This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Natural Gas Market Falling Victim To The Bear

By Adam Currie — Exclusive to Gas Investing News
Natural Gas Market Falling Victim to the Bear

The natural gas market has hit a lull having fallen below $2 per million British therma l units  ( MMBtu) to record a new 14-year low.

Market commentators believe that the current market situation is a reaction to diminished demand for fuel due to a warm winter, and a supply glut created by large-scale discoveries.

As the commodity's price continues to plunge, many are claiming that it is difficult to find even a single area where it is profitable to drill for natural gas alone within the North American region, with most companies now opting to drill for oil and ethane, producing gas as a by-product. The dire scenario has meant that exploration and drill counts have reacted accordingly.

In a recent analysis report, Houston-based oilfield services company Baker Hughes Inc. (NYSE: BHI) reported a dip in US rig count numbers. The company stated that the drop can be attributed to a decrease in the tally of both oil- and natural gas-directed rigs, which as of the end of March recorded a new ten-year low.

The report noted that the natural gas rig count decreased to 652 on the week ended March 23. Even more alarmingly from an exploration and production perspective, the number of gas-directed rigs is at its lowest level since May 2002, and is 59 percent below the all-time high it reached in late summer 2008.

Zacks Investment Research has added to this bleak outlook by stating that with horizontal rig count - the technology responsible for abundant gas drilling in domestic shale basins - close to a record high, the “grossly oversupplied” market will continue to pressure commodity prices in the backdrop of sustained strong production.

It seems that players within the natural gas sector are also adopting a bearish outlook, with several exploration and production outfits, including Ultra Petroleum Corp. (NYSE: UPL), Talisman Energy Inc. (TSE: TLM), and Encana Corp. (NYSE: ECA), reducing their 2012 capital budget to minimize investments in natural gas development drilling.

Chesapeake Energy optimistic

Despite this negativity, a number of producers have taken a more bullish outlook, with Chesapeake Energy Corp. (NYSE: CHK) opting to shut in production to cope with the current weak environment for natural gas. The second-largest US natural gas producer has argued that there are good reasons to be bullish in the medium and long term due to shrinking supply and growing demand from the power, transportation, industrial, and export sectors.

In a recent presentation, the company argued that the NYMEX forward price curve for natural gas is failing to recognize future supply and demand fundamentals, and is likely "one of the most mispriced investments in the market."

It forecasts that power companies will increase natural gas demand by ten to 15 billion cubic feet a day over the next decade, that surging gasoline prices will force policy changes to stimulate the market for compressed natural gas (CNG) and liquefied natural gas (LNG)-powered vehicles, and that the US and Canada will be exporting LNG by the end of 2015.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG

Markets

DOW 18,096.90 -106.47 -0.58%
S&P 500 2,098.53 -9.25 -0.44%
NASDAQ 4,967.1410 -12.76 -0.26%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs