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Natural Gas a Strong Buy

Jan. 26, 2011 2:15 AM ETWES, UNG
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The Aft Deck's Blog
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Natural Gas is a strong buy as the annual Spring sell-off begins. Traditionally Natural Gas gets sold off as the end of winter approaches, however this tradition will come in for some big changes.

As with most of our investment decisions we are not looking at the short term, we are always looking to buy quality assets that have a good long term outlook. At the current prices, Natural Gas fits that criteria.

Nymex Natural gas prices fell yesterday as concentration switched from the expiring February contract to March. The Henry Hub March contract fell over 3% as warmer weather loomed in the Midwest in the latest short term forecasts. Gas opened at $4.796 and fell as low as $4.576 before the pit closed at $4.598. Support today is seen at $4.534 and $4.494 with resistance at $4.666 and $4.702.

Why Natural Gas be a long term winner?

World primary energy consumption grew by 45 percent over the past 20 years, and is likely to grow by 39 percent over the next 20 years. Global energy consumption growth averages 1.7 percent p.a. from 2010 to 2030, with growth decelerating gently beyond 2020, according to the BP Energy outlook 2030.

In 2009 the world’s proven gas reserves amounted to 187.5 trillion cubic meters, which at current production levels will be sufficient for the period to 63 years.

As expected, natural gas by 2030 will be a fuel observing the most rapidly growing demand.

Asia will be the main source of production growth and demand for gas. China’s share will amount to 56 percent growth in gas demand in the region.

The share of the Middle East, which is the second largest source of production growth and demand for gas in 2030, will comprise 17 percent of global demand for fuel compared to 12 percent in 2010. Its share in the growth of global gas production will increase from 15 percent in 2010 to 19 percent in 2030.

LNG imports will grow. Annual growth in LNG supply will amount to 4.4 percent by 2030. Its share in world gas supplies will increase from 9 percent in 2010 to 15 percent in 2030.

In Europe, the share of LNG in total imports will increase from 30 percent in 2010 to 42 percent in 2030.

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