striked,bad luck.Then they went long again after losing on the shorts in expectation of higher prices but it seems there is bigger players than 3$ billion hedge fund,and those players together with Nat Gas producers sold to Amaranth so they had to liquidate again and lost all 3$ billions.
Also Oil (supply/demand driven only) helped now to crash Nat Gas prices and the even more with Sem Group LP liquidation.
Now good news for long NG trader,Barclays Advisorsof UK bought trading book from Sem Group LP for pennies and I believe there is too many longs to let it sit at this prices.
I am positioning to jump on the first buy signal to buy NG,when it will happen?
I expect it will happen on a day when NG price will go up nicely even if CL (Crude Oil) will be little changed or even trading down.It is when then they will start to taking shorts out as it is too much billions puted on the table to make it lose,you can not believe me but don't try to play against Barclays trading desks.
But be careful,there are too many pikers on the long in NG so maybe we can see 1$ move down before rally.Be prepared.

2008 Aug 14 05:42 PM

[Dan Brockway:]

The price of natural gas is headed down. Production has risen 8-12% in the past year depending on what numbers you believe. At the same time there is some demand destruction due to the higher prices we have seen up until the last month or so. Natural gas drilling will continue at its rapid pace until gas goes below $6.00 at which point some of the new plays will start to look less attractive. With rising production I see little that will drive up the price of natural gas. The conversion to vehicles fuel as Boone Pickens suggests will take several years if it ever happens. So for the next year or two I see gas prices in the $6-8 range.

2008 Aug 14 05:54 PM

[robc935:]

I sleep just fine and I'm not eating cat food--yet. My 401K has taking a beating this year and Fidelity only gives me a few options. I read these blogs to try to be more informed. What I find is pretty big disconnect between the folks who can afford to sit around using money to make more money vs people who actually WORK for what they earn like most of the working stiffs in this country. Commodities like energy, grains etc.. have been at the mercy of outside monies lately and just when things look like they might start reflecting their true value based on supply and demand we get talk like nat'l gas in undervalued. Make your money while you can because when the middle class finally disappears this country is done.

2008 Aug 14 08:17 PM

[Bobwins:]

The comments about increased supply are important but there is still a deficit. We produce about 85% of our demand. Canada has supplied the difference but their production is flat to down. They will export less to us because of flat production and increased domestic usage for tar sands. The difference is coming from LNG but our lower prices versus world prices means we are getting less LNG.

We will benefit from the increased production but our massive deficit in oil production vs consumption will eventually push various consumers towards ngas and that will support ngas prices and eventually reestablish equity on a btu/btu basis with oil. Human nature. If it's a cheaper alternative, Americans will double size it until it gets scarce and expensive. We consume too much energy per capita. Quit complaining about prices and do the logical thing......USE LESS!

2008 Aug 15 09:05 AM

[jaw:]

to robc935 your form of thinking will not work .that's why Communism did not work in Russia

2008 Aug 15 09:18 AM

[Paul Killinger:]

I remember vividly how everyone cried for those of us who live in the energy patch when the price of oil and NG went to "zero," and they were buying gas and heating their homes for next to nothing. There was no talk of bank bailouts, much less federal help with massive home foreclosures and business bankruptcies. So, you'll have to pardon me if I don't get too worked up about your having to don a sweater this winter and the paper losses in your investment account.

2008 Aug 15 10:44 AM

[Clearlead:]

bigrock, at $6 producers will cap their wellheads and cut back on production, but I agree on gas staying under $10 for sometime to come.

2008 Aug 15 11:00 AM

[Paul Killinger:]

And let me tell you something else. We pro-energy, energy patch folks and our Congressional delegations are standing in the front row rooting for more oil and gas exploration to help you with YOUR shortages. Now, tell me, just how does this stand to benefit US?

