Short-term bearish, long-term bullish
That's the outlook for natural gas. Of course, all the financial media can focus on is the short term:
For the second time in a year, Chesapeake Energy said it would temporarily curtail production in the Barnett Shale and elsewhere because of low natural gas prices…
Chesapeake said it will trim production by about 6 percent, or 125 million cubic feet per day, either by curtailing current production or, in the case of the Barnett Shale, delaying the connection of completed wells to pipelines, said Senior Vice President Tom Price. Natural gas futures closed Tuesday at $5.63 per million Btu, up 16 cents on the day but down from this year's high of $9.07 on Feb. 5 and a 2006 average price of $6.73.
Chesapeake last announced that it would curtail production because of low prices last Sept. 27, when gas prices had slipped to $4.20. But that time the company said it did not cut production in the Barnett Shale, citing strong profit margins.
The Wall Street Journal cites analysts who say other producers are cutting back as well, although curiously none of those producers are identified by name.
Inventories are up, demand is down. But how long can that situation last? Not long, says Capital and Crisis editor Chris Mayer. His voluminous reading of late has included a book called "A Thousand Barrels a Second — The Coming Oil Break Point and the Challenges Facing an Energy Dependent World" by Peter Tertzakian. It's about how nations in years past have reached a "break point" where the price of oil was no longer economically sustainable, and energy use shifted to other sources as a substitute. Natural gas will undoubtedly take up that substitute role for many nations in the years to come.
In a note to subscribers last Friday, Chris wrote:
More and more cities are expanding their use of natural gas in buses and other vehicles. It burns cleanly. This is an important factor in natural gas demand — especially in smog-filled cities. There is also a large amount of supply in some countries once cut off from the rest of the world — but that's changing.
Qatar, an Arab country next to Saudi Arabia, sits on one of the largest natural gas fields on Earth. In the past, Qatar and other like sources of supply have been off-limits because they are so far from consumers. They are "stranded." But liquefied natural gas (LNG), which is transportable to ports around the world, is changing that. LNG will figure prominently in the rebalancing, just as it already has for many other countries since the energy crisis of 1973. In fact, as Tertzakian writes, there is already a boom in LNG in Asia, the Middle East, Europe and Africa.
Globally, Tertzakian predicts natural gas will become the most aggressively growing fuel in the mix. He notes that demand tripled after the rebalancing of the 1970s. Big LNG projects and new pipelines in Asia will fuel the global shift to natural gas. The U.S. is slow to the party, but it will get there, Tertzakian maintains. Low-cost producers of natural gas will make fortunes.
One of the lowest-cost producers has already generated a nice gain for Chris's subscribers of 11%, despite the current bearish conditions for natural gas. And he has some other intriguing natural-gas plays up his sleeve, too. Learn more about Chris and the average 40% gain in his open positions despite the current market turmoil right here.