For an old energy source, natural gas is the new darling of the green energy movement, but that hasn’t helped its price much.
While gas has gotten up off of last year’s floor just over $2, that is more a seasonal reality as inventories remain at record highs. The February 2011 contract is only about 50¢ above its contract lows and that is thanks to an early December cold snap. Experts say it will take a lot more cold weather to garner much more of a move. Dominick Chirichella, founder of the Energy Management Institute, says, “Unless the weather stays below normal for an extended period of time, [natural gas] will be range bound.”
He pegs the range for the February contract between $4-$4.70. “The fact remains we have a lot of gas in inventory,” he says.
PFGBest Senior Energy Analyst Phil Flynn says the recent massive shale gas discoveries are causing a revision of how natural gas acts in winter. “Now we have enough supply, just look at the rig counts,” Flynn says, referring to the amount of active drilling rigs. He expects greater demand for natural gas as it takes its place as an alternative transportation fuel, but doesn’t expect that to have an effect anytime soon.
For now, Flynn says gas is a weather play and if it doesn’t get and stay cold this winter, gas can dip back below $4.