Natural Gas Outlook
Sunday, May 19, 2013
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Over the last few years, a quiet revolution has been reshaping the energy business in the U.S. The success of 'shale gas' -- natural gas trapped within dense sedimentary rock formations or shale formations -- has transformed domestic energy supply, with a potentially inexpensive and abundant new source of fuel for the world's largest energy consumer.
With the advent of hydraulic fracturing (or fracking) -- a method used to extract natural gas by blasting underground rock formations with a mixture of water, sand and chemicals - shale gas production is now booming in the U.S. Coupled with sophisticated horizontal drilling equipment that can drill and extract gas from shale formations, the new technology is being hailed as a breakthrough in U.S. energy supplies, playing a key role in boosting domestic natural gas reserves.
As a result, once faced with a looming deficit, natural gas is now available in abundance. In fact, natural gas inventories in underground storage hit an all-time high of 3.929 trillion cubic feet (Tcf) in 2012. The oversupply of natural gas pushed down prices to a 10-year low of $1.82 per million Btu (MMBtu) during late April 2012.
However, things have started to look up in recent times. This year, cold winter weather across most parts of the country boosted natural gas demand for space heating by residential/commercial consumers. This, coupled with flat production volumes, meant that the inventory overhang has now gone, thereby driving commodity prices to $4.38 per MMBtu - the highest since Sep 2011.
This, in turn, is expected to buoy natural gas producers. With the financial incentive to produce the commodity and the subsequent improvement in the companies' ability to generate positive earnings surprises, the stocks are likely to move higher.
But as the weather continues to turn milder and temperatures reach higher-than-normal levels, natural gas demand may suffer in the near future on account of above-average builds, thereby pulling down prices again.
Ayman Khlifat on Twitter
Follow @aymankkhlifat
Over the last few years, a quiet revolution has been reshaping the energy business in the U.S. The success of 'shale gas' -- natural gas trapped within dense sedimentary rock formations or shale formations -- has transformed domestic energy supply, with a potentially inexpensive and abundant new source of fuel for the world's largest energy consumer.
With the advent of hydraulic fracturing (or fracking) -- a method used to extract natural gas by blasting underground rock formations with a mixture of water, sand and chemicals - shale gas production is now booming in the U.S. Coupled with sophisticated horizontal drilling equipment that can drill and extract gas from shale formations, the new technology is being hailed as a breakthrough in U.S. energy supplies, playing a key role in boosting domestic natural gas reserves.
As a result, once faced with a looming deficit, natural gas is now available in abundance. In fact, natural gas inventories in underground storage hit an all-time high of 3.929 trillion cubic feet (Tcf) in 2012. The oversupply of natural gas pushed down prices to a 10-year low of $1.82 per million Btu (MMBtu) during late April 2012.
However, things have started to look up in recent times. This year, cold winter weather across most parts of the country boosted natural gas demand for space heating by residential/commercial consumers. This, coupled with flat production volumes, meant that the inventory overhang has now gone, thereby driving commodity prices to $4.38 per MMBtu - the highest since Sep 2011.
This, in turn, is expected to buoy natural gas producers. With the financial incentive to produce the commodity and the subsequent improvement in the companies' ability to generate positive earnings surprises, the stocks are likely to move higher.
But as the weather continues to turn milder and temperatures reach higher-than-normal levels, natural gas demand may suffer in the near future on account of above-average builds, thereby pulling down prices again.
Ayman Khlifat on Twitter
Follow @aymankkhlifat
