2013 Natural Gas Forecast: Six Bullish Reasons Why Now Is The Time to Buy
Natural gas is developing into a very different market from oil, one that offers plenty of opportunities for investors to make big profits in 2013.
There are two contrasting dynamics when it comes to natural gas prices. First, the amount of recoverable volume has been accelerating, thanks to increasing unconventional (shale, tight, coal bed methane) reserves and technological improvements to extract it.
A rise on the supply side would generally reduce prices, especially if the number of operators continues to increase. More gas moving on the market from more suppliers results in a downward pressure on prices.
The second dynamic, however, is moving in the other direction, enticing the increase in drilling and expansion of infrastructure.
This factor considers the demand side, and there are at least six major trends colliding to increase the prospects for gas usage as we move through 2013.
As a result, I expect natural gas prices to see a 25% increase from current levels… here's why.
Get Ready to Play Higher Natural Gas Prices with These Picks
After natural gas prices hit a decade low in 2012 of below $2 per million BTU, they're up about 80% from a year ago, trading around $3.60 this week.
Looks like the six-and-a-half year bear market in natural gas maybe be coming to an end.
Falling with natural gas prices has been related investments. That means investors can go shopping now for low-priced natural gas plays before prices climb.
As Money Morning Global Energy Strategist Dr. Kent Moors said, the road to profits will not be straight up. Volatility will cut in both directions.
But the natural gas market is getting stronger.To continue reading, please click here...
The Brewing Shale Gas Energy Boom That Nobody is Talking About
While folks back in the U.S. were sitting down to Thanksgiving dinner, I was making my way back to Frankfurt, Germany from Warsaw, Poland.
My discussions in the Polish capital were with the PGNiG, the national state-run gas company and the government's designated partner in all domestic drilling operations.
Unlike my German conversations, there is considerable optimism these days that the energy picture in Poland is about to change in a major way-thanks to shale gas.
Poland must overcome a serious of challenges, which, of course, were the reasons for our meetings. And despite the upbeat tenor of everybody involved, significant concerns have emerged.
On the positive side, Polish officials have committed to a rapid development of unconventional gas. In addition, no domestic opposition to drilling exists, at least not yet.
Unlike back in Germany, nascent environmental movements have neither the political clout nor the apparent interest in making this an issue.
Polish operations are currently in a very early stage, which may be the reason for the lack of opposition. Only a few test wells have been drilled (less than 15 in all), and none are near residential populations.
For that matter, PGNiG is preparing to start its first horizontal drilling operation. The test wells thus far have all been spud by foreign companies.
However, it is now clear that the "rapid" ramp up foreseen by the authorities in the central government is not working out as anticipated back at the well sites.
For one thing, the initial wells have either come in dry or produced disappointing gas flows. For another, the national gas company is under considerable pressure to produce positive results in what is becoming a very challenging technical environment.
The former result is hardly surprising. There remains insufficient geology and preliminary field prospecting. The locations of shale deposits are well known. The country has no less than five very promising basins. But Mother Nature has an irritating habit of indifferently placing hydrocarbons in those basins.
That requires initial evaluations before the expensive proposition of sinking exploratory wells commences. Thus far, the few wells attempted have been positioned with little more than rudimentary data and guesswork. The poor initial results, therefore, reflect such considerations more than anything else.
There seems little doubt that there are considerable reserves, but finding where they are remains a major undertaking.
Here challenges exist that are not a problem back in the United States.
But solving them could lead to huge breakthroughs for companies in the U.S. and energy investors alike.
Keystone Oil Pipeline Decision Key to Obama's Energy Policy
One of the major policy decisions facing U.S. President Barack Obama is whether or not to approve the Keystone oil pipeline across the Canadian border into the United States.
If approved, the pipeline – to be built by TransCanada (NYSE: TRP) – would transport about 1.3 million barrels of oil a day from Canada's oil sands to refineries along the Gulf coast.
