By Keith Kohl
Editor, Energy and Capital
Any doubts of a mild winter were spoiled this week.
Even in spite of the extremely cold weather, we saw natural gas
prices fall below $4/Mcf before recovering slightly on Friday.
I can't say that I've seen a better opportunity for investors to get back into game. Think about it...
We're working through a major supply-demand imbalance right now.
In fact saying we have "very strong supplies" is a gross understatement.
That glut, however, was inevitable — especially after witnessing the surge in shale gas activity during the last few years.
The rush to develop our shale assets is one reason the EIA reported technically recoverable unproven shale gas reserves jumped to 827 trillion cubic feet. In case you're wondering, that's a 134% increase over the previous estimate of 353 trillion cubic feet.
Right now, inventories are a huge 9.9% above the five-year average, or so said the EIA this week.
According to the weekly report: "The level of working gas in underground storage fell 164 billion cubic feet (Bcf) to 3,561 Bcf during the week ending Friday."
There was even a decrease in the number of gas rigs operating in the United States. Baker Hughes reported a drop of 13 rigs, compared to the previous week.
The slippery price slope
Unlike oil, natural gas prices have failed to make a comeback.
Crude prices, which plummeted to $33 per barrel in late 2008, have finally broken through the $60-$75/bbl trading range. The general consensus is that crude will average between $85-$90/bbl next year... with an inevitable spike into triple digits.
Since peaking in 2008, natural gas prices have not fared so well.
And if you are a long-term investor in some natural gas plays like UNG, you've felt the sting more than others.
It's not pretty...
But there's good news on the horizon.
For starters, colder temperatures will kick-start demand. This week, U.S. natural gas consumption jumped 4.3% to approximately 96 Bcf/d, with a year-over-year increase of 6.6%.
What we can count on, however, is that the supply-demand issues will work themselves out over time. It won't happen overnight, but it's a start.
NUTSHELL:
Oversupply, gas supply contracts responsible for the dip in gas price
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