Natural Gas?
Research for Online Investors

by John Dalt

What does the future hold for natural gas? Prices are bouncing at $4 /mcf while crude oil has been on a run to over $50 per barrel.  Last year natural gas was over $14 /mcf, but exploration and production companies like Chesapeake Energy and EOG Resources rushed headlong to snap up large leases from Wyoming to Ft. Worth.  From Arkansas to Pennsylvania there were discoveries that could only be produced with the latest horizontal drilling techniques.

Lease rates went through the roof; everyone thought the party was just getting started. Chesapeake Energy even started a television show on the cable channel in Ft. Worth staring a local celebrity to keep the public informed about the latest news from the shale leasing and production in their neighborhoods.

They were so successful that natural gas production and reserves set records last year.  Thirty years after Jimmy Carter said we were running out of natural gas the U.S. produced more gas than ever before!  How did this happen?  A lot has to do with ‘shale’ gas, the technology and techniques have developed to make these deposits profitable to exploit.

Now with low prices most of these leases are unprofitable to produce, or at the very least to continue to explore.  Baker Hughes reports 45% of drilling rigs are layed down over last year.

LNG (liquefied natural gas) imports dropped 54% last year, and this year shouldn’t rise above 400 billion /mcf.  Storage of natural gas is at an all time high at a time when we are past the heavy winter usage for heating.

What do we do today?  If you already own one of the major natural gas exploration and production companies, and you feel they run a good business and are a low cost producer, stay with them.  Natural gas will rebound when the economy starts to hit on all cylinders.  Usage of natural gas may go up in electrical generation because it burns clean.  Coal plants are cheaper to run but emit more carbon dioxide.  We like EOG Resources; they expect to increase production this year from existing leases.  They operate in all the major shale production areas..Bakken, Barnett, Haynesville and Marcellus.

Crude oil price is reflecting the coming shortage we will experience when the world economy improves. Natural gas is a ‘local market’ we produce most of what we burn and have had great success in expanding reserves, but the present low price will come back to haunt us as the exploration that will fill our future needs is not being done right now.  Prices will come up again.  Good natural gas companies will ride the prices higher, and richly reward us with some truly outstanding gains.

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