Blogs & Comment

Higher prices for natural gas?

Any spikes in natural-gas prices would seem best viewed as opportunities to short natural-gas futures given new extraction techniques for shale gashave lowered production costs and flooded the market with supply when storage space is constrained. Indeed, proven reserves in the U.S. have jumped to levels not seen since 1971.
But there are moves afoot within the industry and U.S. government to boost exports of liquefied gas to other countries. If they come to fruition, they would seem to offer hope to producers and bullish investors that rises in U.S. natural gas prices can be sustained.
However, natural-gas users in the U.S. have banned together to block the proposals to export gas on the basis they will drive up prices. As the Financial Times of Londonreported on Dec. 7, they are counting on a law that lets the energy department curtail gas shipments to countries that do not have free-trade pacts with the U.S. — if they are shown to harm domestic needs or energy security.
Until this issue is resolved, BCA Researchremains bearish. Producers have no inclination to restrict drilling operations as long as they have enough capital to stay in business because drilling activity generates value by adding low-cost proved reserves and setting the stage for decades of low-risk development activity, notes the advisory. Meanwhile, as long as coal remains a viable substitute, demand for natural gas will be tempered if prices do climb.