The Keystone oil pipeline, if approved, would benefit U.S. energy security. Not to mention TransCanada and players in the Canadian oil sands industry such as Suncor Energy (NYSE: SU).
This decision is one investors in the energy sector need to pay attention to as it will set the tone for energy policy in President Obama's second term.
The Path to Energy Independence is More Rocky Than It Seems
You might have seen yesterday's headline in the Wall Street Journal: "U.S. Redraws World Oil Map."
As the article explains, U.S. oil production is now on pace to surpass Saudi Arabia by 2020. This would make the United States world's largest oil producer. We're already the second-largest natural gas producer, according to 2010 EIA estimates.
It's all thanks to the U.S. shale boom that has unlocked billions of barrels of oil and trillions of feet of natural gas from the Appalachian Mountains to the Pacific Coast, from the Bakken in North Dakota to the shale fields of southern Texas.
But all of this fracking has caused some serious economic and environmental problems.
And while I greatly advocate increased drilling and domestic production, we still must address a wide-range of problems now plaguing the shale oil and gas sectors.
After all – with apologies to Voltaire and Spiderman – with such great fortune comes greater responsibility.
That's why I am in the third day of what has become a very interesting conference here in Pittsburgh. It was convened to set the agenda moving forward to deal with the almost invisible aspects of shale oil and gas drilling.
In fact, for the first time, the conference's primary focus will be on the negatives caused by the drilling.
We also have questions surrounding the amount of water required to frack these formations (the process needs a lot of water to break open rock and release hydrocarbons), as well as the ongoing public health fears from the chemicals used.
Now, we are seeing parallel economic problems as well.
In the Marcellus basin, researchers are now recording some of these shortcomings and placing them in four basic categories.
The real concern is that these four problems – in infrastructure, labor, local inflation, and the environment – will remain well after the drilling (and the revenue) has moved on.
So before you decide to declare "energy independence", take a look at some of the downside that may come along with it.
The Morning After: An Energy Shakeout, Then a Move Higher
As I mentioned yesterday in Oil and Energy Investor ("Something Big Hits the Oil Markets… Starting Tomorrow"), the primary problems today are exactly the same ones we had before the election.
In fact, aside from the Dems picking up a few seats in the Senate, the composition remains the same – one party controlling the White House and the Senate; the other with a majority in the House.
For all the criticism of Congress kicking the can down the street, that's just what the nation as a whole did on Tuesday night.
There will be no possibility of expecting a recovery in an environment of uncertainty about rising taxes and meat cleaver program cuts.
I'm calling this the financial precipice these days because I am tired of saying "fiscal cliff." But it is one of two things that have pushed the energy markets down, along with markets across the board.
The Real Energy Opportunity After Hurricane Sandy Is Logistics
Since the storm last week, I've seen a recurring, disturbing bit of advice surface on those cable news investment shows.
The pundits are hard at work prognosticating on what is likely to spike in the aftermath of Hurricane Sandy. They are peddling a belief that this natural disaster will produce shortages – and that those shortages can be exploited for a short-term windfall.
But this is a mistake.
In fact, this is one of the most persistent errors made by investors during such a period.
In the medium-term, however, there is sometimes a consequence of a hurricane or other disaster that translates into genuine opportunity. There is certainly one this time. And I'll talk about how to position for that in a moment.
First, we need to explore what you as an investor should not do right now…
Energy Prices 2013: Renewable Power Could Cause Your Electric Bill to Plummet
As we come to the end of an election campaign cycle, something else will be ending as well.
A poster child for the ongoing debate over government support for renewable energy, the wind subsidy will expire at the end of 2012. Amidst the fog and din of a political war, Congress is not going to renew it.
The wind subsidy amounts to a tax credit of some $22 per megawatt hour. Critics note that the wholesale price of electricity in many parts of the U.S. costs $44. That means the credit accounts for 50% of the grid cost.
