Natural Gas Outlook for 2009
Has Natural Gas Finally Bottomed Out?
Editor's note: For more updated information from Keith Kohl on Shale Gas Stocks, click here...
No matter how enjoyable the holidays are, Monday always comes too fast.
Fortunately for those of you who favor a shorter work week, New Year's Day is right around the corner. But before I go off on too much of a tangent and lose focus, I want to address a question a few of my readers have had on their minds.
Their concern was whether natural gas prices have finally bottomed out or not. While oil stubbornly remains under $40 per barrel, natural gas prices have rebounded over $6/Mcf during trading today.
So have natural gas prices finally climbed out of the basement?
It wasn't too long ago that natural gas cost over $14/Mcf. That price has plunged nearly $8/Mcf since those July records. In order to determine how bullish you should be regarding natural gas in 2009, it's important to take a look at a few things first.
Dreading the Gas OPEC
Is this the year that the dreaded "Gas OPEC" will form?
I'll admit the future of gas OPEC doesn't seem too appealing for European countries. Europe receives about 40% of its natural gas from Russia. Add Iran and Qatar to the mix, and we're dealing with over half of the world's known natural gas reserves.
As far as the possible effect on the U.S., I wouldn't worry just yet. The fact that natural gas markets are regional (unlike oil, natural gas is transported using a pipeline infrastructure) means we can breathe easy.
The idea of the world's leading natural gas producers forming a cartel similar to OPEC may be daunting. I know a few analysts that are worried about how it would affect our LNG imports. You know how pessimistic I am when it comes to investing in liquefied natural gas. Quite frankly, I'm still not convinced LNG will play a significant role within the next decade.
Perhaps there's a future for LNG (decades down the line), but right now I prefer to focus on better opportunities. After all, we know our domestic natural gas still has room for growth.
Shale Gas Outlook: 2009
Personally, I believe natural gas will eventually return to July levels. Even if it doesn't happen for another year or two, I'm sticking to the fundamentals. Like I mentioned earlier, natural gas is still reliant on regional markets.
According to EIA numbers, natural gas consumption in the industrial sector (which makes up over 30% of U.S. demand) is expected to fall by 2.4% next year. Overall, they expect demand to remain flat.
Combine that flat demand with an $8/Mcf drop in price, and it's no wonder that producers are slashing 2009 budgets across the board. U.S. onshore production grew an impressive 9.1% this year. Obviously we'll see lower production in 2009 as budgets are cut and consumption decreases.
The natural gas market, however, will eventually balance out. When the fog clears, the U.S. won't be looking across the sea for its natural gas demand, especially not with the prospect of shale in its backyard.
Natural Gas Stocks on Your Radar
I've always held to the idea that crisis breeds opportunity.
The trick, however, is taking advantage of that opportunity. When was the last time you were able to find natural gas stocks (or any energy stock, for that matter) trading at such a discount? Personally, I've never once heard of an investor making a fortune from buying high and selling low.
It simply doesn't work like that.
Three weeks ago, I told you about my three top natural gas stocks. Those shouldn't be the only stocks on your radar, however. Like I mentioned above, natural gas prices climbed back over $6.00/Mcf. If natural gas prices continue marching higher and are able to stabilize over $7/Mcf, you can expect a lot more activity in those shale basins.
Investors looking for a solid shale play won't have to look much further than Petrohawk Energy (NYSE: HK). With 1.33 trillion cubic feet of gas equivalent in proven reserves, Petrohawk operates in our favorite up-and-comping shale basins, including Louisiana's Haynesville play.
Enjoy your holidays,
P.S. Picking up those natural gas gems isn't easy, especially with today's market volatility. If you're interested in finding those opportunities, it's easy to join your fellow Energy and Capital readers in those profits. Simply click here to learn more about the $20 Trillion Report.
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