2008 Aug 15 11:02 AM

[petersterling:]

Its wonderful that America is developing massive reserves of its own cleaner-energy natural gas. Now we can begin to convert 25% of our cars and trucks to flexi-fuel compressed natural gas, either (CNG) or gasoline. It will only cost around $1,500 to convert any existing vehicle to run either fuels. Yes we need to install CNG tanks at gas stations too. we have offered to do this for Santa Barbara County as part of an oil-gas project importying our Bering Sea gas and drilling in our 250-500 million barrel lease application areas in the Santa Barbara Channel. See strategicnine.com

My company is sitting on 200 trillion cubic ft of gas offshore perfect for California and the East Coast markets. see AOAG

2008 Aug 15 12:01 PM

[Paul Killinger:]

Peter,

Unfortunately, you have as much chance of exploring for O&G in the Santa Barbara channel as I have of swimming in it today, and I live outside New Orleans. But that could change someday....

2008 Aug 15 12:22 PM

[Paul Killinger:]

I hear you have an unopposed ballot initiative underway that could increase NG vehicle use in CA. Will it be voted on this year?

2008 Aug 15 12:24 PM

[Paul Killinger:]

Back to you Robc,

Meanwhile, most of your Reps and Sens decry high energy prices, while calling our energy companies dirty names, and voting AGAINST expanding oil and gas production and lower prices. Your argument's not with us, do you understand that?

2008 Aug 15 12:31 PM

[jjason:]

ROBC, Go To:

www.stopoilspeculation.../

and SIGN THE PETITION. The oil traders ( who are actually speculators ) could care less about the harm they do to Us citizens or the US economy.

Then Go To:

www.star-telegram.com/...

Most US citizens do not know much about how the Commodity Futures Trading Commission has not done their job.

Then copy these links AND TELL YOUR FRIENDS AND FAMILY AND MEMBERS OF CONGRESS.

I hope all the speculators get burned and lose a lot of money for cheating the rest of us by raising the prices on all energy products.

2008 Aug 15 02:26 PM

[scfranklin94:]

jjason, get real; if you think a commodity is overvalued, go produce it for less and make a killing. I guess the fall in crude from $147 to $113 is all do to evil speculators 'forcing' prices down...

As for NG prices to surge; Bigrock is right way too much gas is coming on in the next couple of years; natural gas is going to be unlinked from crude for the next decade unless 1) we start using NG as a transportation fuel 2) someone builds some gasification facilities to export LNG. If you don't believe me, review the latest exploration results from the Haynesville and Fayetteville shales; then consider that those wells break even at $4 to $5/MMBtu.

2008 Aug 15 04:47 PM

[Investor612:]

Aug 14 08:17 PMI sleep just fine and I'm not eating cat food--yet. My 401K has taking a beating this year and Fidelity only gives me a few options. I read these blogs to try to be more informed. What I find is pretty big disconnect between the folks who can afford to sit around using money to make more money vs people who actually WORK for what they earn like most of the working stiffs in this country. Commodities like energy, grains etc.. have been at the mercy of outside monies lately and just when things look like they might start reflecting their true value based on supply and demand we get talk like nat'l gas in undervalued. Make your money while you can because when the middle class finally disappears this country is done. >robco

Lou Dobbs is posting here? Who knew? In spite of all the gloom and doom from the middle class is disappearing folks, the number of Americans in the lowest net worth categories keeps dropping.
One wonders who the poster thinks should determine "fair value" if not the marketplace? An Obama appointee? The same process of willing buyers and sellers to stick their necks out and commit to long term contracts determines the price of wheat,corn, soybeans, and coffee too. Yet, when they rise one seldom hears the cries to get rid of speculators. That's because to anyone remotely aware that the speculative trades require buyers and sellers, this notion they create some artifical value is absurd.
The poster should do himself a favor and look at the supply/demand of energy. he should also consider that not all reserves are created equal and that the reserves oif today are much more difficult and expensive to extract. than those in the past.
One more thing, most of the people the poster denigrates for being able to sit around and use money to make money instead of working probably worked very hard and industriously for living to get to that point. They also, like Robco, are probably having a lousy year this year-using money to lose money. but then, some people like to find scapegoats to blame their problems on.

2008 Aug 15 06:10 PM

[Haynesville:]

GoBarnettShale.com

2008 Aug 18 04:19 PM