Michael B. Krause

UNG Hasn't Changed the Laws of Natural Gas Supply and Demand

Buy low and be patient? This is short term trading vehicle with serious contango effects. If you believe in high nat gas prices, buy a producer.


On Aug 13 08:48 AM Steve20423 wrote:

> Classic buy low and be patient. I keep buying as much UNG as I can
> below 13. It's reaaly easy for many oil burners to convert to Gas.
> If you expect to make a quick buck day trading this probably won"t
> work so well unless of course we have one good storm. Last time
> I checked we're in Hurricane season.

UNG Hasn't Changed the Laws of Natural Gas Supply and Demand

Contrarian to himself.... Probably will work, just because it is the opposite of what makes sense to him.

Feb10 gas is already 5.71. If front month did nothing, UNG would still be in the mid-12s as gas prices had recovered more than 50%. Strong contango is hard to fight. The bright side: if storage fills up and price can't go any lower even after producers are forced to shut in production, maybe that'll catalyze a big move up? Maybe, maybe not. Flip a coin.

Natural Gas Transportation Is a Win-Win Technology

While on the margin we are good on natural gas supplies, you conveniently leave out of the detail that the recent surplus in natural gas is caused by wells that have extremely rapid decline rates (shale) and only satiate our need for the near term (5 years). Rapidly, the marginal cost of production on nat gas will skyrocket and make natural gas an untenable long term *primary* alternate transportation fuel.

You can't build a long term fuel infrastructure based on that model, considering we already so heavily depend on it for industrial uses that tend to like fossil inputs, and home heating which is much the same.

Natural gas looks good because it is cheap now, but unlike crude, we actually can run out of it in interim periods. In the winter we already consume a ton more than we pull out. If nat gas is to be viable as a primary alternative transport fuel, we probably need to double storage capacity, otherwise if poorly managed people may be freezing in their homes in the winter.

Additionally nat gas has pipeline and flow constraint issues. Did you know spot new york nat gas has seen $50+/mmbtu (maybe $90? I forget) price tags in recent winters due to demand in record chills? We're talking about massive infrastructure investment in a commodity that will ultimately dwindle just as quickly as oil wells if used en masse like this.

The only tenable long term solution (besides just driving less and accepting less economic activity as a fact of life) is nuclear power and electric cars. If Bush can give nuclear power to UAE, I don't see why we can't do it here and just solve the problem altogether. Next step is to build a few hundred power plant and use reprocessing internally in the design infrastructure (so waste never moves away from the plants, and we have no short supply of uranium or thorium ore). Even if we decided not to use a breeder reactor model, the vitrification methods (glass pelletizing of nuclear waste) work and are indeed relatively safe. It is time to end the fear over nuclear.

Natural Gas Report: Winds of Change

Yes, agreed. Against $95 crude, natural gas against the same 'inflation scale' of 6:1 ratio with more balanced (not bearish as the last 2 years) supply/demand outlook gives a price target of $15.83. Heating oil prices are even higher per energy unit.

There's a lot of room for upside, and even prices at $8.xx, while historically high, are just a reflection of dollar buying power in a *bear* market. This market has an aweful lot of price resistance, and will need the cool to stay as well as a continued hot summer for prices to recover, but I imagine by next winter $15 gas (not in the presence of a hurricane related spike) would not be unimaginable.