Welcome to the Energy and Capital Weekend Edition — our insights from the week in investing and links to our most-read Energy and Capital and sister publication articles.
Editor’s note: For more updated information from Keith Kohl on Shale Gas Stocks, click here…
It’s all quiet on the natural gas front.
Or is it?
One glance at how prices have drudged along since 2008’s record, and we can see why other investors are scared to dip their feet into natural gas stocks.
Unfortunately, those investors waiting for a return to $13/Mcf before they take action will be too late…
Balancing the Supply Glut
The current supply glut plaguing North American natural gas markets could ease as early as next year. And there’s no shortage of new supply, either.
Despite the grab bag of economic troubles we’ve been handed since the meltdown in 2008, U.S. natural gas production has continually increased. Adding the shale gas boom to the mix has dramatically pushed production higher.
Between 2006 and 2010, U.S. domestic gas production grew 14% to approximately 26.8 Tcf. During that time, demand had fallen significantly — as low as 22.8 Tcf during 2009.
The resulting price plummet was painful to watch.
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However, our natural gas rally could come as early as 2012. Although production is expected to jump nearly 6% in 2011, it’s projected to be nearly flat in 2012.
We also know demand is on the rebound.
In 2010, our consumption of natural gas hit a new record of 24.1 Tcf. Take a look at the EIA numbers, and you can see that it’s heading even higher:
Not only has this bolstered our outlook for natural gas stocks, but it’s also caught the eye of some major players.
Remember Exxon’s first foray into shale gas? Thanks to the $41 billion deal to buy XTO Energy, Exxon can now boast a 20% increase in production.
If $4/Mcf natural gas has you doubting the profitability of these stocks, it might be time to re-evaluate your position. Even though the EIA’s latest report showed a net build of 43 Bcf in working natural gas storage, we’re still 65 Bcf below the five-year average and more than 200 Bcf less than a year ago.
And it’s not just producers that are turning our heads.
Next week, I’ll show you why some of the best natural gas picks in today’s market haven’t drilled a single well.
Enjoy your weekend,
Keith Kohl
Editor, Energy and Capital
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