Gigem77

How Much Natural Gas Remains in the USA?

Southwestern Energy (NYSE:SWN) has 71% of its proved reserves in the Fayetteville Shale in Arkansas. This shale is considered one of the more mature ones in North America, although still a high growth area.

The company has improved its initial production rate on wells here from 1.261 million cubic feet per day in 2007, to 3.611 million in the second quarter of 2009. It has done this with longer laterals on multi stage hydraulic fracturing operations. Southwestern Energy has seen its finding and development costs fall from $2.55 per Mcfe in 2007 to $1.53 per Mcfe in 2008.

Similar finding costs have been reported for gas in the various shales. It is economical way below 5 bucks, even assuming the need for total costs to = 3x finding costs.

CHK CEO Aubrey McClendon has said that they will increase drilling and production at 2 to 3x finding costs .

XTO just hedged 55% of their 2010 natgas production at 7.49 per mcf. I think that is a great bit of hedging.

Undiscovered resources are those deposits that have not been pinpointed, but are generally expected to exist based on geologic conditions. They are not just creating a wild guess. Drill down on your links a bit further next time.

Opportunities for Both Shorts and Longs in Natural Gas

Ari is wrong on several points. Natgas is not fungible like oil. US export capacity is quite small and other sources exist closer to Asia. So demand in India has no impact on US natgas prices or supplies.

US consumption is still running about 4bcf per day less than during the same period last year. Industrial demand is responsible for this drop. The mounting job losses tell us that demand is not returning. The inventory replacement bounce in GDP is temporary.

The UNG is issuing more shares. They began on September 28th.

Pressure in the pipelines and storage facilities is so high that operational flow orders have been and are being issued to stop the producers from compressing more gas into the system. The rig count is increasing from the summer lows. There are hundreds of wells that have been drilled but await completion. So the supply overhang is not just from storage, but also from curtailed production. This means that winter draws will be smaller. We will exit winter with more gas in storage than last year and begin this cycle again. When will industrial demand rebound?

Residential and Commercial heating demand during the winter are not enough to compensate for the loss of industrial demand. We need petrochemical plants, car factories and refineries to reopen or increase capacity utilization and that is not happening yet.

Nothing the politicians have done so far is helping natgas. If they would convert the government's fleets of vehicles to use CNG, that would help. Heating oil prices are low and inventories are above the high end of the average range. All of this is good news for consumers this winter.

So the best hope for the natgas bulls is that speculators will run the price higher and that there will be sharp short covering rallies like the ones seen this year. That is a trading environment for the nimble. It is not time yet, imo, for longer term investors to put money to work here.

Shares of producers like UPL, XTO and CHK are tracking the broad market, not the natgas price. So they are quite overbought and will fall with the SPX when it corrects. Their 7-9 dollar hedges are dropping off the books. So earnings will show some real hits over the next few quarters.

Natural Gas: An Energy Resource Whose Time Has Come

GAZ and HNU.TO are also natgas etfs. Most of the natgas E&P companies do NOT pay good dividends. Companies like APA and LINE have significant oil production that has helped weather this weak period for natgas prices. LINE operates like a royalty trust. The royalty trusts pay decent dividends and the Canadian royalty trusts (PGH, PWE, ERF etc) have some tax issues that must be considered.

If you like natgas as a transportation fuel, then consider CLNE, Boone Pickens entry into the space.

Nibbling on Natural Gas, Concerned about Atlas Pipeline Partners

Natgas storage stats for 5 years by week americanoilman.homeste...

Spot natgas prices around the country intelligencepress.com/.../
Natgas is under 2.50 out west and will fall further as storage fills. Watch the pipeline and storage operators for OFOs, Operational Flow Orders, forcing curtailment. The injections to storage will diminish, not because supply is diminished but because pipeline and storage pressure is high. It is way too early to get bulled up on natgas.

Commodity Roundup: What To Be Bullish On Now

Oil demand is going to be further curtailed due to the large number of refiners shut down by Ike. We will likely see the price of oil drop. But we will enter the high demand winter quarter with low inventories of heating oil and gasoline. Natural gas injections have been cut in half by Gustav and will remain shut in for some time. So we enter the winter season with storage near the 5 year avg and 200 bcf below last year. The MMS publishes a weekly report on shut in production. www.mms.gov/ooc/press/...

Too Soon to Re-enter Oil Stocks?

Thanks for the chart.

Demand for energy is not destroyed, it is subdued or supressed. As prices fall, demand comes back. The EIA data show that over the past 4 weeks demand for gasoline rose week over week. Equilibrium, minus a bunch of speculators, is going to be re-established north of 100 and possibly 110 in oil. Once that becomes apparent the market will take off the discount currently applied to that list of stocks.