Prices change before the rig count falls. Now, we need a NG "Fed". But wait, NG has a self-correcting machanism". It's called prices! Zimbabwe Ben, please note. See my 28 March 2008 post: http://skepticaltexascpa.blogspot.com/2008/03/stripper-well-economics.html.
Sunday, July 5, 2009
Cheap Natural Gas?
"Natural gas [NG] producers have been idling rigs for six months, trying to reduce output and boost prices that fell sharply amid bloated invetories and recession-shrunken demand. ... 'It's a self-correcting mechanism,' said David Pursell, an analyst with Tudor, Pickering, Holt & co. 'Prices go low, the rig count follows, and voila, production falls and the market fixes itself.' ... The Energy Information Administration doesn't expect [NG] prices to mimic crude's recent uptick. Instead, the agency projects that [NG] prices will average $4.13 per million Btu this year and creep up to an average of $5.49 in 2010. [NG] for July delivery closed at $3.86 per million Btu Friday on the New York Mercantile Exchange. ... Pursell said the shrunken rig count will result in less production, but not as quickly as the industry would like", original italics, my emphasis, Kristen Davis at the Houston Chronicle, 14 June 2009: http://www.chron.com/disp/story.mpl/headline/biz/6476969.html.
"Russia's OAO Gazprom says it will slash capital spending and might delay the launch of a key field in Siberia as the global recession decimates demand for its natural gas in Russia and Europe. ... Gazprom's deputy chief executive, Alexander Ananenkov, said in a conference call that the company was cutting its capital spending program for this year by 22% to 500 billion rubles ($16 billion). ... The global economic slowdown has damped demand for natural gas across Europe, leading to a sharp falloff in Gazprom's exports to the Continent. Big European customers this year have been purchasing the mimimum volumes allowed under long-term contracts with Gazprom in the hope that gas prices, which are pegged to oil prices but with a six- to nine-month lag, will soon start to fall. A Russian businessman close to Gazprom said senior managemnt is 'close to panic,' worrying that gas demand in Europe 'may never come back'," Guy Chazan and Jacob Gronholt-Pedersen at the WSJ, 17 June 2009, link: http://online.wsj.com/article/SB124515199112518561.html.
Gas at $4.42 per MCF looks cheap. Especially compared to $71 per barrel oil. It looks like a Lord Rothschild moment, i.e., the "blood is running in the streets".