Natural Gas Price - Nov 28

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Natural Gas Price - Nov 28

Post by dan_s »

Very encouraging move for natural gas today. November 28 is the last day of trading for the December futures contract on NYMEX. It is up over $0.20/MMBtu today and looks like it will close around $4.50, which compares to its closing price of $3.15 just three weeks ago. < This happened because the U.S. (the largest natural gas market in the world) is a "closed" market. We have very little import capacity these days and EIA totally missed how tight the U.S. market was and will be this winter. As I posted here dozens of times, EIA just kept telling everyone that we had a massive supply of gas without mentioning that demand has been exceeding supply all year. Remember that EIA and IEA get paid by people that want low energy prices.

I say that this is encouraging because it tells me that there are plenty of buyers who want the physical gas.
Today's buyers are the utility companies and a few industrial users. They are now fully aware of how tight the U.S. gas market is going to be in the first quarter. FEAR is driving the utilities because they know now that they are in trouble and may be forced to buy supply on the spot market at crazy high prices. When I was at Hess, we once sold gas on the New England spot market at over $60/MMBtu. It can happen and probably will this winter.

BTW in my conversation with Range Resources yesterday, they did say they have some gas that can be sold on the spot market. Over 90% of their gas is committed to pipeline companies and whose prices are based on indexes.

My prediction is that we will see the January NYMEX contract move over $5.00/MMBtu before it closes the last week of December. Colder than normal weather in the eastern 2/3rds of the U.S. during the first two weeks of December should do the trick.

If you are trying to figure out how to trade this gas market, avoid the Permian Basin companies. The pipes serving West Texas are full and Permian gas prices will stay low no matter how high Henry Hub prices go. Focus on the Eagle Ford, Haynesville, Mid-Continent and Marcellu/Utica companies. They can get their gas to markets that will pay much higher prices than they sold gas for in Q3.
> Goodrich Petroleum (GDP) has a lot of unhedged Haynesville gas
> Lonestar Resources (LONE) doesn't have any of its Eagle Ford gas hedged and it is high btu gas that sells at a premium to HH.
> Cimarex Energy (XEC) has a lot of rich Mid-Continent gas.
Dan Steffens
Energy Prospectus Group
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