On the solar energy side, the primary federal subsidy provides a tax credit of 30% for the cost of installed equipment. That will drop to 10% at the end of 2016. Already, a separate cash grant for up to 30% for solar energy equipment expired at the end of 2011.
Of course, both approaches have generated a considerable amount of criticism from mainly conservative opponents.
These critics claim that the only reason wind and solar are even in the game is because of these subsidies. Without them, they argue these sources of energy are not cost effective otherwise.
Then, there are others who prioritize environmentally friendly energy sources. But the penchant against government involvement and the assumption that federal subsidies are always an inefficient usage of taxpayer funds are at the core of the argument.
So, who is correct?
A Faltering Carbon Market Means a New Energy Crisis Looms For Europe
As we wait for a clear indication of what the European Central Bank (ECB) intends to do – or, perhaps more accurately, what European political realities allow it to do – yet another crisis has emerged.
This development strikes at the heart of an essential cog in the European energy strategy.
How this one plays out may actually tell us more about recovery prospects on the continent than any action from the EU in Brussels.
On Friday, the Danish Energy Agency released some of what analysts in the region had surmised for a while. The agency is a lobbying group emphasizing EU policies affecting both energy producers and consumers.
Its director of EU affairs, Ulrich Bang, declared in an email that the European Commission (EC, the administrative arm of the EU) had to take immediate action to protect the internal energy market within EU states.
At issue here is the carbon trading system, what most observers acknowledge is the "cornerstone" of the inside energy balance among the 27 EU countries.
Bang said that the system has "almost collapsed," a view widely shared by other European-based specialists.
The statement testified to a rising strain in the energy sector resulting from the push and pull of an ongoing credit crunch on the one hand and sluggish economic recovery prospects on the other.
Trouble in the World's Largest Cap-and-Trade Program
Carbon trading sits smack in the middle of this tug of war.
And its inability to generate adequate pricing may be the clearest indications yet that there are new problems forming.
This is the world's largest cap-and-trade program.
It has become a barometer for levels of investment in market production infrastructure and a projection of expected prospects for manufacturing and consumption.
2013 Natural Gas Prices: Now is the Time To Be Bullish
Forget the Farmer's Almanac.
As we move into the winter season, two things are becoming clear. First, this one will be colder than last year, nationwide. Second, natural gas prices are moving up.
A colder season ahead is an almost statistical certainty. The likelihood of having a repeat of last year's mild winter is quite low. And my second assertion is now supported by several factors.
Until very recently, the changing of seasons was a determining factor in gas prices.
The warm winter throughout much of the U.S. last year certainly contributed to the dive that saw gas prices plummet to near $2 per 1,000 cubic feet (or million BTUs), the NYMEX futures contract unit.
The bigger issue, however, has been the game-changing entrance of unconventional natural gas supply in North America. Both the surplus of in-market stored gas and the ready availability of expanding reserves have been driving factors in lowering prices.
The amount of available gas is staggering.
Known reserves of shale and tight gas, coal bed methane, and remaining free standing volume now allow up to a 25% increase in supply per year into the foreseeable future.
Now, nobody would actually drill that much, because they would destroy the market (the classic example of "drilling" oneself in the foot).
But the ready availability was restraining pricing. That resulted in a period in which gas rig utilization has fallen each month – to its lowest level in over a decade. The industry has been slowing the introduction of accelerating volume into what had been an oversaturated market.
The hottest summer on record also contributed to a steady improvement in price. As the power-generating sector moves quickly toward low-priced gas as the fuel of choice, rising temperatures also increase the need for gas.
But now, at last, the balance is forming.
The inventory is now the smallest in the last two years, as demand picks up in petrochemicals, industrial usage, and even vehicle fuel prospects.
The major thrust is beginning.
This will not be a straight line for natural gas prices. Volatility cuts in both directions.
But one thing is clear.
The gas market is about to get a whole lot stronger…