natural gas price
As I write this from Pittsburgh, the temperature has reached the single digits. This is not a big deal for some of you elsewhere - like the Plains States or New England - but it does serve as a reminder of what season this actually is.
There is also something else happening this morning.
Natural gas prices are moving up.
There is still some way to go before these natural gas reached the $4 plus level (still the perceived breakeven point for a number of producers). Still, after testing the low $3 range earlier in the month, the temperatures in the East are certainly bringing gas back into perspective.
Natural gas usage remains sensitive to temperatures and weather conditions during the winter. Last year's unusually warm temperatures depressed gas prices more than usual.
That was because the amount of gas extractions was much above anticipated levels. The combination of lower demand and higher supply translated into a downward price pressures.
But we are in a different environment for gas production than we were a few years ago.
Until 2005, the assumption was that the U.S. would need to import more liquefied natural gas (LNG) to compensate for accelerating declines in conventional domestic production.
LNG overcomes the primary problem faced by natural gas users. Available supply is traditionally limited to where pipelines are running. LNG, on the other hand, cools gas to a liquid, allowing it to be transported by tankers almost anywhere by water, regasified at an import terminal, and then injected into the local pipeline network.
By the middle of last decade, estimates of how much domestic gas need would have to be imported via LNG were as much as 15% and as soon as 2020.
But the ability to exploit unconventional deposits (shale and tight gas, coal bed methane) has dramatically changed the equation.
2013 Natural Gas Price Forecast: Higher Prices Mean an End to the Bear Market
After a sustained plunge, the 2013 natural gas price forecast shows the six-and-a-half year bear market may be finally coming to an end.
In all, over the course of the current downturn, natural gas prices declined from a high of $15.78 per million btus (mmbtu) in Dec 2005 to a low of $1.90 in April 2012 -- a breath-taking nosedive of 88%.
The reason was an enormous supply glut driven largely by major new unconventional shale plays like the Marcellus and the Bakken where hydraulic fracturing (fracking) has revolutionized the industry.
In fact, fracking helped drillers to produce over 24 trillion cubic feet of natural gas last year, with over 70 billion cubic feet coming from the Bakken Shale alone.
These new finds meant the U.S. natural-gas market was flooded with an average of three billion cubic feet more natural gas every day than the United States consumed.
But those days are coming to an end as supply and demand begin to balance out, setting the stage for rising natural gas prices.
In fact, natural gas prices have already rallied to $3.40 per mmbtu, up 79% in just six months
But regardless the day-to-day movements, the long-term outlook for natural gas prices remains bullish, particularly in light of a steady increase in demand.
Here's how investors can profit on the coming rally in natural gas prices.
Investing in Natural Gas: These ETFs Hold Clues to a Price Rebound
Analysts and experts love to say the U.S. is "the Saudi Arabia of natural gas."
That statement implies the U.S. is to natural gas as Saudi Arabia is to oil: One of the world's top producers with decades (perhaps longer) worth of reserves of the commodity.
Wearing the crown as the world's largest gas producer has been both a gift and a curse for the U.S. A gift in that exploding production of the fuel at various shale plays throughout the country has created an economic benefit in the form of hundreds of thousands direct and indirect jobs. Not to mention, natural gas stands as perhaps the most viable avenue for the U.S. to significantly reduce its dependence on foreign oil.
That is the good news.
However, a burden has been endured by those who are investing in natural gas, looking to profit from the U.S. gas boom. Combine record production with the facts that demand has been tepid and natural gas is not yet widely used as a transportation fuel, and prices have plunged.
There are signs, faint as they may be, that natural gas is rebounding. Anyone interested in investing in natural gas can use some familiar ETFs to finally profit from that trend.
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LNG Stocks Are Set to Take Off
As I have discussed over the last two years, liquefied natural gas (LNG) is going to be a complete game-changer.
And along the way, a small group of LNG stocks will become the main focus for investors.
Remember, the LNG process cools natural gas to a liquid form, allowing it to be shipped over long distances. Upon arrival, the liquefied gas is returned its original state before being injected into pipeline for delivery to foreign consumers.
Already, the construction of LNG receiving terminals in Asia and Europe is accelerating.
The European and Asian markets have the biggest need for imports. These markets have a need to meet rising demand and restrain the prices commanded by long-term pipeline-delivered gas.
Luckily, LNG can do both.
Traditionally, natural gas has only been able to develop regional "spot" markets. These are locations where the availability of volume provides an opportunity for traders to execute a price for a quick sale (usually within 72 hours).
This is because the availability of product depends upon the development of import pipelines, which are multi-year, capital-intensive projects.
LNG, on the other hand, can be delivered to a terminal, so it can provide an immediate increase in available local supply.
To the extent that the LNG trade can be sustained, new spot markets are immediately formed around the hubs that develop at the intersection of terminal and delivery pipelines.
And now Qatar - one of the world's largest producers of conventional gas (that is, from freestanding gas fields) - has banked on LNG being the wave of the future.
Qatar has become the first country to commit all of its production to the LNG trade.
And that is a huge vote of confidence for this market.
Considering the number of new tankers involved, this single decision jolted the global shipbuilding industry into one of the most significant increases in business ever recorded.
The Qatari decision was just the first step...
A Global Boost for LNG StocksNew export terminals are being built by other major gas producers - Russia, North Africa, and Canada. Our neighbors to the north have clearly signaled where the U.S. will be moving next.
A project is moving forward at Kitimat, British Columbia, on the North Pacific coast. It is scheduled for completion in 2014.
Developers originally intended this project to be an LNG receiving facility. But by the time the construction began, the intended flow of gas had changed by 180 degrees.
Today, this facility will be 100% committed to exporting LNG.
And the reason is the same one that is prompting so much U.S. discussion...
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Energy Investors Pocket Profit on Oil Price Rally – And It's Just the Beginning
Investors in energy stocks are enjoying an oil price rally that continued for a fifth trading session yesterday (Tuesday), pulling many oil-related investments up with it.
U.S. oil futures rose 40 cents to $85.81 a barrel on the New York Mercantile Exchange (NYMEX). Black gold has climbed 12% since hitting a 52-week low of $76 a barrel last week - a 37% fall from its April high near $120 a barrel.
Brent crude oil futures rose 1.6% to $110.73 a barrel for a five-day gain of 11% -- the biggest since August 2009.
This week's gains follow on the heels of a recent slump - but subscribers to our Private Briefing service knew this would be the case.
We forecast the oil markets short-term pullback in our early Private Briefing columns and told investors to take advantage of the crude oil sell-off while energy stock prices were low.
Sure enough, these recommended stocks are climbing as oil prices are once again on the rise:
- The oil-related stock we highlighted it Aug. 12 in "How to Profit From $120-a-Barrel Oil ..." is up 2.7% from that day's closing price.
- The high-return energy play our Global Macro Trends Specialist Jack Barnes detailed on Aug. 19 in "The Energy Stock to Buy Now...", is up 14% this week.
- And the favorite low-risk natural gas stock that resources specialist Peter Krauth shared Sept. 15 in "A "Dream Pick' in the U.S. Energy Sector", has gained 4.2% during the oil futures five-day price rally.
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