Natural Gas prices drifting higher

[dan_s]

The weekly Baker Hughes rig utilization report showed last week that domestic rigs drilling for natural gas only gained 2 rigs to total 377. The amount of gas-directed rigs remains around the lowest since May 21, 1999. The total has plunged 76% from the all-time high of 1,606 reached in late summer 2008 and is down 247 rigs from the level last year.

The January 2014 futures contract for natural gas closed at $4.75/mmbtu on NYMEX today. I think it could go a lot higher before Christmas, about the time it becomes the front month contract. I believe we will see gas trading over $5.00/mmbtu this year.

I'm using $4.00/mcf in all of my forecasts (and $85/bbl for WTI crude oil) for 2013.

Here is why gas could move a lot higher:
> We need about 575 onshore rigs drilling for gas just to keep supply and demand in balance.
> I've yet to see any E&P announce an increase in their gas directed drilling, not a single one! I see very little chance of the gas directed rig count moving over 400 rigs this year.
> E&P companies announce their annual capital programs in November/December for the coming year. They do not change their capital programs unless there is a compelling reason to do so. None of the CEO's are going to move rigs out of the very profitable oil plays to drill gas wells. The only gas shale play that is profitable at $4.00/mcf gas is the Marcellus.
> Natural gas is on decline in the Barnett, Fayetteville, Haynesville (big drop), Canada and the Gulf of Mexico.
> Yes, there is a lot of associated gas in the Eagle Ford, Bakken and Permian Basin where many of the rigs are working today, but a lot of that gas is being flared.

The U.S. natural gas market is at least 5 bcf per day tighter than it was last year. This will become a major story as we move closer to next winter. Now is the time to do our homework.

Read This: http://beta.fool.com/maholder/2013/04/2 ... lnk0000001